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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
June 30, 2022
 
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
)
754-9704
 
(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 August 1, 2022, the registrant had
49,310,909
 
shares of common stock, par value $0.01, outstanding.
 
2
CrossFirst Bankshares, Inc.
Form 10-Q for the Quarter Ended June 30, 2022
Index
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Forward-Looking Information
4
5
6
7
9
Notes to Condensed Consolidated Financial Statements (unaudited)
10
15
15
19
37
39
39
39
40
42
42
46
46
46
48
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
49
51
51
55
56
58
59
59
59
60
63
66
67
68
70
71
Part II. Other Information
71
71
72
73
74
 
3
Forward-Looking Information
All statements contained in this quarterly report on Form 10-Q that do not directly
 
and exclusively relate to historical facts
constitute forward-looking statements. 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 of
these words or other comparable words or phrases of a future or forward-looking
 
nature. For example, our forward-looking statements
include statements regarding our expectations, opportunities or plans
 
for growth; the proposed acquisition of Farmers & Stockmens
Bank, the bank subsidiary of Central Bancorp, Inc. (collectively, Farmers
 
& Stockmens Bank and Central Bancorp, Inc. are herein
referred as “Central”); our anticipated expenses, cash requirements and
 
sources of liquidity; and our capital allocation strategies and
plans.
Unless we state otherwise or the context otherwise requires, references
 
below to “we,” “our,” “us,” and the “Company” refer to
CrossFirst Bankshares, Inc., and its consolidated subsidiaries. References to “CrossFirst
 
Bank” and the “Bank” refer to CrossFirst Bank,
our wholly owned consolidated bank subsidiary.
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, The Company cautions 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 the
Company believes 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 due to a number of factors.
Such factors include: credit quality and risk, risks associated with the ongoing
 
COVID-19 pandemic, changes in economic conditions in
the United States and the Company’s market areas, legislative and regulatory
 
changes, fluctuations in interest rates, changes in liquidity
requirements, demand for loans in the Company’s market areas, changes in
 
accounting and tax principles, estimates made on income
taxes, competition with other entities that offer financial services, cybersecurity
 
incidents or other failures, disruptions or security
breaches, commercial and residential real estate values, funding availability,
 
the transition away from the London Interbank Offered
Rate (LIBOR), business strategy execution, hiring and retention
 
of key personnel, fraud committed against the Company, or other
external events.
 
Additional discussion of these and other risk factors can be found in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2021, filed with the Securities and Exchange Commission (“SEC”)
 
on February 28, 2022, and in our other
filings with the SEC.
 
Except as required by law, the Company undertakes no obligation to update
 
or revise forward-looking statements to reflect
changed assumptions, the occurrence of unanticipated events or changes
 
in our business, results of operations or financial condition over
time. Given these risks and uncertainties, readers are cautioned not to place undue
 
reliance on such forward-looking statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Condensed Consolidated Financial Statements (unaudited)
4
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2022
December 31, 2021
(1)
(Unaudited)
(Dollars in thousands)
Assets
Cash and cash equivalents
$
277,678
$
482,727
Available-for-sale securities - taxable
186,154
192,146
Available-for-sale securities - tax-exempt
509,493
553,823
Loans, net of unearned fees
4,528,234
4,256,213
Allowance for credit losses on loans
(2)
55,817
58,375
Loans, net of the allowance for credit losses on loans
4,472,417
4,197,838
Premises and equipment, net
64,769
66,069
Restricted equity securities
14,946
11,927
Interest receivable
17,909
16,023
Foreclosed assets held for sale
973
1,148
Bank-owned life insurance
68,293
67,498
Other
95,678
32,258
Total assets
$
5,708,310
$
5,621,457
Liabilities and stockholders’ equity
Deposits
Non-interest-bearing
$
1,163,462
$
1,163,224
Savings, NOW and money market
2,847,887
2,895,986
Time
733,071
624,387
Total deposits
4,744,420
4,683,597
Federal Home Loan Bank advances
296,600
236,600
Other borrowings
1,041
1,009
Interest payable and other liabilities
58,234
32,678
Total liabilities
5,100,295
4,953,884
Stockholders’ equity
Common stock, $
0.01
 
par value:
authorized -
200,000,000
 
shares, issued -
52,972,244
 
and
52,590,015
 
shares at June
30, 2022 and December 31, 2021, respectively
529
526
Treasury stock, at cost:
3,436,295
 
and
2,139,970
 
shares held at June 30, 2022 and December 31, 2021,
respectively
(48,501)
(28,347)
Additional paid-in capital
528,548
526,806
Retained earnings
176,868
147,099
Accumulated other comprehensive income (loss)
(49,429)
21,489
Total stockholders’ equity
608,015
667,573
Total liabilities and stockholders’ equity
$
5,708,310
$
5,621,457
(1)
The year-end Condensed Consolidated Balance Sheet was derived from
 
audited financial statements, but does not include all
disclosures required by accounting principles generally accepted in the
 
United States of America.
(2)
As of December 31, 2021, this line represents the allowance for loan and
 
lease losses. See further discussion in “Note 1: Nature of
Operations and Summary of Significant Accounting Policies”
in the Notes to Condensed Consolidated Financial Statements
(unaudited).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Condensed Consolidated Financial Statements (unaudited)
5
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
(Dollars in thousands except per share data)
Interest Income
Loans, including fees
$
47,327
$
43,846
$
90,055
$
87,604
Available-for-sale securities - taxable
1,086
869
2,130
1,620
Available-for-sale securities - tax-exempt
3,845
3,497
7,537
6,848
Deposits with financial institutions
369
110
521
238
Dividends on bank stocks
213
162
357
327
Total interest income
52,840
48,484
100,600
96,637
Interest Expense
Deposits
4,732
4,850
8,243
10,578
Fed funds purchased and repurchase agreements
74
2
74
3
Federal Home Loan Bank Advances
1,294
1,280
2,403
2,563
Other borrowings
31
24
56
48
Total interest expense
6,131
6,156
10,776
13,192
Net Interest Income
46,709
42,328
89,824
83,445
Provision for Credit Losses
(1)
2,135
3,500
1,510
11,000
Net Interest Income after Provision for Credit Losses
(1)
44,574
38,828
88,314
72,445
Non-Interest Income
 
 
 
 
Service charges and fees on customer accounts
1,546
1,177
2,954
2,134
Realized losses on available-for-sale securities
(12)
(13)
(38)
(3)
Unrealized gains (losses) on equity securities, net
(71)
6
(174)
(33)
Income from bank-owned life insurance
407
2,245
795
2,661
Swap fees and credit valuation adjustments, net
12
(30)
130
125
ATM and credit card interchange income
1,521
1,506
4,185
3,834
Other non-interest income
798
934
1,291
1,251
Total non-interest income
4,201
5,825
9,143
9,969
Non-Interest Expense
 
 
 
 
Salaries and employee benefits
17,095
15,660
35,036
29,213
Occupancy
2,622
2,397
5,115
4,891
Professional fees
1,068
1,138
1,873
1,920
Deposit insurance premiums
713
917
1,450
2,068
Data processing
1,160
720
1,972
1,436
Advertising
757
435
1,449
738
Software and communication
1,198
1,034
2,468
2,099
Foreclosed assets, net
15
665
(38)
715
Other non-interest expense
4,575
2,847
7,544
5,551
Total non-interest expense
29,203
25,813
56,869
48,631
Net Income Before Taxes
19,572
18,840
40,588
33,783
Income tax expense
4,027
3,263
8,215
6,171
Net Income
$
15,545
$
15,577
$
32,373
$
27,612
Basic Earnings Per Share
$
0.31
$
0.30
$
0.65
$
0.54
Diluted Earnings Per Share
$
0.31
$
0.30
$
0.64
$
0.53
(1)
For the three-
 
and six-months ended June 30, 2021, this line represents the provision
 
for loan and lease losses. See further
discussion of this change in “Note 1: Nature of Operations and Summary of Significant Accounting Policies”
in the Notes to
Condensed Consolidated Financial Statements (unaudited).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Condensed Consolidated Financial Statements (unaudited)
6
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - UNAUDITED
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
(Dollars in thousands)
Net Income
$
15,545
$
15,577
$
32,373
$
27,612
Other Comprehensive Income (Loss)
Unrealized gain (loss) on available-for-sale securities
(39,026)
5,527
(97,982)
(3,543)
Less: income tax expense (benefit)
(9,554)
1,354
(23,987)
(867)
Unrealized gain (loss) on available-for-sale securities, net of
income tax
(29,472)
4,173
(73,995)
(2,676)
Reclassification adjustment for realized losses included income
(12)
(13)
(38)
(3)
Less: income tax benefit
(3)
(3)
(9)
(1)
Less: reclassification adjustment for realized loss included in
income, net of income tax
(9)
(10)
(29)
(2)
Unrealized gain on cash flow hedges
1,385
-
4,040
-
Less: income tax expense
339
-
992
-
Unrealized gain on cash flow hedges, net of income tax
1,046
-
3,048
-
Other comprehensive income (loss)
(28,417)
4,183
(70,918)
(2,674)
Comprehensive Income (Loss)
$
(12,872)
$
19,760
$
(38,545)
$
24,938
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Condensed Consolidated Financial Statements (unaudited)
7
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED
Common Stock
Treasury Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated Other
Comprehensive
Income
Total
Shares
Amount
(Dollars in thousands)
Balance at March 31, 2021
51,678,669
$
523
$
(7,113)
$
523,156
$
89,722
$
22,546
$
628,834
Net income
-
-
-
-
15,577
-
15,577
Change in unrealized appreciation on
available-for-sale securities
-
-
-
-
-
4,183
4,183
Issuance of shares from equity-based awards
155,707
2
-
(94)
-
-
(92)
Open market common share repurchases
(875,696)
-
(12,887)
-
-
-
(12,887)
Stock-based compensation
-
-
-
1,575
-
-
1,575
Balance at June 30, 2021
50,958,680
$
525
$
(20,000)
$
524,637
$
105,299
$
26,729
$
637,190
Common Stock
Treasury Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated Other
Comprehensive Loss
Total
Shares
Amount
(Dollars in thousands)
Balance at March 31, 2022
49,728,253
$
529
$
(45,109)
$
527,468
$
161,323
$
(21,012)
$
623,199
Net income
-
-
-
-
15,545
-
15,545
Other comprehensive loss
-
-
-
-
-
(28,417)
(28,417)
Issuance of shares from equity-based awards
45,689
-
-
(40)
-
-
(40)
Open market common share repurchases
(237,993)
-
(3,392)
-
-
-
(3,392)
Stock-based compensation
-
-
-
1,120
-
-
1,120
Balance June 30, 2022
49,535,949
$
529
$
(48,501)
$
528,548
$
176,868
$
(49,429)
$
608,015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Condensed Consolidated Financial Statements (unaudited)
8
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED
Common Stock
Treasury Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated Other
Comprehensive
Income
Total
Shares
Amount
(Dollars in thousands)
Balance at December 31, 2020
51,679,516
$
523
$
(6,061)
$
522,911
$
77,652
$
29,403
$
624,428
Net income
-
-
-
-
27,612
-
27,612
Change in unrealized depreciation of available-
for-sale securities
-
-
-
-
-
(2,674)
(2,674)
Issuance of shares from equity-based awards
243,357
2
-
(498)
-
-
(496)
Open market common share repurchases
(964,193)
-
(13,939)
-
-
-
(13,939)
Employee receivables from sale of stock
-
-
-
-
35
-
35
Stock-based compensation
-
-
-
2,224
-
-
2,224
Balance at June 30, 2021
50,958,680
$
525
$
(20,000)
$
524,637
$
105,299
$
26,729
$
637,190
Common Stock
Treasury Stock
Additional
Paid-in Capital
Retained
Earnings
Accumulated Other
Comprehensive
Income (Loss)
Total
Shares
Amount
(Dollars in thousands)
Balance at December 31, 2021
50,450,045
$
526
$
(28,347)
$
526,806
$
147,099
$
21,489
$
667,573
Cumulative effect from changes in accounting
principle
(1)
-
-
-
-
(2,610)
-
(2,610)
Net income
-
-
-
-
32,373
-
32,373
Change in unrealized depreciation of available-
for-sale securities
-
-
-
-
-
(70,918)
(70,918)
Issuance of shares from equity-based awards
348,729
3
-
(660)
-
-
(657)
Open market common share repurchases
(1,296,325)
-
(20,154)
-
-
-
(20,154)
Employee receivables from sale of stock
-
-
-
-
6
-
6
Stock-based compensation
-
-
2,235
-
-
2,235
Exercise of warrants
33,500
-
-
167
-
-
167
Balance June 30, 2022
49,535,949
$
529
$
(48,501)
$
528,548
$
176,868
$
(49,429)
$
608,015
(1)
 
Includes the impact of implementing Accounting Standards Update (“ASU”)
 
2016-13, Financial Instruments - Credit Losses (Accounting Standard Codification
 
(“ASC”) 326):
Measurement of Credit Losses on Financial Instruments.
 
See “Note 1: Nature of Operations and Summary of Significant Accounting
 
Policies” in the Notes to Condensed
Consolidated Financial Statements (unaudited) for more information on the
 
Company’s adoption of this guidance
 
and the impact to the Company’s
 
results of operations.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Condensed Consolidated Financial Statements (unaudited)
9
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
Six Months Ended
June 30,
2022
2021
(Dollars in thousands)
Operating Activities
Net income
$
32,373
$
27,612
Items not requiring (providing) cash
 
 
Depreciation and amortization
2,474
2,715
Provision for credit losses
(1)
1,510
11,000
Accretion of discounts and amortization of premiums on securities
2,192
2,624
Stock based compensation
2,235
2,224
Foreclosed asset impairment
-
630
Deferred income taxes
2,557
1,235
Net increase in bank owned life insurance
(795)
(2,661)
Net realized gains on available-for-sale securities
38
3
Changes in
Interest receivable
(1,886)
1,420
Other assets
3,780
(2,160)
Other liabilities
(21,268)
(3,151)
Net cash provided by operating activities
23,210
41,491
Investing Activities
 
 
Net change in loans
(274,206)
193,151
Purchases of available-for-sale securities
(73,399)
(124,570)
Proceeds from maturities of available-for-sale securities
22,513
60,773
Proceeds from the sale of foreclosed assets
237
-
Purchase of premises and equipment
(1,135)
(152)
Proceeds from the sale of premises and equipment and related insurance claims
13
108
Purchase of restricted equity securities
(4,208)
-
Proceeds from sale of restricted equity securities
1,544
2,539
Proceeds from death benefit on bank owned life insurance
-
3,483
Net cash provided by (used in) investing activities
(328,641)
135,332
Financing Activities
Net decrease in demand deposits, savings, NOW and money market accounts
(47,861)
(98,678)
Net increase (decrease) in time deposits
108,684
(239,435)
Net increase (decrease) in fed funds purchased and repurchase agreements
6
(2,306)
Proceeds from Federal Home Loan Bank advances
50,000
-
Repayment of Federal Home Loan Bank advances
(130,000)
(10,000)
Net proceeds of Federal Home Loan Bank line of credit
140,000
-
Issuance of common shares, net of issuance cost
170
2
Proceeds from employee stock purchase plan
364
172
Repurchase of common stock
(20,154)
(13,939)
Acquisition of common stock for tax withholding obligations
(833)
(670)
Net decrease in employee receivables
6
35
Net cash provided by (used in) financing activities
100,382
(364,819)
Decrease in Cash and Cash Equivalents
(205,049)
(187,996)
Cash and Cash Equivalents, Beginning of Period
482,727
408,810
Cash and Cash Equivalents, End of Period
$
277,678
$
220,814
Supplemental Cash Flows Information
Interest paid
$
10,862
$
13,687
Income taxes paid
$
3,880
$
4,270
(1)
 
For the six-months ended June 30, 2021, this line represents the Provision for
 
loan losses.
 
 
 
Notes to Condensed 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 and CFBSA II, LLC.
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.
On June 13, 2022, the Company announced its entry into an agreement under
 
which the Bank will acquire Farmers & Stockmens
Bank, the bank subsidiary of Central Bancorp, Inc. (collectively, Farmers
 
& Stockmens Bank and Central Bancorp, Inc. are herein
referred as “Central”), for approximately $
75
 
million in cash. Central has branches in Colorado and New Mexico. The transaction is
currently expected to close in the second half of 2022, subject to approval
 
by Central shareholders and bank regulatory authorities, as
well as the satisfaction of other customary closing conditions.
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 condensed consolidated interim financial statements are unaudited.
 
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, 2021 (the “2021
Form 10-K”), filed with the Securities and Exchange Commission (the “SEC”) on
 
February 28, 2022.
 
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. 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.
 
Refer to the “accounting pronouncements implemented” below for
 
changes in the accounting policies of the Company.
 
No
significant changes to the Company’s accounting policies, other
 
than those mentioned under “accounting pronouncements implemented”
below, have occurred since December 31, 2021, the most recent date
 
audited financial statements were provided within the Company’s
2021
 
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. The allowance for credit losses, deferred
 
tax asset, and fair value of financial instruments are
particularly susceptible to significant change.
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
11
Cash Equivalents
The Company had $
174
 
million of cash and cash equivalents at the Federal Reserve Bank of Kansas City as of June 30,
 
2022.
 
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.
Accounting Pronouncements Implemented
ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement
 
of Credit Losses on Financial
Instruments:
Background
 
– ASU 2016-13 and its subsequent amendments provide new guidance on the impairment model for financial assets
measured at amortized cost, including loans held-for-investment and
 
off-balance sheet credit exposures. The Current Expected
Credit Loss (“CECL”) model requires an estimate of expected credit losses, measured
 
over the contractual life of an instrument,
that considers forecasts of future economic conditions in addition to information
 
about past events and current conditions. ASU
2016-13 requires new disclosures, including the use of vintage
 
analysis on the Company’s credit quality indicators.
 
In addition, ASU 2016-13 removes the available-for-sale (“AFS”) securities other-than-temporary-impairment model that reduced
the cost basis of the investment and is replaced with an impairment model that
 
will recognize an allowance for credit losses on
available-for-sale securities.
 
Implementation
 
– The Company established a CECL committee to formulate and oversee the implementation process including
selection, implementation, and testing of third-party software.
 
The Company used a loss-rate ("cohort") method to estimate the expected allowance
 
for credit losses ("ACL") for all loan pools.
The cohort method identifies and captures the balance of a pool of loans with similar
 
risk characteristics, as of a particular point
in time to form a cohort, then tracks the respective losses generated by that cohort of loans over
 
their remaining lives, or until the
loans are “exhausted” (i.e., have reached an acceptable point in time at which
 
a significant majority of all losses are
expected to have been recognized). The cohort method closely aligned
 
with the Company's incurred loss model. This allowed the
Company to take advantages of the efficiencies of processes and procedures already
 
in practice.
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 formulated changes to policies, procedures,
 
disclosures, and internal controls that
were 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. Refer to
 
“Note 4: Loans and Allowance for Credit Losses” for
additional information regarding the policies, procedures, and credit
 
quality indicators used by the Company.
Impact of adoption
 
– The Company adopted ASU 2016-13 on January 1, 2022 using the modified retrospective approach. All
disclosures as of and for the three-
 
and six-month periods ended June 30, 2022 are presented in accordance
 
with ASC 326,
Financial Instruments-Credit Losses. The Company did not recast comparative
 
financial periods and has presented those
disclosures under previously applicable GAAP. Because the Company
 
chose the cohort method, the model must consider net
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
12
deferred fees and costs. As a result, the Company transferred the previously disclosed unearned fees into the applicable loan
segments.
The Company used the prospective transition approach for AFS securities for which other-than-temporary-impairment
 
has been
recognized prior to January 1, 2022. As a result, the amortized cost basis remains the same before and after the effective date of
ASU 2016-13.
 
The following table illustrates the impact of adopting ASU 2016-13 and details how outstanding loan balances have been
reclassified because of changes made to the Company’s loan segments under
 
CECL:
January 1, 2022
As Reported under ASU
2016-13
Pre-ASU 2016-13
Impact of ASU 2016-13
Adoption
(Dollars in thousands)
Assets:
Loans (outstanding balance)
Commercial and Industrial
$
843,024
$
1,401,681
$
(558,657)
Commercial and Industrial lines of credit
617,398
-
617,398
Energy
278,579
278,860
(281)
Commercial real estate
1,278,479
1,281,095
(2,616)
Construction and land development
574,852
578,758
(3,906)
Residential real estate
360,046
600,816
(240,770)
Multifamily real estate
240,230
-
240,230
PPP
-
64,805
(64,805)
Consumer
63,605
63,605
-
Gross Loans
4,256,213
4,269,620
(13,407)
Net deferred loan fees and costs
-
13,407
(13,407)
Allowance for credit losses on loans
56,628
58,375
(1,747)
Loans, net of the allowance for credit
losses on loans
4,199,585
4,197,838
1,747
Deferred tax asset
$
13,647
$
14,474
$
(827)
Liabilities
Allowance for credit losses on off-balance
sheet exposures
$
5,184
$
-
$
5,184
Stockholders' equity
Retained earnings
$
144,489
$
147,099
$
(2,610)
In connection with adoption of ASU 2016-13, changes were made to the Company’s loan segments to align with the methodology
applied in determining the allowance under CECL. The commercial and industrial loan portfolio
 
was separated into term loans
and lines of credit. In addition, the remaining Paycheck Protection Program (“PPP”)
 
loans were consolidated into the commercial
and industrial term loan segment due to their declining outstanding balance.
 
The Company also separated the residential and
multifamily real estate loan segments. Refer to “Note 4: Loans and Allowance for Credit Losses” for detail on the
 
loan segments.
 
Accounting Policies:
 
The Company updated the below accounting policies due to adoption of ASU 2016-13:
Notes to Condensed Consolidated Financial Statements
(unaudited)
13
Accrued Interest -
The Company made an accounting policy election to exclude accrued interest from
 
the amortized cost basis of loans. In addition,
the Company elected not to measure an allowance for credit losses for accrued
 
interest receivable, because a timely write-off
policy exists. The policy generally requires loans to be placed on non-accrual
 
when principal or interest is 90 days or more past
due unless the loan is well-secured and in the process of collection. A well-secured loan means that collateral or a guaranty has
sufficient value to pay off the loan in full. When a loan is placed on non-accrual, accrued
 
interest is reversed against interest
income.
 
The Company made a policy election to exclude accrued interest from
 
the amortized cost basis of AFS securities. AFS securities
are placed on non-accrual status when the Company no longer expects
 
to receive all contractual amounts due, which is generally
at 90 days past due. Accrued interest receivable is reversed against interest income when a security is placed on non-accrual
status. Accordingly, the Company did not recognize an allowance for credit loss against accrued interest receivable.
 
Available-for-sale Securities in an Unrealized Loss Position –
 
For AFS securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more
 
likely than not
that it will be required to sell the security before recovery of its amortized cost basis. If
 
either of the criteria regarding
 
intent or
requirement to sell is met, the securities’ amortized cost basis is written down to fair value through income. For AFS securities
that do not meet the criteria above, the Company evaluates whether the decline
 
in fair value has resulted from credit losses or
other factors. Management considers the extent to which fair value is less than amortized
 
cost, any changes to the rating of the
security by a rating agency, and adverse conditions specifically related to
 
the security, among other factors.
 
If this assessment indicates that a credit loss exists, the present value of cash flows
 
expected to be collected from the security is
compared to the amortized cost basis of the security. If the present value of
 
cash flows expected to be collected is less than the
amortized cost basis, a credit loss exists and an allowance for credit losses is recorded
 
for the credit loss, limited by the amount
that the fair value is less than amortized cost basis.
 
ASU 2016-02, Leases (Topic 842):
 
Background
 
– ASU 2016-02 and its subsequent amendments require lessees to recognize the assets and liabilities that arise
 
from
such leases. This represents a change from previous GAAP that did not require operating leases to be recognized on the lessees’
balance sheet. The purpose
 
of Topic 842 is to increase transparency and comparability between organizations
 
that enter into lease
agreements.
 
The update modifies lease disclosure requirements as well.
 
On the lease commencement date (or on the date of adoption), a lessee is required
 
to measure and record a lease liability equal to
the present value of the remaining lease payments, discounted using an appropriate
 
discount rate. In addition, a right-of-use asset
is recorded that consists of the initial measurement of the lease liability adjusted for
 
certain payments, including lease incentives
received and initial direct costs.
For operating leases, after lease commencement, the lease liability is reported
 
at the present value of the unpaid lease payments
discounted using the discount rate established at lease commencement. The
 
lease expense is calculated by summing all future
lease payments in the lease term and lease incentives not yet recognized. The sum is then
 
amortized on a straight-line basis over
the lease term. The right-of-use asset is amortized as the difference between
 
the straight-line expense and the amortizing lease
liability.
Implementation
 
– The Company’s lease agreements to which Topic 842 has been applied primarily relate
 
to branch real estate
properties located in the Kansas City, Missouri; Tulsa, Oklahoma; Dallas, Texas; Frisco, Texas; and Phoenix, Arizona markets.
The remaining lease terms range from two to twenty years with potential renewal
 
terms. The leases include various payment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
14
terms including fixed payments with annual increases to variable payments.
 
In addition, several of the leases include lease
incentives.
The discount rates were not readily determinable in the lease agreements. As a result, the Company used the incremental
borrowing rate in accordance with Topic 842. The Company used the Federal Home Loan Bank (“FHLB”)
 
yield curve as the
incremental borrowing rate.
The Company elected several practical expedients that are listed below:
Practical Expedient Elected
Impact to Lease Accounting Implementation
An entity need not reassess whether any expired
or existing contracts are or contain leases.
The Company was not required to re-evaluate previously identified leases,
including embedded leases, that existed as of the adoption date.
 
An entity need not reassess the lease classification
for an expired or existing leases.
 
The Company was not required to re-classify previously identified operating
leases that existed as of the adoption date. The Company did not have any
capital leases as of December 31, 2021.
An entity need not reassess initial direct costs for
any existing leases.
The Company was not required to review previously established lease
agreements as of the adoption date for initial direct costs. Initial direct costs
increase the right-of-use asset and do not impact the lease liability.
An entity may combine lease and non-lease
components.
If not elected, the Company would be required to allocate the total
consideration in a lease contract to lease and non-lease components based
 
on
their relative standalone price. The election results in higher right-of-use
assets and lease liabilities.
Short-term lease exemption.
The Company is not required to record a right-of-use asset and lease liability
for a lease whose term is 12 months or less and does not include a purchase
option that the lessee is reasonably certain to exercise.
 
Impact of Adoption
 
– The Company adopted ASU 2016-02 on January 1, 2022 using the modified retrospective approach. The
Company did not recast comparative financial periods and has presented
 
those disclosures under previously applicable GAAP.
The following table illustrates the impact of adopting ASU 2016-02 on the Company’s financial statements:
January 1, 2022
As Reported under ASU
2016-02
Pre-ASU 2016-02
Impact of ASU 2016-02
Adoption
(Dollars in thousands)
Assets:
Right-of-use asset
$
23,589
$
-
$
23,589
Liabilities:
Lease incentive
-
2,125
(2,125)
Accrued rent payable
-
904
(904)
Lease liability
$
26,618
$
-
$
26,618
Recent Accounting Pronouncements
ASU 2022-02, Financial Instruments-Credit Losses (Topic 326):
 
Troubled Debt Restructurings and Vintage Disclosures
Background
 
– ASU 2022-02 provides
 
new guidance on (i) troubled debt restructurings
 
(“TDRs”) and (ii) vintage disclosures for
gross write-offs. The update eliminates the accounting guidance for TDRs and requires a company to
 
determine if a modification
results in a new loan or a continuation of an existing loan. The update enhances the required
 
disclosures for certain modifications
made to borrowers experiencing financial difficulty.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
15
In addition, the update requires disclosure of current-period gross charge
 
-offs by year of origination for financing receivables.
 
For the Company, the amendments are effective as of January 1, 2023, but early
 
adoption is permitted and would be applied as of
the beginning of the fiscal year of adoption.
Impact of adoption
 
– The Company anticipates adopting ASU 2022-02 as of January 1, 2023. At this time, an estimate of the
impact cannot be established.
 
Note 2: Earnings Per Share
The following table presents the computation of basic and diluted earnings per
 
share:
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
(Dollars in thousands except per share data)
Earnings per Share
Net income available to common stockholders
$
15,545
$
15,577
$
32,373
$
27,612
Weighted average common shares
49,758,263
51,466,885
50,003,418
51,561,519
Earnings per share
$
0.31
$
0.30
$
0.65
$
0.54
Diluted Earnings per Share
Net income available to common stockholders
$
15,545
$
15,577
$
32,373
$
27,612
Weighted average common shares
49,758,263
51,466,885
50,003,418
51,561,519
Effect of dilutive shares
445,462
742,656
558,450
733,463
Weighted average dilutive common shares
50,203,725
52,209,541
50,561,868
52,294,982
Diluted earnings per share
$
0.31
$
0.30
$
0.64
$
0.53
Stock-based awards not included because to do so would be
antidilutive
711,375
417,950
450,541
639,887
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:
 
June 30, 2022
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Approximate
Fair Value
(Dollars in thousands)
Available-for-sale securities
Mortgage-backed - GSE residential
$
179,119
$
2
$
18,352
$
160,769
Collateralized mortgage obligations - GSE residential
13,611
-
400
13,211
State and political subdivisions
566,726
2,199
52,236
516,689
Corporate bonds
5,118
32
172
4,978
Total available-for-sale securities
$
764,574
$
2,233
$
71,160
$
695,647
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
16
December 31, 2021
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Approximate
Fair Value
(Dollars in thousands)
Available-for-sale securities
Mortgage-backed - GSE residential
$
161,675
$
1,809
$
1,774
$
161,710
Collateralized mortgage obligations - GSE residential
18,130
311
10
18,431
State and political subdivisions
532,906
29,329
767
561,468
Corporate bonds
4,241
119
-
4,360
Total available-for-sale securities
$
716,952
$
31,568
$
2,551
$
745,969
As of June 30, 2022, the available-for-sale securities had $
6
 
million of accrued interest, excluded from the amortized cost basis.
 
The amortized cost and fair value of available-for-sale securities at June 30,
 
2022, by contractual maturity, are shown below:
 
June 30, 2022
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
$
-
$
24
$
117
$
178,978
$
179,119
Estimated fair value
$
-
$
24
$
117
$
160,628
$
160,769
Weighted average yield
(2)
-
%
4.71
%
4.03
%
2.00
%
2.00
%
Collateralized mortgage obligations -
GSE residential
(1)
Amortized cost
$
-
$
-
$
2,386
$
11,225
$
13,611
Estimated fair value
$
-
$
-
$
2,338
$
10,873
$
13,211
Weighted average yield
(2)
-
%
-
%
2.77
%
2.19
%
2.29
%
State and political subdivisions
Amortized cost
$
796
$
4,746
$
98,444
$
462,740
$
566,726
Estimated fair value
$
805
$
4,871
$
99,175
$
411,838
$
516,689
Weighted average yield
(2)
3.44
%
3.89
%
3.31
%
2.72
%
2.83
%
Corporate bonds
Amortized cost
$
-
$
499
$
4,619
$
-
$
5,118
Estimated fair value
$
-
$
524
$
4,454
$
-
$
4,978
Weighted average yield
(2)
-
%
6.63
%
4.29
%
-
%
4.52
%
Total available-for-sale securities
Amortized cost
$
796
$
5,269
$
105,566
$
652,943
$
764,574
Estimated fair value
$
805
$
5,419
$
106,084
$
583,339
$
695,647
Weighted average yield
(2)
3.44
%
4.15
%
3.34
%
2.51
%
2.64
%
(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 Condensed Consolidated Financial Statements
(unaudited)
17
The following tables show the number of securities, unrealized loss, and fair value of
 
the Company’s investments with unrealized
losses, aggregated by investment class and length of time that individual
 
securities have been in a continuous unrealized loss position at
June 30, 2022 and December 31, 2021:
 
June 30, 2022
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
$
124,609
$
11,678
45
$
34,332
$
6,674
7
$
158,941
$
18,352
52
Collateralized
mortgage obligations
- GSE residential
12,809
386
18
403
14
1
13,212
400
19
State and political
subdivisions
370,681
50,096
264
7,775
2,140
9
378,456
52,236
273
Corporate bonds
4,696
172
4
-
-
-
4,696
172
4
Total temporarily
impaired securities
$
512,795
$
62,332
331
$
42,510
$
8,828
17
$
555,305
$
71,160
348
December 31, 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
$
87,306
$
1,774
16
$
-
$
-
-
$
87,306
$
1,774
16
Collateralized
mortgage obligations
- GSE residential
803
10
2
-
-
-
803
10
2
State and political
subdivisions
72,915
762
39
1,310
5
4
74,225
767
43
Corporate bonds
-
-
-
-
-
-
-
-
-
Total temporarily
impaired securities
$
161,024
$
2,546
57
$
1,310
$
5
4
$
162,334
$
2,551
61
Based on the Company’s evaluation at June 30, 2022, under the new
 
impairment model, an allowance for credit losses has
no
t
been recorded
no
r have unrealized losses been recognized into income. The issuers of the securities are of high
 
credit quality and have a
long history of no credit losses; management does not intend to sell and
 
it is likely that management will not be required to sell the
securities prior to their anticipated recovery;
 
and the decline in fair value is largely attributed to changes in interest rates and other
market conditions. The issuers continue to make timely principal and interest
 
payments.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
18
The following tables show the gross gains and losses on securities that matured
 
or were sold:
 
For the Three Months Ended
For the Six Months Ended
June 30, 2022
June 30, 2022
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Loss
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Loss
(Dollars in thousands)
Available-for-sale securities
$
2
$
(14)
$
(12)
$
3
$
(41)
$
(38)
For the Three Months Ended
For the Six Months Ended
June 30, 2021
June 30, 2021
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Loss
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Loss
(Dollars in thousands)
Available-for-sale securities
$
5
$
(18)
$
(13)
$
26
$
(29)
$
(3)
Equity Securities
Equity securities consist of a $
2
 
million investment in a Community Reinvestment Act (“CRA”) mutual fund and $
1
 
million in
three private equity funds. Equity securities are included in “other assets” on
 
the Consolidated Balance Sheets.
The Company elected a measurement alternative for the three private
 
equity funds that allows the securities 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. No such events
occurred during the three or six-month periods ended June 30, 2022.
The following is a summary of the unrealized and realized gains and losses recognized
 
in net income on equity securities:
 
Three Months Ended
Six Months Ended
June 30,
 
June 30,
 
2022
2021
2022
2021
(Dollars in thousands)
Net gains (losses) recognized during the reporting period on equity securities
$
(71)
$
6
$
(174)
$
(33)
Less: net gains recognized during the reporting period on equity securities sold
during the reporting period
-
-
-
-
Unrealized gains (losses) recognized during the reporting period on equity
securities still held at the reporting date
$
(71)
$
6
$
(174)
$
(33)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
19
Note 4:
 
Loans and Allowance for Credit Losses
Loan Portfolio Segments
Categories of loans at June 30, 2022 and December 31, 2021 include:
June 30, 2022
December 31, 2021
(Dollars in thousands)
Commercial and industrial
$
812,411
$
843,024
Commercial and industrial lines of credit
787,664
617,398
Energy
233,000
278,579
Commercial real estate
1,435,893
1,278,479
Construction and land development
584,415
574,852
Residential real estate
371,337
360,046
Multifamily real estate
249,641
240,230
Consumer
53,873
63,605
Loans, net of unearned fees
4,528,234
4,256,213
Less: allowance for credit losses
(1)
55,817
58,375
Loans, net
$
4,472,417
$
4,197,838
(1)
 
As of December 31, 2021, this line represents the allowance for loan and lease losses. See
 
further discussion in "Note 1: Nature of
Operations and Summary of Significant Accounting Policies.”
 
Accrued interest of $
12
 
million and $
10
 
million at June 30, 2022 and December 31, 2021, respectively, presented
 
in “other
assets” on the Consolidated Balance Sheets is excluded from the amortized cost basis disclosed
 
in the above table.
 
The Company aggregates the loan portfolio by similar credit risk characteristics. The
 
loan segments are described in additional
detail below:
●
Commercial and Industrial
 
- The category includes loans to commercial and industrial customers for use in property,
plant, and equipment purchases and expansions. Loan terms typically require
 
principal and interest payments that
decrease the outstanding loan balance.
 
Repayment is primarily from the cash flow of a borrower’s principal business
operation. Credit risk is driven by creditworthiness of a borrower and
 
the economic conditions that impact the cash flow
stability from business operations.
The category also includes the remaining PPP loans outstanding. These loans were established by the
 
Coronavirus Aid,
Relief, and Economic Security Act which authorized forgivable loans to small businesses to pay their employees during
the COVID-19 pandemic. The loans are
100
 
percent guaranteed by the Small Business Administration (“SBA”) and
repayment is primarily dependent on the borrower’s cash flow or SBA repayment approval.
●
Commercial and Industrial Lines of Credit
– The category includes lines of credit to commercial and industrial
customers for working capital needs. The loan terms typically require interest-only
 
payments, mature in one year, and
require the full balance paid-off at maturity. Lines of credit allow the borrower
 
to drawdown and repay the line of credit
based on the customer’s cash flow needs. Repayment is primarily from the operating
 
cash flow of the business. Credit
risk is driven by creditworthiness of a borrower and the economic conditions that impact
 
the cash flow stability from
business operations.
●
Energy
 
- The category includes loans to oil and natural gas customers for use in financing working
 
capital needs,
exploration and production activities, and acquisitions. The loans are repaid primarily
 
from the conversion of crude oil
and natural gas to cash. Credit risk is driven by creditworthiness of a borrower and the
 
economic conditions that impact
the cash flow stability from business operations. Energy loans are typically collateralized
 
with the underlying oil and gas
reserves.
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
20
●
Commercial Real Estate
 
- The category includes loans that typically involve larger principal amounts and repayment
 
of
these loans is generally dependent on the successful operations of the property
 
securing the loan or the business
conducted on the property securing the loan. These are viewed primarily as cash flow loans and
 
secondarily as loans
secured by real estate. Credit risk may be impacted by the creditworthiness of
 
a borrower, property values and the local
economies in the borrower’s market areas.
●
Construction and Land Development
 
- The category includes loans that are usually based upon estimates of costs and
estimated value of the completed project and include independent appraisal reviews
 
and a financial analysis of the
developers and property owners. Sources of repayment include permanent
 
loans, sales of developed property or an
interim loan commitment from the Company until permanent financing
 
is obtained. These loans are higher risk than
other real estate loans due to their ultimate repayment being sensitive to interest rate changes,
 
general economic
conditions and the availability of long-term financing. Credit risk may
 
be impacted by the creditworthiness of a
borrower, property values and the local economies in the borrower’s market
 
areas.
●
Residential Real Estate
- The category includes loans that are generally secured by owner-occupied
 
1-4 family
residences.
 
Repayment of these loans is primarily dependent on the personal income and
 
credit rating of the borrowers.
Credit risk in these loans can be impacted by economic conditions within or outside
 
the borrower’s market areas that
might impact either property values or a borrower’s personal income.
 
●
Multifamily Real Estate -
The category includes loans that are generally secured by multifamily properties.
 
Repayment
of these loans is primarily dependent on occupancy rates and the personal
 
income of the tenants. Credit risk in these
loans can be impacted by economic conditions within or outside the
 
borrower’s market areas that might impact either
property values or the tenants’ personal income.
 
●
Consumer
- The category includes revolving lines of credit and various term loans such
 
as automobile loans and loans
for other personal purposes. Repayment is primarily dependent on
 
the personal income and credit rating of the
borrowers. Credit risk is driven by consumer economic factors (such as unemployment
 
and general economic conditions
in the borrower’s market area) and the creditworthiness of a borrower.
Allowance for Credit Losses
The Company established a CECL committee that meets at least quarterly to oversee the ACL methodology. The committee
estimates the ACL using relevant available information, from internal and external sources, relating to past events, current conditions,
and reasonable and supportable forecasts. The ACL represents the Company’s current estimate of lifetime credit losses inherent in the
loan portfolio at the balance sheet date. The ACL is adjusted for expected prepayments when appropriate and excludes expected
extensions, renewals, and modifications.
 
The ACL is the sum of three components: (i) asset specific / individual loan reserves; (ii) quantitative (formulaic or pooled)
reserves; and (iii) qualitative (judgmental) reserves.
 
Asset Specific -
 
When unique qualities cause a loan’s exposure to loss to be inconsistent with the
 
pool segments, the loan is
individually evaluated. Individual reserves are calculated for loans
 
that are risk-rated substandard and on non-accrual and loans that are
risk-rated doubtful or loss that are greater than a defined dollar threshold.
 
In addition, TDRs are also individually evaluated. Reserves on
asset specific loans may be based on collateral, for collateral-dependent
 
loans, or on quantitative and qualitative factors, including
expected cash flow, market sentiment, and guarantor support.
Quantitative
- The Company used the cohort method, which identifies and captures the balance of a pool of loans with
 
similar
risk characteristics as of a particular time to form a cohort. For example, the
 
outstanding commercial and industrial loans and
commercial and industrial lines of credit loan segments as of quarter
 
-end are considered cohorts. The cohort is then tracked for losses
over the remaining life of loans or until the pool is exhausted. The Company used a lookback
 
period of approximately six-years to
establish the cohort population. By using the historical data timeframe,
 
the Company can establish a historical loss factor for each of its
loan segments and adjust the losses with qualitative and forecast factors.
Qualitative
 
– The Company uses qualitative factors to adjust the historical loss factors for current conditions. The Company
primarily uses the following qualitative factors:
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
21
◾
The nature and volume of changes in risk ratings;
◾
The volume and severity of past due loans;
◾
The volume of non-accrual loans;
◾
The nature and volume of the loan portfolio, including the existence, growth,
 
and effect of any concentrations of credit;
◾
Changes in the Institute of Supply Management’s Purchasing Manager Indices
 
(“PMI”) for services and manufacturing;
◾
Changes in collateral values;
 
◾
Changes in lending policies, procedures, and quality of loan reviews;
◾
Changes in lending staff; and
◾
Changes in competition, legal and regulatory environments
In addition to the current condition qualitative adjustments, the Company uses the
 
Federal Reserve’s unemployment forecast to
adjust the ACL based on forward looking guidance. The Federal Reserve’s unemployment forecast extends three-years and is eventually
reverted to the mean of six percent by year 10.
 
Drivers of Change in the ACL
The ACL increased by $
586
 
thousand during the three-month period ended June 30, 2022 driven by
 
an increase of $
3.8
 
million
related to loan growth, performance and economic factors, partially
 
offset by $
1.1
 
million in net charge-offs and a reduction of $
2.2
million in reserves on impaired loans. The ACL declined by $
2.6
 
million between January 1, 2022 and June 30, 2022 driven by $
2.2
million in net charge-offs and a reduction of $
5.2
 
million in reserves on impaired loans which were partially offset
 
by an increase of $
4.9
million related to loan growth, performance and economic factors.
 
Credit Quality Indicators
Internal Credit Risk Ratings
The Company uses a weighted average risk rating factor to adjust the historical
 
loss factors for current events. Risk ratings
incorporate the criteria utilized by regulatory authorities to describe criticized
 
assets, but separate various levels of risk concentrated
within the regulatory “Pass” category. Risk ratings are established for
 
loans at origination and are monitored on an ongoing basis. The
rating assigned to a loan reflects the risks posed by the borrower’s expected performance
 
and the transaction’s structure. Performance
metrics used to determine a risk rating include, but are not limited to, cash flow
 
adequacy, liquidity, and collateral. A description of the
loan risk ratings follows:
Loan Grades
●
Pass (risk rating 1-4)
 
- The category includes loans that are considered satisfactory. The category includes borrowers
that generally maintain good liquidity and financial condition or
 
the credit is currently protected with sales trends
remaining flat or declining. Most ratios compare favorably with industry
 
norms and Company policies. Debt is
programmed and timely repayment is expected.
●
Special Mention (risk rating 5)
 
- The category includes borrowers that generally exhibit adverse trends in operations or
an imbalanced position in their balance sheet that has not reached a point where repayment
 
is jeopardized. Credits are
currently protected but, if left uncorrected, the potential weaknesses may
 
result in deterioration of the repayment
prospects for the credit or in the Company’s credit or lien position at a future date. These credits are
 
not adversely
classified and do not expose the Company to enough risk to warrant adverse classification.
●
Substandard (risk rating 6)
 
- The category includes borrowers that generally exhibit well-defined weakness(es) that
jeopardize repayment. Credits are inadequately protected by the current worth
 
and paying capacity of the obligor or of
the collateral pledged. A distinct possibility exists that the Company will sustain some loss if deficiencies are not
corrected. Loss potential, while existing in the aggregate amount of substandard assets, does
 
not have to exist in
individual assets classified substandard. Substandard loans include
 
both performing and non-performing loans and are
broken out in the table below.
Notes to Condensed Consolidated Financial Statements
(unaudited)
22
●
Doubtful (risk rating 7)
- The category includes borrowers that exhibit weaknesses inherent in a substandard credit and
characteristics that these weaknesses make collection or liquidation in full highly
 
questionable or improbable based on
existing facts, conditions and values. Because of reasonably specific pending
 
factors, which may work to the advantage
and strengthening of the assets, classification as a loss is deferred until its more
 
exact status may be determined.
●
Loss (risk rating 8)
- Credits which are considered uncollectible or of such little value that their continuance
 
as a
bankable asset is not warranted.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements (unaudited)
23
The following tables present the credit risk profile of the Company’s loan portfolio
 
based on internal rating categories and loan segments:
 
As of June 30, 2022
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
Loans
Revolving
Loans
converted to
Term Loans
Total
(Dollars in thousands)
Commercial and industrial
Pass
$
197,451
$
330,830
$
76,610
$
58,648
$
59,121
$
22,720
$
-
$
22,166
$
767,546
Special mention
721
-
14,488
1,060
313
69
-
3,414
20,065
Substandard - accrual
-
-
-
2,290
766
49
-
16,677
19,782
Substandard - non-
accrual
-
994
-
21
1,397
738
-
1,868
5,018
Doubtful
-
-
-
-
-
-
-
-
-
Total
$
198,172
$
331,824
$
91,098
$
62,019
$
61,597
$
23,576
$
-
$
44,125
$
812,411
Commercial and industrial
 
lines of credit
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
734,130
$
-
$
734,130
Special mention
-
-
-
-
-
-
35,139
-
35,139
Substandard - accrual
-
-
-
-
-
-
8,790
-
8,790
Substandard - non-
accrual
-
-
-
-
-
-
9,605
-
9,605
Doubtful
-
-
-
-
-
-
-
-
-
Total
$
-
$
-
$
-
$
-
$
-
$
-
$
787,664
$
-
$
787,664
Energy
Pass
$
7,445
$
900
$
264
$
44
$
-
$
-
$
198,257
$
210
$
207,120
Special mention
-
1,469
-
-
-
-
12,494
-
13,963
Substandard - accrual
-
-
-
-
10
-
6,013
-
6,023
Substandard - non-
accrual
-
-
-
-
-
-
3,750
-
3,750
Doubtful
-
-
-
-
-
-
2,144
-
2,144
Total
$
7,445
$
2,369
$
264
$
44
$
10
$
-
$
222,658
$
210
$
233,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements (unaudited)
24
As of June 30, 2022
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
Loans
Revolving
Loans
converted to
Term Loans
Total
(Dollars in thousands)
Commercial real estate
Pass
$
219,481
$
273,536
$
152,920
$
114,384
$
71,024
$
83,540
$
330,625
$
100,089
$
1,345,599
Special mention
464
29,688
-
425
7,499
292
-
33,294
71,662
Substandard - accrual
10,681
-
-
-
-
-
-
992
11,673
Substandard - non-
accrual
-
2,498
292
-
77
1,109
-
2,983
6,959
Doubtful
-
-
-
-
-
-
-
-
-
Total
$
230,626
$
305,722
$
153,212
$
114,809
$
78,600
$
84,941
$
330,625
$
137,358
$
1,435,893
Construction and land development
Pass
$
122,363
$
249,651
$
131,909
$
51,139
$
3,751
$
4,503
$
13,164
$
-
$
576,480
Special mention
-
7,935
-
-
-
-
-
-
7,935
Substandard - accrual
-
-
-
-
-
-
-
-
-
Substandard - non-
accrual
-
-
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
-
-
-
Total
$
122,363
$
257,586
$
131,909
$
51,139
$
3,751
$
4,503
$
13,164
$
-
$
584,415
Residential real estate
Pass
$
38,134
$
79,391
$
121,547
$
47,354
$
40,803
$
36,793
$
626
$
-
$
364,648
Special mention
-
-
-
-
-
-
-
-
-
Substandard - accrual
-
3,308
3,183
-
-
-
-
-
6,491
Substandard - non-
accrual
-
-
-
-
-
-
-
198
198
Doubtful
-
-
-
-
-
-
-
-
-
Total
$
38,134
$
82,699
$
124,730
$
47,354
$
40,803
$
36,793
$
626
$
198
$
371,337
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements (unaudited)
25
As of June 30, 2022
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
Loans
Revolving
Loans
converted to
Term Loans
Total
(Dollars in thousands)
Multifamily real estate
Pass
$
58,346
$
28,407
$
5,424
$
12,070
$
3,115
$
1,901
$
123,802
$
16,538
$
249,603
Special mention
-
-
-
-
-
-
-
38
38
Substandard - accrual
-
-
-
-
-
-
-
-
-
Substandard - non-
accrual
-
-
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
-
-
-
Total
$
58,346
$
28,407
$
5,424
$
12,070
$
3,115
$
1,901
$
123,802
$
16,576
$
249,641
Consumer
Pass
$
1,811
$
2,691
$
1,975
$
233
$
114
$
10
$
47,039
$
-
$
53,873
Special mention
-
-
-
-
-
-
-
-
-
Substandard - accrual
-
-
-
-
-
-
-
-
-
Substandard - non-
accrual
-
-
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
-
-
-
Total
$
1,811
$
2,691
$
1,975
$
233
$
114
$
10
$
47,039
$
-
$
53,873
Total
Pass
$
645,031
$
965,406
$
490,649
$
283,872
$
177,928
$
149,467
$
1,447,643
$
139,003
$
4,298,999
Special mention
1,185
39,092
14,488
1,485
7,812
361
47,633
36,746
148,802
Substandard - accrual
10,681
3,308
3,183
2,290
776
49
14,803
17,669
52,759
Substandard - non-
accrual
-
3,492
292
21
1,474
1,847
13,355
5,049
25,530
Doubtful
-
-
-
-
-
-
2,144
-
2,144
Total
$
656,897
$
1,011,298
$
508,612
$
287,668
$
187,990
$
151,724
$
1,525,578
$
198,467
$
4,528,234
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements (unaudited)
26
Loan Portfolio Aging Analysis
The following tables present the Company’s loan portfolio aging analysis as of
 
June 30, 2022:
 
As of June 30, 2022
Amortized Cost Basis by Origination Year and Past Due Status
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
loans
Revolving
loans
converted to
term loans
Total
(Dollars in thousands)
Commercial and industrial
30-59 days
$
-
$
-
$
7
$
88
$
-
$
-
$
-
$
126
$
221
60-89 days
-
-
-
-
-
74
-
-
74
Greater than 90 days
-
104
3
10
1,383
655
-
-
2,155
Total past due
-
104
10
98
1,383
729
-
126
2,450
Current
198,172
331,720
91,088
61,921
60,214
22,847
-
43,999
809,961
Total
$
198,172
$
331,824
$
91,098
$
62,019
$
61,597
$
23,576
$
-
$
44,125
$
812,411
Greater than 90 days
and accruing
$
-
$
-
$
3
$
-
$
-
$
-
$
-
$
-
$
3
Commercial and industrial lines of credit
30-59 days
$
-
$
-
$
-
$
-
$
-
$
-
$
2,086
$
-
$
2,086
60-89 days
-
-
-
-
-
-
784
-
784
Greater than 90 days
-
-
-
-
-
-
11,765
-
11,765
Total past due
-
-
-
-
-
-
14,635
-
14,635
Current
-
-
-
-
-
-
773,029
-
773,029
Total
$
-
$
-
$
-
$
-
$
-
$
-
$
787,664
$
-
$
787,664
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
2,160
$
-
$
2,160
Energy
30-59 days
$
-
$
1,469
$
-
$
-
$
-
$
-
$
-
$
-
$
1,469
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
-
-
-
-
-
5,894
-
5,894
Total past due
-
1,469
-
-
-
-
5,894
-
7,363
Current
7,445
900
264
44
10
-
216,764
210
225,637
Total
$
7,445
$
2,369
$
264
$
44
$
10
$
-
$
222,658
$
210
$
233,000
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements (unaudited)
27
As of June 30, 2022
Amortized Cost Basis by Origination Year and Past Due Status
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
loans
Revolving
loans
converted to
term loans
Total
(Dollars in thousands)
Commercial real estate
30-59 days
$
-
$
9,662
$
-
$
-
$
-
$
-
$
-
$
-
$
9,662
60-89 days
-
-
-
-
77
-
-
-
77
Greater than 90 days
-
-
-
-
-
-
-
2,983
2,983
Total past due
-
9,662
-
-
77
-
-
2,983
12,722
Current
230,626
296,060
153,212
114,809
78,523
84,941
330,625
134,375
1,423,171
Total
$
230,626
$
305,722
$
153,212
$
114,809
$
78,600
$
84,941
$
330,625
$
137,358
$
1,435,893
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Construction and land development
30-59 days
$
-
$
-
$
-
$
2,097
$
-
$
-
$
-
$
-
$
2,097
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
-
-
-
-
-
-
-
-
Total past due
-
-
-
2,097
-
-
-
-
2,097
Current
122,363
257,586
131,909
49,042
3,751
4,503
13,164
-
582,318
Total
$
122,363
$
257,586
$
131,909
$
51,139
$
3,751
$
4,503
$
13,164
$
-
$
584,415
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Residential real estate
30-59 days
$
-
$
121
$
-
$
-
$
-
$
-
$
-
$
-
$
121
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
-
-
-
-
-
-
-
-
Total past due
-
121
-
-
-
-
-
-
121
Current
38,134
82,578
124,730
47,354
40,803
36,793
626
198
371,216
Total
$
38,134
$
82,699
$
124,730
$
47,354
$
40,803
$
36,793
$
626
$
198
$
371,337
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements (unaudited)
28
As of June 30, 2022
Amortized Cost Basis by Origination Year and Past Due Status
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
loans
Revolving
loans
converted to
term loans
Total
(Dollars in thousands)
Multifamily real estate
30-59 days
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
-
-
-
-
-
-
-
-
Total past due
-
-
-
-
-
-
-
-
-
Current
58,346
28,407
5,424
12,070
3,115
1,901
123,802
16,576
249,641
Total
$
58,346
$
28,407
$
5,424
$
12,070
$
3,115
$
1,901
$
123,802
$
16,576
$
249,641
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Consumer
30-59 days
$
-
$
44
$
-
$
-
$
-
$
-
$
-
$
-
$
44
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
-
-
-
-
-
-
-
-
Total past due
-
44
-
-
-
-
-
-
44
Current
1,811
2,647
1,975
233
114
10
47,039
-
53,829
Total
$
1,811
$
2,691
$
1,975
$
233
$
114
$
10
$
47,039
$
-
$
53,873
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Total
30-59 days
$
-
$
11,296
$
7
$
2,185
$
-
$
-
$
2,086
$
126
$
15,700
60-89 days
-
-
-
-
77
74
784
-
935
Greater than 90 days
-
104
3
10
1,383
655
17,659
2,983
22,797
Total past due
-
11,400
10
2,195
1,460
729
20,529
3,109
39,432
Current
656,897
999,898
508,602
285,473
186,530
150,995
1,505,049
195,358
4,488,802
Total
$
656,897
$
1,011,298
$
508,612
$
287,668
$
187,990
$
151,724
$
1,525,578
$
198,467
$
4,528,234
Greater than 90 days
and accruing
$
-
$
-
$
3
$
-
$
-
$
-
$
2,160
$
-
$
2,163
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements (unaudited)
29
Non-accrual Loan Analysis
Non-accrual loans are loans for which the Company does not record interest
 
income. The accrual of interest on loans is discontinued at the time the loan is 90 days past due
unless the credit is well secured and in process of collection. Past due status is based on
 
contractual terms of the loan. In all cases, loans are placed on non-accrual or
 
charged off at
an earlier date, if collection of principal or interest is considered doubtful. Loans
 
are returned to accrual status when all the principal and interest amounts contractually due
 
are
brought current and future payments are reasonably assured. The following
 
table presents the Company’s non-accrual
 
loans by loan segments:
As of June 30, 2022
Amortized Cost Basis by Origination Year and On Non-accrual
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
loans
Revolving
loans
converted
to term
loans
Total Non-
accrual
Loans
Non-accrual
Loans with no
related
Allowance
(Dollars in thousands)
Commercial and industrial
$
-
$
994
$
-
$
21
$
1,397
$
738
$
-
$
1,868
$
5,018
$
4,906
Commercial and industrial
lines of credit
-
-
-
-
-
-
9,605
-
9,605
9,605
Energy
-
-
-
-
-
-
5,894
-
5,894
698
Commercial real estate
-
2,498
292
-
77
1,109
-
2,983
6,959
6,882
Construction and land
development
-
-
-
-
-
-
-
-
-
-
Residential real estate
-
-
-
-
-
-
-
198
198
198
Multifamily real estate
-
-
-
-
-
-
-
-
-
-
Consumer
-
-
-
-
-
-
-
-
-
-
Total
$
-
$
3,492
$
292
$
21
$
1,474
$
1,847
$
15,499
$
5,049
$
27,674
$
22,289
Interest income recognized on non-accrual loans was $
259
 
thousand and $
418
 
thousand for the three- and six-month periods ended June 30, 2022, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements (unaudited)
30
Allowance for Credit Losses
The following table presents the activity in the allowance for credit losses and
 
allowance for credit losses on off-balance sheet credit exposures by portfolio
 
segment for the
three-month period ended June 30, 2022:
For the Three Months Ended June 30, 2022
Commercial
and Industrial
Commercial
and
Industrial
Lines of
Credit
Energy
Commercial
Real Estate
Construction
and Land
Development
Residential
Real Estate
Multifamily
Real Estate
Consumer
Total
(Dollars in thousands)
Allowance for Credit Losses:
Beginning balance
$
9,981
$
9,361
$
7,507
$
18,628
$
3,678
$
3,089
$
2,342
$
645
$
55,231
Charge-offs
(581)
(750)
(2,900)
-
-
(217)
-
-
(4,448)
Recoveries
-
1,758
-
1,585
-
-
-
1
3,344
Provision (credit)
1,520
898
1,821
(3,171)
240
262
85
35
1,690
Ending balance
$
10,920
$
11,267
$
6,428
$
17,042
$
3,918
$
3,134
$
2,427
$
681
$
55,817
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures:
Beginning balance
$
66
$
153
$
258
$
753
$
3,514
$
4
$
116
$
11
$
4,875
Provision (credit)
(3)
(153)
212
(96)
502
-
(7)
(10)
445
Ending balance
$
63
$
-
$
470
$
657
$
4,016
$
4
$
109
$
1
$
5,320
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements (unaudited)
31
For the Six Months Ended June 30, 2022
Commercial and
Industrial
(1)
Commercial
and
Industrial
Lines of
Credit
(1)
Energy
Commercial
Real Estate
Construction
and Land
Development
Residential
Real
Estate
(2)
Multifamily
Real
Estate
(2)
Consumer
Total
(Dollars in thousands)
Allowance for Credit Losses:
Beginning balance, prior to
adoption of ASU 2016-13
$
20,352
$
-
$
9,229
$
19,119
$
3,749
$
5,598
$
-
$
328
$
58,375
Impact of ASU 2016-13
adoption
(10,213)
8,866
(39)
(186)
(83)
(2,552)
2,465
(5)
(1,747)
Charge-offs
(790)
(1,971)
(3,967)
(1,102)
-
(217)
-
(13)
(8,060)
Recoveries
755
1,779
1,754
1,585
-
-
-
2
5,875
Provision (credit)
816
2,593
(549)
(2,374)
252
305
(38)
369
1,374
Ending balance
$
10,920
$
11,267
$
6,428
$
17,042
$
3,918
$
3,134
$
2,427
$
681
$
55,817
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures:
Beginning balance, prior to
adoption of ASU 2016-13
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Impact of ASU 2016-13
adoption
107
44
265
711
3,914
5
137
1
5,184
Provision (credit)
(44)
(44)
205
(54)
102
(1)
(28)
-
136
Ending balance
$
63
$
-
$
470
$
657
$
4,016
$
4
$
109
$
1
$
5,320
(1)
 
Prior to the adoption of ASU 2016-13, the Commercial and industrial and Commercial and industrial lines of credit
 
were consolidated under the Commercial and industrial
segment.
(2)
 
Prior to the adoption of ASU 2016-13, the Residential real estate and Multifamily real estate segments were consolidated
 
under the Residential and Multifamily Real Estate
segment.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
32
Collateral Dependent Loans:
Collateral dependent loans are loans for which the repayment is expected to be provided
 
substantially through the operation or
sale of the collateral and the borrower is experiencing financial difficulty. The following
 
table presents the amortized cost balance of
loans considered collateral dependent by loan segment and collateral type
 
as of June 30, 2022:
As of June 30, 2022
Loan Segment and Collateral Description
Amortized Cost of
Collateral Dependent
Loans
Related Allowance for
Credit Losses
Amortized Cost of
Collateral Dependent
Loans with no related
Allowance
(Dollars in thousands)
Commercial and Industrial
All business assets
$
5,010
$
103
$
4,906
Commercial and Industrial Lines of Credit
All business assets
9,626
-
9,626
Energy
Oil and natural gas properties
5,894
-
5,894
Commercial Real Estate
Commercial real estate properties
3,978
77
3,901
$
24,508
$
180
$
24,327
Troubled Debt Restructurings
TDRs are those extended to borrowers who are experiencing financial
 
difficulty and who have been granted a concession,
excluding loan modifications as a result of the COVID-19 pandemic.
 
The modification of terms typically includes the extension of
maturity, reduction or deferment of monthly payment, or reduction of the
 
stated interest rate.
 
For the six-month period ended June 30, 2022 and 2021,
no
 
loans were restructured under the TDR guidance. The outstanding
balance of TDRs was $
35
 
million and $
40
 
million as of June 30, 2022 and December 31, 2021, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
33
Disclosures under Previously Applicable
 
GAAP
The following disclosures are presented under previously applicable GAAP. The description
 
of the general characteristics of the
loan rating categories is as described above. The following table presents
 
the credit risk profile of the Company’s loan portfolio based on
an internal rating category and portfolio segment as of December 31, 2021:
As of December 31, 2021
Pass
Special
Mention
Substandard
Performing
Substandard
Non-
performing
Doubtful
Loss
Total
(Dollars in thousands)
Commercial and
industrial
$
1,356,883
$
16,201
$
23,739
$
4,858
$
-
$
-
$
1,401,681
Energy
184,269
73,196
5,246
13,595
2,554
-
278,860
Commercial real
estate
1,172,323
86,768
11,782
10,222
-
-
1,281,095
Construction and
land development
578,758
-
-
-
-
-
578,758
Residential and
multifamily real
estate
593,847
257
6,508
204
-
-
600,816
PPP
64,805
-
-
-
-
-
64,805
Consumer
63,605
-
-
-
-
-
63,605
$
4,014,490
$
176,422
$
47,275
$
28,879
$
2,554
$
-
$
4,269,620
The following table presents the Company’s loan portfolio aging analysis of the
 
recorded investment in loans as of December 31,
2021:
As of December 31, 2021
30-59 Days
Past Due
60-89 Days
Past Due
90 Days or
More
Total Past
Due
Current
Total Loans
Receivable
Loans >= 90
Days and
Accruing
(Dollars in thousands)
Commercial and industrial
$
183
$
499
$
1,037
$
1,719
$
1,399,962
$
1,401,681
$
90
Energy
-
-
4,644
4,644
274,216
278,860
-
Commercial real estate
85
992
-
1,077
1,280,018
1,281,095
-
Construction and land
development
966
117
-
1,083
577,675
578,758
-
Residential and multifamily
real estate
437
151
-
588
600,228
600,816
-
PPP
-
-
-
-
64,805
64,805
-
Consumer
-
99
-
99
63,506
63,605
-
$
1,671
$
1,858
$
5,681
$
9,210
$
4,260,410
$
4,269,620
$
90
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
34
The following table presents the Company’s loans on non-accrual as of
 
December 31, 2021:
December 31, 2021
(Dollars in thousands)
Commercial and industrial
$
4,858
Energy
16,148
Commercial real estate
10,222
Construction and land development
-
Residential and multifamily real estate
204
PPP
-
Consumer
-
Total non-accrual loans
$
31,432
The following table presents the allowance for loan losses by portfolio segment
 
and disaggregated based on the Company’s
impairment methodology:
As of December 31, 2021
Commercial
and
Industrial
Energy
Commercial
Real Estate
Construction
and Land
Development
Residential
and
Multifamily
Real Estate
PPP
Consumer
Total
(Dollars in thousands)
Period end allowance for loan losses allocated to:
Individually
evaluated for
impairment
$
333
$
2,100
$
3,164
$
-
$
-
$
-
$
-
$
5,597
Collectively
evaluated for
impairment
20,019
7,129
15,955
3,749
5,598
-
328
52,778
Ending
balance
$
20,352
$
9,229
$
19,119
$
3,749
$
5,598
$
-
$
328
$
58,375
Allocated to loans:
Individually
evaluated for
impairment
$
5,739
$
16,204
$
31,597
$
-
$
3,387
$
-
$
-
$
56,927
Collectively
evaluated for
impairment
1,395,942
262,656
1,249,498
578,758
597,429
64,805
63,605
4,212,693
Ending
balance
$
1,401,681
$
278,860
$
1,281,095
$
578,758
$
600,816
$
64,805
$
63,605
$
4,269,620
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
35
A loan is considered impaired when based on current information and events, it is probable the Company will be unable to
 
collect
all amounts due from the borrower in accordance with the contractual terms
 
of the loan. Impaired loans include non-performing loans
but also include loans modified in TDRs where concessions have been granted to borrowers experiencing
 
financial difficulties. The
intent of concessions is to maximize collection. The following table presents loans
 
individually evaluated for impairment:
As of December 31, 2021
Recorded Balance
Unpaid Principal Balance
Specific Allowance
(Dollars in thousands)
 
Loans without a specific valuation
 
Commercial and industrial
$
4,659
$
4,740
$
-
 
Energy
 
3,509
7,322
-
Commercial real estate
1,729
1,729
-
 
Construction and land development
 
-
-
-
Residential and multifamily real estate
3,387
3,387
-
 
PPP
 
-
-
-
Consumer
-
-
-
 
Loans with a specific valuation
 
Commercial and industrial
1,080
1,080
333
 
Energy
 
12,695
17,977
2,100
Commercial real estate
29,868
30,854
3,164
 
Construction and land development
 
-
-
-
Residential and multifamily real estate
-
-
-
 
PPP
 
-
-
-
Consumer
-
-
-
 
Total
 
Commercial and industrial
5,739
5,820
333
 
Energy
 
16,204
25,299
2,100
Commercial real estate
31,597
32,583
3,164
 
Construction and land development
 
-
-
-
Residential and multifamily real estate
3,387
3,387
-
 
PPP
 
-
-
-
Consumer
-
-
-
$
56,927
$
67,089
$
5,597
Total interest income recognized during the three and six-month periods
 
ended June 30, 2021 for impaired loans was $
615
thousand and $
1
 
million, respectively. The three- and six-month average balance of impaired loans for the period ended
 
June 30, 2021
was $
108
 
million and $
109
 
million, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
36
The following table presents the activity in the allowance for loan losses by portfolio
 
segment for the three-
 
and six-month
periods ended June 30, 2021:
Three Months Ended June 30, 2021
Commercial
and
Industrial
Energy
Commercial
Real Estate
Construction
and Land
Development
Residential
and
Multifamily
Real Estate
PPP
Consumer
Total
(Dollars in thousands)
Allowance for loan losses:
Beginning
balance
$
23,464
$
20,292
$
20,609
$
3,837
$
6,056
$
-
$
293
$
74,551
Provision
7,532
(2,443)
(1,428)
48
(230)
-
21
3,500
Charge-offs
(2,566)
-
-
-
-
-
-
(2,566)
Recoveries
3
-
-
-
-
-
5
8
Ending balance
$
28,433
$
17,849
$
19,181
$
3,885
$
5,826
$
-
$
319
$
75,493
Six Months Ended June 30, 2021
Commercial
and
Industrial
Energy
Commercial
Real Estate
Construction
and Land
Development
Residential
and
Multifamily
Real Estate
PPP
Consumer
Total
(Dollars in thousands)
Allowance for loan losses:
Beginning
balance
$
24,693
$
18,341
$
22,354
$
3,612
$
5,842
$
-
$
453
$
75,295
Provision
14,547
(492)
(3,173)
273
(16)
-
(139)
11,000
Charge-offs
(10,832)
-
-
-
-
-
-
(10,832)
Recoveries
25
-
-
-
-
-
5
30
Ending balance
$
28,433
$
17,849
$
19,181
$
3,885
$
5,826
$
-
$
319
$
75,493
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
The Company estimates expected credit losses for off-balance sheet credit
 
exposures unless the obligation is unconditionally
cancellable by the Company. The ACL on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The
estimate is calculated for each loan segment and includes consideration of the
 
likelihood that funding will occur and an estimate of the
expected credit losses on commitments expected to be funded over its estimated life.
 
For each pool of contractual obligations expected
to be funded, the Company uses the reserve rate established for the related
 
loan pools. The $
5
 
million allowance for credit losses on off
balance sheet credit exposures at June 30, 2022 is included in “interest payable
 
and other liabilities” on the balance sheet.
 
The following categories of off-balance sheet credit exposures have been
 
identified:
Loan commitments – include revolving lines of credit, non-revolving lines
 
of credit, and loans approved that are not yet funded.
Risks inherent to revolving lines of credit often are related to the susceptibility of
 
an individual or business experiencing
unpredictable cash flow or financial troubles, thus leading to payment default.
 
The primary risk associated with non-revolving
lines of credit is the diversion of funds for other expenditures.
Letters of credit – are primarily established to provide assurance to the beneficiary
 
that the applicant will perform certain
obligations arising out of a separate transaction between the beneficiary and
 
applicant. If the obligation is not met, it gives the
beneficiary the right to draw on the letter of credit.
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
37
Note 5:
 
Derivatives and Hedging
The Company is exposed to certain risks arising from both its business operations and
 
economic conditions, including interest
rate, liquidity, and
 
credit risk. The Company uses derivative financial instruments as part of its risk management
 
activities to manage
exposures that arise from business activities that result in the receipt or payment
 
of future known and uncertain cash amounts, the value
of which are determined by interest rates.
 
Cash Flow Hedges of Interest Rate Risk
The Company uses interest rate derivatives to add stability to interest expense
 
and to manage its exposure to interest rate
movements. Interest rate swaps designated as cash flow hedges involve
 
the receipt of variable amounts from a counterparty in exchange
for the Company making fixed-rate payments over the life of the agreements
 
without exchange of the underlying notional amount.
During 2021, the Company entered into forward-looking
 
derivatives that will be used to hedge variable cash flows associated with
variable-rate funding. These
5
 
swaps had an aggregate notional amount of $
100
 
million at June 30, 2022 and December 31, 2021. The
derivatives have various maturities ranging from August 2025 to May 2029.
For derivatives designated and that qualify as cash flow hedges of interest rate
 
risk, the gain or loss on the derivative is recorded
in Accumulated Other Comprehensive Income (Loss) (“AOCI”) and subsequently reclassified into interest expense
 
in the same period(s)
during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest
expense as interest payments are made on the Company’s related, variable
 
-rate debt. During the next twelve months, the Company
estimates that no amount will be reclassified as a reduction to interest expense.
 
The Company’s derivative financial instruments have different effective
 
dates with the first derivative effective in August 2023.
As a result, the derivative financial instruments did not impact the Condensed
 
Consolidated Statements of Income for the three-
 
and six-
month periods
 
ended June 30, 2022.
Non-designated Hedges
Derivatives not designated as hedges are not speculative and result from
 
a service provided to clients. The Company executes
interest rate swaps with customers to facilitate their respective risk management
 
strategies. Those interest rate swaps are simultaneously
hedged by offsetting derivatives that the Company executes with a third-party,
 
such that the Company minimizes its net risk exposure
resulting from such transactions. Interest rate derivatives associated
 
with this program do not meet the strict hedge accounting
requirements and changes in the fair value of both the customer derivatives
 
and the offsetting derivatives are recognized directly in
earnings.
 
Swap fees earned upon origination and credit valuation adjustments that represent
 
the risk of a counterparty’s default are reported
on the Consolidated Statements of Income as swap fee income, net. The effect of the
 
Company’s derivative financial instruments gain
(loss) are reported on the Consolidated Statements of Cash Flows within “other
 
assets” and “other liabilities”.
 
These
52
 
and
54
 
swaps had an aggregate notional amount of $
521
 
million and $
535
 
million at June 30, 2022 and December 31,
2021, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
38
Fair Values
 
of Derivative Instruments on the Consolidated Balance Sheets
The table below presents the fair value of the Company’s derivative financial
 
instruments and their classification on the
Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021:
Asset Derivatives
Liability Derivatives
Balance Sheet
June 30,
 
December 31,
 
Balance Sheet
June 30,
 
December 31,
 
Location
2022
2021
Location
2022
2021
(Dollars in thousands)
Interest rate products:
Derivatives not
designated as hedging
instruments
Other assets
$
5,873
$
11,305
Interest payable
and other
liabilities
$
5,875
$
11,322
Derivatives
designated as hedging
instruments
Other assets
3,475
3
Interest payable
and other
liabilities
-
565
Total
$
9,348
$
11,308
$
5,875
$
11,887
The table below presents the effect of cash flow hedge accounting on Accumulated Other Comprehensive Income
 
as of June 30,
2022. The Company had no cash flow hedges for the six-months ended June 30, 2021.
June 30, 2022
Gain or
(Loss)
Recognized
in OCI on
Derivative
Gain or
(Loss)
Recognized
in OCI
Included
Component
Gain or
(Loss)
Recognized
in OCI
Excluded
Component
Location of
Gain or (Loss)
Recognized
from
Accumulated
Other
Comprehensive
Income into
Income
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Income
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Income
Included
Component
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Income
Excluded
Component
(Dollars in thousands)
Derivatives in Cash Flow Hedging Relationships
Interest Rate Products
$
3,475
$
3,475
$
-
Interest expense
$
-
$
-
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
39
Note 6:
 
Time Deposits and Borrowings
The scheduled maturities, excluding interest, of the Company’s borrowings at
 
June 30, 2022 were as follows:
June 30, 2022
Within One
Year
One to Two
Years
Two to
Three Years
Three to
Four Years
Four to Five
Years
After Five
Years
Total
(Dollars in thousands)
Time deposits
$
654,313
$
68,804
$
5,310
$
1,806
$
2,838
$
-
$
733,071
Fed funds purchased &
repurchase agreements
6
-
-
-
-
-
6
FHLB borrowings
41,500
-
-
5,100
-
110,000
156,600
FHLB line of credit
140,000
-
-
-
-
-
140,000
Trust preferred securities
(1)
-
-
-
-
-
1,035
1,035
$
835,819
$
68,804
$
5,310
$
6,906
$
2,838
$
111,035
$
1,030,712
(1)
The contract value of the trust preferred securities is $
2.6
 
million and is currently being accreted to the maturity date of 2035.
 
Note 7:
 
Change in Accumulated Other Comprehensive Income (Loss)
 
Amounts reclassified from AOCI and the affected line items in the Condensed Consolidated Statements of Income
 
during the
three-
 
and six-month periods ended June 30, 2022 and 2021, were as follows:
Three Months Ended
Six Months Ended
June 30,
 
June 30,
 
Affected Line Item in the
2022
2021
2022
2021
Statements of Income
(Dollars in thousands)
Unrealized losses on available-for-sale
securities
$
(12)
$
(13)
$
(38)
$
(3)
Loss on sale of available-for-sale
securities
Less: tax benefit effect
(3)
(3)
(9)
(1)
Income tax benefit
Net reclassified amount
$
(9)
$
(10)
$
(29)
$
(2)
Note 8:
 
Regulatory Matters
The Company and the Bank are subject to various regulatory capital requirements
 
administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory
 
and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on the Company’s consolidated
 
financial statements. Management believes that,
as of June 30, 2022, the Company and the Bank met all capital adequacy requirements
 
to which they are subject.
The capital rules require the Company to maintain a
2.5
% capital conservation buffer with respect to Common Equity Tier I
capital, Tier I capital to risk-weighted assets, and total capital to risk-weighted assets, which
 
is included in the column “Minimum
Capital Required - Basel III” within the table below. A financial institution with a conservation buffer of less than the required amount is
subject to limitations on capital distributions, including dividend payments and
 
stock repurchases, as well as certain discretionary bonus
payments to executive officers.
 
The Company and the Bank opted to exclude AOCI from the regulatory capital calculations. As a result, change in AOCI,
including the recent decrease in the available-for-sale securities portfolio, net
 
of tax, did not impact the Company’s or Bank’s capital
ratios.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
40
The Company’s and the Bank’s actual capital amounts and ratios as of June 30,
 
2022 and December 31, 2021 are presented in the
following table:
Actual
Minimum Capital
 
Required - Basel III
Required to be Considered
Well Capitalized
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
June 30, 2022
Total Capital to Risk-Weighted Assets
Consolidated
$
719,226
12.6
%
$
599,382
10.5
%
 
N/A
 
N/A
Bank
692,815
12.2
598,125
10.5
$
569,643
10.0
%
Tier I Capital to Risk-Weighted Assets
Consolidated
658,089
11.5
485,214
8.5
N/A
N/A
Bank
631,679
11.1
484,197
8.5
455,715
8.0
Common Equity Tier 1 to Risk-Weighted Assets
Consolidated
657,055
11.5
399,588
7.0
 
N/A
 
N/A
Bank
631,679
11.1
398,750
7.0
370,268
6.5
Tier I Capital to Average Assets
Consolidated
658,089
11.8
223,736
4.0
N/A
N/A
Bank
$
631,679
11.3
%
$
223,728
4.0
%
$
279,660
5.0
%
December 31, 2021
Total Capital to Risk-Weighted Assets
Consolidated
$
704,544
13.6
%
$
544,060
10.5
%
N/A
N/A
Bank
681,980
13.2
543,708
10.5
$
517,817
10.0
%
Tier I Capital to Risk-Weighted Assets
Consolidated
646,169
12.5
440,430
8.5
 
N/A
 
N/A
Bank
623,605
12.0
440,144
8.5
414,253
8.0
Common Equity Tier 1 to Risk-Weighted Assets
Consolidated
645,160
12.5
362,707
7.0
N/A
N/A
Bank
623,605
12.0
362,472
7.0
336,581
6.5
Tier I Capital to Average Assets
Consolidated
646,169
11.8
218,510
4.0
 
N/A
 
N/A
Bank
$
623,605
11.4
%
$
218,366
4.0
%
$
272,958
5.0
%
Note 9:
 
Stock-Based Compensation
The Company issues stock-based compensation in the form of
 
non-vested restricted stock and stock appreciation rights under the
2018 Omnibus Equity Incentive Plan (as amended, the “Omnibus Plan”). The Omnibus
 
Plan will expire on the tenth anniversary of its
effective date. In addition, the Company has an Employee Stock Purchase
 
Plan that was reinstated during the third quarter of 2020. The
aggregate number of shares authorized for future issuance under the Omnibus
 
Plan is
1,486,152
 
shares as of June 30, 2022.
The table below summarizes the stock-based compensation for the
 
three- and six-month periods ended June 30, 2022 and 2021:
Three Months Ended
Six Months Ended
June 30,
 
June 30,
 
2022
2021
2022
2021
(Dollars in thousands)
Stock appreciation rights
$
88
$
198
$
187
$
434
Performance-based stock awards
200
528
411
262
Restricted stock units and awards
795
834
1,573
1,499
Employee stock purchase plan
37
15
64
29
Total stock-based compensation
$
1,120
$
1,575
$
2,235
$
2,224
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
41
Performance-Based Restricted Stock Units
The Company awards performance-based restricted stock units (“PBRSUs”) to
 
key officers of the Company. The performance-
based shares typically cliff-vest at the end of
three years
 
based on attainment of certain performance metrics developed by the
Compensation Committee. The ultimate number of shares issuable under each performance
 
award is the product of the award target and
the award payout percentage given the level of achievement. The award payout percentages
 
by level of achievement range between
0
%
of target and
150
% of target.
During the six-month period ended June 30, 2022, the Company granted
66,667
 
PBRSUs. The performance metrics include
three-year
 
cumulative, adjusted earnings per share and relative total shareholder return.
The following table summarizes the status of and changes in the performance
 
-based awards:
Performance-Based Restricted
 
Stock Unit Awards
Number of Shares
Weighted-Average
Grant Date Fair Value
Unvested, January 1, 2022
98,352
$
13.59
Granted
66,667
16.04
Vested
-
-
Forfeited
(24,944)
15.03
Unvested, June 30, 2022
140,075
$
14.50
Unrecognized stock-based compensation related to the performance
 
awards issued through June 30, 2022 was $
2
 
million and is
expected to be recognized over
2.3
 
years.
Restricted Stock Units and Restricted Stock
 
Awards
The Company issues time-based restricted stock units (“RSUs”) and
 
restricted stock awards (“RSAs”) to provide incentives to
key officers, employees, and non-employee directors. Awards are typically granted annually as determined by
 
the Compensation
Committee. The service-based RSUs typically vest in equal amounts over three years. The service-based
 
RSAs typically cliff-vest after
one year
.
The following table summarizes the status of and changes in the RSUs and RSAs:
Restricted Stock Units and Awards
Number of Shares
Weighted-Average
Grant Date Fair Value
Unvested, January 1, 2022
383,630
$
13.52
Granted
238,127
15.09
Vested
(193,350)
13.83
Forfeited
(16,433)
13.95
Unvested, June 30, 2022
411,974
$
14.26
Unrecognized stock-based compensation related to the RSUs and RSAs issued through
 
June 30, 2022 was $
5
 
million and is
expected to be recognized over
2.0
 
years.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
42
Note 10:
 
Income Tax
An income tax expense reconciliation at the statutory rate to the Company’s
 
actual income tax expense is shown below:
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
(Dollars in thousands)
Computed at the statutory rate (
21
%)
$
4,110
$
3,957
$
8,523
$
7,095
Increase (decrease) resulting from
Tax-exempt income
(890)
(1,212)
(1,744)
(2,002)
Non-deductible expenses
111
40
193
90
State income taxes
728
682
1,424
1,178
Equity based compensation
15
(131)
(154)
(117)
Other adjustments
(47)
(73)
(27)
(73)
Actual tax expense
$
4,027
$
3,263
$
8,215
$
6,171
The tax effects of temporary differences related to deferred taxes located
 
in “other assets” on the Condensed Consolidated
Balance Sheets are presented below:
June 30, 2022
December 31, 2021
(Dollars in thousands)
Deferred tax assets
Net unrealized loss on securities available-for-sale
$
16,020
$
-
Allowance for credit losses
14,716
14,051
Lease incentive
481
508
Loan fees
3,302
3,227
Accrued expenses
1,705
2,735
Deferred compensation
1,749
2,418
State tax credit
273
1,033
Other
764
2,057
Total deferred tax asset
39,010
26,029
Deferred tax liability
 
 
Net unrealized gain on securities available-for-sale
-
(6,967)
FHLB stock basis
(722)
(757)
Premises and equipment
(2,341)
(2,602)
Other
(1,041)
(1,229)
Total deferred tax liability
(4,104)
(11,555)
Net deferred tax asset
$
34,906
$
14,474
Note 11:
 
Disclosures about Fair Value of Financial Instruments
Fair value is 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. Fair value measurements must maximize
 
the use of observable inputs and minimize the use
of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair
 
value:
Level 1
 
Quoted prices in active markets for identical assets or liabilities.
Level 2
 
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted
 
prices in
markets that are not active; or other inputs that are observable or can be corroborated
 
by observable market data for
substantially the full term of the assets or liabilities.
Level 3
 
Unobservable inputs supported by little or no market activity and significant to
 
the fair value of the assets or liabilities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
43
Recurring Measurements
The following list presents the assets and liabilities recognized in the accompanying
 
Condensed Consolidated Balance Sheets
measured at fair value on a recurring basis and the level within the fair value
 
hierarchy in which the fair value measurements fall at
June 30, 2022 and December 31, 2021:
 
Fair Value Description
Valuation
Hierarchy
Level
Where Fair
Value Balance
Can Be Found
Available-for-
Sale Securities and
CRA Equity Security
Where quoted market prices are available in an active market, securities are
classified within Level 1 of the valuation hierarchy. If quoted market prices
are not available, then fair values are estimated by using quoted prices
 
of
securities with similar characteristics or independent asset pricing services
and pricing models, the inputs of which are market-based or independently
sourced market parameters, including, but not limited to, yield curves,
interest rates, volatilities, prepayments, defaults, cumulative loss projections
and cash flows.
 
Level 2
Note 3:
Securities
 
Derivatives
Fair value of the interest rate swaps is obtained from independent pricing
services based on quoted market prices for similar derivative contracts.
Level 2
Note 5:
Derivatives and
Hedging
Non-recurring Measurements
The following tables present assets measured at fair value on a non-recurring
 
basis and the level within the fair value hierarchy in
which the fair value measurements fall at June 30, 2022 and December
 
31, 2021:
June 30, 2022
Fair Value Measurements Using
Fair Value
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
(Dollars in thousands)
Collateral-dependent loans
$
24,328
$
-
$
-
$
24,328
Foreclosed assets held-for-sale
$
1,588
$
-
$
-
$
1,588
December 31, 2021
Fair Value Measurements Using
Fair Value
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
(Dollars in thousands)
Collateral-dependent impaired loans
$
38,046
$
-
$
-
$
38,046
Foreclosed assets held-for-sale
$
1,148
$
-
$
-
$
1,148
Following is a description of the valuation methodologies and inputs used for
 
assets measured at fair value on a non-recurring
basis and recognized in the accompanying Condensed Consolidated Balance Sheets.
Collateral-Dependent Loans, Net of ACL
The estimated fair value of collateral-dependent loans is based on the appraised
 
fair value of the collateral, less estimated cost to
sell. If the fair value of the collateral is below the loan’s amortized cost, the ACL is netted against the loan balance. Collateral-dependent
loans are classified within Level 3 of the fair value hierarchy.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
44
The Company considers the appraisal or evaluation as the starting point for determining
 
fair value and then considers other
factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral dependent
 
loans are
obtained when the loan is determined to be collateral dependent and subsequently
 
as deemed necessary by the Office of the Chief Credit
Officer.
Appraisals are reviewed for accuracy and consistency by management. Appraisers are selected from the list of approved
appraisers maintained by management. The appraised values are reduced by discounts to
 
consider lack of marketability and estimated
cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts
 
and estimates are developed
by the Office of the Chief Credit Officer by comparison to historical results.
Foreclosed Assets Held-for-Sale
The fair value of foreclosed assets-held-for-sale is based on the appraised fair value of
 
the collateral, less estimated cost to sell.
Unobservable (Level 3) Inputs
The following tables present quantitative information about unobservabl
 
e
 
inputs used in non-recurring Level 3 fair value
measurements at June 30, 2022 and December 31, 2021:
June 30, 2022
Fair Value
Valuation Techniques
Unobservable
Inputs
Range
(Weighted Average)
(Dollars in thousands)
$
Market comparable
properties
Marketability
discount
 
-
 
%
-
100
%
Collateral dependent loans
24,328
(
22
)%
$
Market comparable
properties
Marketability
discount
Foreclosed assets held-for-sale
1,588
(
11
)%
December 31, 2021
Fair Value
Valuation Techniques
Unobservable
Inputs
Range
(Weighted Average)
(Dollars in thousands)
$
Market comparable
properties
Marketability
discount
7
%
-
100
%
Collateral-dependent impaired loans
38,046
(
26
)%
$
Market comparable
properties
Marketability
discount
Foreclosed assets held-for-sale
1,148
(
10
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
45
The following tables present the estimated fair values of the Company’s financial
 
instruments at June 30, 2022 and December 31,
2021:
June 30, 2022
Carrying
Fair Value Measurements
Amount
Level 1
Level 2
Level 3
Total
(Dollars in thousands)
Financial Assets
Cash and cash equivalents
$
277,678
$
277,678
$
-
$
-
$
277,678
Available-for-sale securities
695,647
-
695,647
-
695,647
Loans, net of allowance for credit losses
4,472,417
-
-
4,451,704
4,451,704
Restricted equity securities
14,946
-
-
14,946
14,946
Interest receivable
17,909
-
17,909
-
17,909
Equity securities
3,513
-
2,047
1,466
3,513
Derivative assets
9,348
-
9,348
-
9,348
$
5,491,458
$
277,678
$
724,951
$
4,468,116
$
5,470,745
Financial Liabilities
Deposits
$
4,744,420
$
1,163,462
$
-
$
3,453,569
$
4,617,031
Federal Home Loan Bank line of credit
140,000
-
140,000
-
140,000
Federal Home Loan Bank advances
156,600
-
153,781
-
153,781
Other borrowings
1,041
-
2,028
-
2,028
Interest payable
1,249
-
1,249
-
1,249
Derivative liabilities
5,875
-
5,875
-
5,875
$
5,049,185
$
1,163,462
$
302,933
$
3,453,569
$
4,919,964
December 31, 2021
Carrying
Fair Value Measurements
Amount
Level 1
Level 2
Level 3
Total
(Dollars in thousands)
Financial Assets
Cash and cash equivalents
$
482,727
$
482,727
$
-
$
-
$
482,727
Available-for-sale securities
745,969
-
745,969
-
745,969
Loans, net of allowance for loan losses
4,197,838
-
-
4,178,268
4,178,268
Restricted equity securities
11,927
-
-
11,927
11,927
Interest receivable
16,023
-
16,023
-
16,023
Equity securities
2,642
-
2,209
433
2,642
Derivative assets
11,308
-
11,308
-
11,308
$
5,468,434
$
482,727
$
775,509
$
4,190,628
$
5,448,864
Financial Liabilities
Deposits
$
4,683,597
$
1,163,224
$
-
$
3,482,218
$
4,645,442
Federal Home Loan Bank advances
236,600
-
241,981
-
241,981
Other borrowings
1,009
-
2,318
-
2,318
Interest payable
1,336
-
1,336
-
1,336
Derivative liabilities
11,887
-
11,887
-
11,887
$
4,934,429
$
1,163,224
$
257,522
$
3,482,218
$
4,902,964
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
46
Note 12:
 
Commitments and Credit Risk
Commitments
The Company had the following commitments at June 30, 2022 and December
 
31, 2021:
June 30, 2022
December 31, 2021
(Dollars in thousands)
Commitments to originate loans
$
274,647
$
118,651
Standby letters of credit
57,797
51,114
Lines of credit
1,949,860
1,768,231
Future lease commitments
-
11,100
Commitments related to investment fund
4,534
2,067
$
2,286,838
$
1,951,163
Note 13:
 
Legal and Regulatory Proceedings
We accrue estimates for resolution of any legal and other contingencies when
 
losses are probable and reasonably estimable in
accordance with ASC 450,
Contingencies
 
("ASC 450"). No less than quarterly, and as facts and circumstances change, we review
 
the
status of each significant matter underlying a legal proceeding or claim and
 
assess our potential financial exposure. The Company
establishes reserves for litigation-related matters when it is probable
 
that a loss associated with a claim or proceeding has been incurred
and the amount of the loss can be reasonably estimated. If the assessment indicates
 
that a potentially material loss contingency is not
probable, but is reasonably possible, or is probable but cannot be estimated,
 
then the nature of the contingent liability, together with an
estimate of the range of possible loss if determinable and material, would
 
be disclosed. Loss contingencies considered remote are
generally not disclosed unless they involve guarantees, in which case the nature
 
of the guarantee would be disclosed.
 
Significant
judgment is required in both the determination of probability and the determination
 
as to whether the amount of an exposure is
reasonably estimable, and accruals are based only on the information available
 
to our management at the time the judgment is made,
which may prove to be incomplete or inaccurate or unanticipated events
 
and circumstances may occur that might cause us to change
those estimates and assumptions. Furthermore, the outcome of legal proceedings
 
is inherently uncertain, and we may incur substantial
defense costs and expenses defending any of these matters. Should any one or
 
a combination of more than one of these proceedings be
successful, or should we determine to settle any one or a combination of these
 
matters, we may be required to pay substantial sums,
become subject to the entry of an injunction or be forced to change the manner in
 
which we operate our business, which could have a
material adverse impact on our business, results of operations, cash flows or financial
 
condition.
The Company paid $
2.3
 
million in employee separation costs. The Company’s insurance carriers agreed
 
to cover $
1.2
 
million of
these settlement costs. The remaining $
1.1
 
million was expensed during the three-month period ended June 30, 2022. The
reimbursement receivable is located in “Other assets” on the Condensed
 
Consolidated Balance Sheet for the period ended June 30, 2022.
The Company is subject to various other legal proceedings and claims that arise
 
primarily in the ordinary course of business. At
this time, we do not believe the range of potential losses will have a material
 
adverse effect on the consolidated financial position,
results of operations and cash flows of the Company.
 
Note 14:
 
Leases
The Company’s leases primarily include bank branches located in
 
Kansas City, Missouri; Tulsa, Oklahoma; Dallas, Texas; Frisco,
Texas; and Phoenix, Arizona. The remaining lease terms on these branch leases range from less than
one year
 
to
twenty years
 
with
certain options to renew. Renewal terms can extend the lease term between
five years
 
and
 
twenty years
. The exercise of lease renewal
options is at the Company’s sole discretion. When it is reasonably certain that the Company
 
will exercise its option to renew or extend
the lease term, that option is included in the estimated value of the right of use
 
(“ROU”) asset and lease liability. The Company’s lease
agreements do not contain any material residual value guarantees or material
 
restrictive covenants.
 
As of June 30, 2022, the Company
recognized one finance lease and the remaining Company leases are classified as operating
 
leases.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
47
Under ASC 842, a modified retrospective transition approach is required, applying the new standard to all leases existing at
 
the
date of initial application. The Company chose to use the adoption date of January 1, 2022, for ASC 842. As such, all periods presented
after January 1, 2022, are under ASC 842 whereas periods presented prior to January 1, 2022, are in accordance with prior
 
lease
accounting of ASC 840. Financial information was not updated and the disclosures required under ASC 842 were not provided for dates
and periods before January 1, 2022.
 
The Company’s right to use an asset over the life of a lease is recorded as an ROU asset, is included
 
in “Other assets” on the
Condensed Consolidated Balance Sheets, and was $
30
 
million at June 30, 2022. Certain adjustments to the ROU asset may be required
for items such as initial direct costs paid or incentives received. The lease liability is located in
 
“Interest payable and other liabilities” on
the Condensed Consolidated Balance Sheets of $
33
 
million at June 30, 2022.
 
The Company was unable to determine the implicit rate in the leases and used the incremental borrowing
 
rate instead. The
Company used the FHLB yield curve on the lease commencement date and
 
selected the rate closest to the remaining lease term. The
remaining weighted-average lease term is
12.4
 
years and the weighted-average discount rate was
2.39
% as of June 30, 2022.
The following table presents components of operating lease expense
 
in the accompanying Condensed Consolidated Statements of
Income for the three- and six-month periods ended June 30, 2022:
For the Three Months Ended
 
June 30, 2022
For the Six Months Ended
June 30, 2022
(Dollars in thousands)
Finance lease amortization of right-of-use asset
$
92
$
92
Finance lease interest on lease liability
46
46
Operating lease expense
603
1,329
Variable lease expense
345
558
Short-term lease expense
5
10
Total lease expense
$
1,091
$
2,035
Future minimum commitments due under these lease agreements as of June
 
30, 2022 are as follows:
Operating Leases
Finance Lease
(Dollars in thousands)
Remainder of 2022
$
1,502
$
245
2023
3,070
490
2024
2,793
490
2025
2,804
490
2026
2,836
490
Thereafter
15,243
8,823
Total lease payments
$
28,248
$
11,028
Less imputed interest
3,362
3,302
Total
$
24,886
$
7,726
Supplemental cash flow information –
Operating cash flows paid for operating lease amounts included in the measurement
 
of
lease liabilities was $
699
 
thousand and $
1.4
 
million for the three- and six-months ended June 30, 2022, respectively. Operating
 
cash
flows paid for finance lease amounts included in the measurement of lease liabilities
 
was $
123
 
thousand for the three- and six-month
periods ended June 30, 2022. During the three- and six-months ended
 
June 30 2022, the Company did
no
t record any ROU assets that
were exchanged for operating lease liabilities.
Notes to Condensed Consolidated Financial Statements
(unaudited)
48
Note 15:
 
Stock Warrants
During the six-month period ended June 30, 2022,
33,500
 
warrants were exercised at a strike price of $
5.00
 
per share and
33,500
common shares were issued.
The Company had
80,000
 
and
113,500
 
outstanding, fully vested warrants to purchase common stock at a strike price
 
of $
5.00
 
per
share as of June 30, 2022 and December 31, 2021, respectively.
 
The
80,000
 
warrants expire on April 26, 2023.
 
49
ITEM 2. MANAGEMENT’S DISCUSSION AND
 
ANALYSIS OF FINANCIAL
 
CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
 
with the consolidated financial statements and related notes
and with the statistical information and financial data appearing in this report
 
as well as in the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2021 filed with the Securities and Exchange
 
Commission (“SEC”) on February 28, 2022 (the
“2021 Form 10-K”). Results of operations for the three-
 
and six-month periods ended June 30, 2022 are not necessarily indicative of
results to be attained for any other period. Certain statements in this report
 
contain forward-looking statements regarding our plans,
objectives, beliefs, expectations, representations,
 
and projections. See “Forward-Looking Information” which is incorporated herein by
reference.
Second Quarter 2022 Highlights
During the second quarter ended June 30, 2022, we accomplished the following:
•
Announced on June 13, 2022, an agreement under which CrossFirst Bank
 
will acquire Central Bancorp, Inc.’s bank
subsidiary, Farmers & Stockmens Bank (collectively, Farmers & Stockmens Bank
 
and Central Bancorp, Inc. are herein
referred as “Central”), in an all-cash transaction;
•
$5.7 billion of assets with basic earnings per share of $0.31 and $0.65
 
for the three-
 
and six-month periods ended June 30,
2022, respectively an increase of $0.01 and $0.11 from the same periods
 
in the prior year, respectively;
•
$179 million or 4% of total loan growth from the previous quarter and $272 million or 6%
 
loan growth from December 31,
2021;
•
Continued improvement in credit quality during the second quarter of 2022
 
as evidenced by the decrease in non-performing
assets to total assets ratio from 0.64% at March 31, 2022 to 0.54% at June 30, 2022;
•
Return on Average Assets of 1.12% and a Return on Equity of 10.15% for the quarter ended June 30, 2022;
•
Net Interest Margin (Fully Tax-Equivalent)
(1)
 
of 3.52% for the quarter ended June 30, 2022, compared to 3.14% for the
 
same
quarter last year
(1)
The Company modified the yield calculation. Refer to the section “Update to Net Interest Margin Methodology” below for additional information.
 
Central Acquisition Update
As noted above, the Company has entered into an agreement to acquire
 
Farmers & Stockmens Bank for approximately $75
million, subject to approval by Central Bancorp, Inc. shareholders and
 
bank regulatory authorities, as well as the satisfaction of other
customary closing conditions. The Company believes the acquisition will advance
 
its expansion strategy with access to Colorado and
New Mexico while deploying a portion of the Bank’s capital. The Company expects
 
Central to increase core deposits and enhance the
Company’s SBA lending and mortgage operations. The Company anticipates the acquisition will close in the second
 
half of 2022 with
system integration occurring in the first half of 2023.
Interest Rate Risk Management
The Company is monitoring interest rate sensitivity closely as $3.5 billion or 63%
 
of earning assets mature or reprice within
twelve months, including $2.9 billion that reprices in the first month. $3.7
 
million of interest-bearing liabilities mature or reprice over
the same twelve-month period. The Company is reviewing options to manage balance
 
sheet sensitivity in the event interest rates decline
in late 2023.
Credit Quality
Credit quality metrics generally improved during the second quarter of
 
2022. Non-performing assets declined from $36 million at
March 31, 2022 to $31 million at June 30, 2022. Net charge-offs for the three-month
 
period ended June 30, 2022 were $1 million, or
0.10% of average loans.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
50
The Company continues to monitor the U.S. economic indicators, including
 
the inflation rate, commodity prices, interest rates,
and potential supply chain disruptions and the impact it may have on the
 
Company’s markets, clients, and prospects. The Company is
monitoring the impact of a rising interest rate environment on the commercial
 
real estate market and enterprise and leverage loans that is
currently mitigated by low debt-to-equity ratios.
 
As of June 30, 2022, the Company did not identify any systemic issues within its loan
portfolio that would significantly affect the credit quality of the loan portfolio.
 
Update to Net Interest Margin Methodology
The Company modified the yield calculation on the available-for-sale security
 
portfolio to better conform to peer disclosures in
the first quarter of 2022. All earning-asset yields and net interest margins presented were retroactively updated
 
for the change in
methodology. The following changes were made:
◾
The average unrealized gain (loss) on available-for-sale securities balance was removed
 
from the security lines and placed in
other non-interest earning assets.
◾
The annualization method was changed from Actual/Actual to 30/360 for the security yields.
The Company believes the new calculation provides better insight into
 
why the security yields and net interest margin changed
period-to-period.
 
Impact to Yield
For the Quarter Ended
For the Six Months
Ended
June 30,
March 31,
December 31,
September 30,
June 30,
June 30,
June 30,
Lines Impacted
2022
2022
2021
2021
2021
2022
2021
Previous calculation
Yield on securities - taxable
2.77
%
2.20
%
2.11
%
1.96
%
1.96
%
2.36
%
1.83
%
Yield on securities - tax-exempt
(1)
3.46
3.31
3.17
3.20
3.34
3.44
3.38
Total securities yield
(1)
3.29
3.00
2.89
2.87
2.93
3.14
2.91
Yield on interest-earning assets
(1)
4.01
3.64
3.70
3.62
3.57
3.83
3.53
Net interest spread
(1)
3.51
3.25
3.22
3.16
3.08
3.39
3.08
Net interest margin
(1)
3.55
3.29
3.28
3.20
3.12
3.42
3.12
As calculated going forward
Yield on securities - taxable
2.35
2.15
2.14
2.01
1.99
2.26
1.86
Yield on securities - tax-exempt
(1)
3.36
3.35
3.35
3.43
3.54
3.35
3.57
Total securities yield
(1)
3.07
3.00
3.02
3.04
3.07
3.04
3.04
Yield on interest-earning assets
(1)
3.98
3.64
3.72
3.64
3.59
3.81
3.55
Net interest spread
(1)
3.48
3.25
3.24
3.18
3.10
3.37
3.03
Net interest margin
(1)
3.52
3.29
3.30
3.23
3.14
3.41
3.07
Change
Yield on securities - taxable
(0.42)
(0.05)
0.03
0.05
0.03
(0.10)
0.03
Yield on securities - tax-exempt
(1)
(0.10)
0.04
0.18
0.23
0.20
(0.09)
0.19
Total securities yield
(1)
(0.22)
-
0.13
0.17
0.14
(0.10)
0.13
Yield on interest-earning assets
(1)
(0.03)
-
0.02
0.02
0.02
(0.02)
0.02
Net interest spread
(1)
(0.03)
-
0.02
0.02
0.02
(0.02)
(0.05)
Net interest margin
(1)
(0.03)
%
-
%
0.02
%
0.03
%
0.02
%
(0.01)
%
(0.05)
%
(1)
Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are
 
exempt from Federal income taxes. The
incremental tax rate used is 21.0%.
Update to Customer and Industry Concentrations
As of June 30, 2022, the Company’s
 
top 20 customer relationships represented approximately 23% or $1.1
 
billion of total
deposits. The Company believes that there are sufficient funding
 
sources, including on-balance sheet liquid assets and wholesale deposit
options, so that an immediate reduction in these deposit balances would
 
not be expected to have a material, detrimental effect on the
Company’s financial position
 
or operations.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
51
Performance Measures
As of or For the Quarter Ended
As of or For the Six Months Ended
June 30,
March 31,
December 31,
September 30,
June 30,
June 30,
June 30,
2022
2022
2021
2021
2021
2022
2021
(Dollars in thousands, except per share data)
Return on average assets
(1)
1.12
%
1.23
%
1.50
%
1.54
%
1.10
%
1.18
%
0.97
%
Return on average equity
(1)
10.15
%
10.44
%
12.57
%
12.92
%
9.86
%
10.30
%
8.84
%
Earnings per share
$
0.31
$
0.33
$
0.41
$
0.41
$
0.30
$
0.65
$
0.54
Diluted earnings per share
$
0.31
$
0.33
$
0.40
$
0.41
$
0.30
$
0.64
$
0.53
Efficiency
(2)
57.36
%
57.57
%
55.38
%
59.06
%
53.61
%
57.46
%
52.06
%
Ratio of equity to assets
10.65
%
11.29
%
11.88
%
12.08
%
12.00
%
10.65
%
12.00
%
(1)
 
Interim periods annualized
(2)
 
We calculate efficiency ratio as non-interest expense
 
divided by the sum of net interest income and
 
non-interest income.
Results of Operations
Net Interest Income
Net interest income is presented on a tax-equivalent basis below. A tax-equivalent basis makes all income taxable at the same rate. For example, $100 of tax-exempt
 
income
would be presented as $126.58, an amount that if taxed at the statutory federal income
 
tax rate of 21% would yield $100. We believe a tax-equivalent basis provides for improved
comparability between the various earning assets.
 
For the Quarter Ended
For the Six Months Ended
June 30,
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
June 30,
 
June 30,
 
2022
2022
2021
2021
2021
2022
2021
Yield on securities - tax-equivalent
(1)
3.07
%
3.00
%
3.02
%
3.04
%
3.07
%
3.04
%
3.04
%
Yield on loans
4.28
4.00
4.17
4.00
3.99
4.14
3.96
Yield on earning assets - tax-equivalent
(1)
3.98
3.64
3.72
3.64
3.59
3.81
3.55
Cost of interest-bearing deposits
0.56
0.41
0.43
0.47
0.50
0.48
0.53
Cost of total deposits
0.42
0.31
0.33
0.38
0.41
0.36
0.45
Cost of FHLB and short-term borrowings
1.66
1.95
3.03
1.82
1.79
1.78
1.79
Cost of funds
0.50
0.39
0.48
0.46
0.49
0.44
0.52
Net interest margin - tax-equivalent
(1)
3.52
%
3.29
%
3.30
%
3.23
%
3.14
%
3.41
%
3.07
%
(1)
 
Tax-exempt income is calculated on a tax-equivalent
 
basis. Tax-free municipal securities are exempt
 
from Federal income taxes. The incremental
 
tax rate used is 21%.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
52
The following tables present, for the periods indicated, average balance
 
sheet information, interest income, interest expense and the corresponding
 
average yield and rates
paid:
 
Three Months Ended
June 30, 2022
June 30, 2021
Average Balance
Interest Income /
Expense
Average Yield /
Rate
(1)
Average Balance
Interest Income /
Expense
Average Yield /
Rate
(1)
(Dollars in thousands)
Interest-earning assets:
Securities - taxable
$
220,763
$
1,299
2.35
%
$
207,835
$
1,031
1.99
%
Securities - tax-exempt
(2)
553,960
4,653
3.36
478,334
4,231
3.54
Interest-bearing deposits in other banks
198,210
369
0.75
407,801
110
0.11
Gross loans, net of unearned income
(3)(4)
4,437,917
47,327
4.28
4,409,280
43,846
3.99
Total interest-earning assets
(2)
5,410,850
$
53,648
3.98
%
5,503,250
$
49,218
3.59
%
Allowance for credit losses
(56,732)
(76,741)
Other non-interest-earning assets
191,539
247,129
Total assets
$
5,545,657
$
5,673,638
Interest-bearing liabilities
Transaction deposits
$
508,403
$
374
0.29
%
$
664,552
$
313
0.19
%
Savings and money market deposits
2,334,103
2,869
0.49
2,385,074
2,107
0.35
Time deposits
559,708
1,489
1.07
869,176
2,430
1.12
Total interest-bearing deposits
3,402,214
4,732
0.56
3,918,802
4,850
0.50
FHLB and short-term borrowings
330,064
1,368
1.66
287,904
1,282
1.79
Trust preferred securities, net of fair value adjustments
1,024
29
11.94
976
24
9.82
Non-interest-bearing deposits
1,149,654
-
-
801,591
-
-
Cost of funds
4,882,956
$
6,129
0.50
%
5,009,273
$
6,156
0.49
%
Other liabilities
48,160
30,948
Stockholders’ equity
614,541
633,417
Total liabilities and stockholders’ equity
$
5,545,657
$
5,673,638
Net interest income - tax-equivalent
(2)
$
47,519
$
43,062
Net interest spread - tax-equivalent
(2)
3.48
%
3.10
%
Net interest margin - tax-equivalent
(2)
3.52
%
3.14
%
(1)
Actual unrounded values are used to calculate the reported yield or rate. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same amounts.
(2)
Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal income taxes. The incremental tax rate used is 21.0%.
(3)
Loans, net of unearned income include non-accrual loans of $28 million and $55 million as of June 30, 2022 and 2021, respectively.
(4)
Loan interest income includes loan fees of $3 million and $5 million for the three months ended June 30, 2022 and 2021, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
53
Six Months Ended
June 30, 2022
June 30, 2021
Average Balance
Interest Income /
Expense
Average Yield /
Rate
(1)
Average Balance
Interest Income /
Expense
Average Yield /
Rate
(1)
(Dollars in thousands)
Interest-earning assets:
Securities - taxable
$
220,783
$
2,487
2.26
%
$
209,730
$
1,947
1.86
%
Securities - tax-exempt
(2)
543,873
9,120
3.35
464,208
8,286
3.57
Interest-bearing deposits in other banks
253,771
521
0.41
429,930
238
0.11
Gross loans, net of unearned income
(3)(4)
4,385,664
90,055
4.14
4,457,792
87,604
3.96
Total interest-earning assets
(2)
5,404,091
$
102,183
3.81
%
5,561,660
$
98,075
3.55
%
Allowance for credit losses
(57,324)
(77,552)
Other non-interest-earning assets
207,881
251,450
Total assets
$
5,554,648
$
5,735,558
Interest-bearing liabilities
Transaction deposits
$
546,982
$
596
0.22
%
$
690,514
$
677
0.20
%
Savings and money market deposits
2,318,415
4,716
0.41
2,403,318
4,495
0.38
Time deposits
573,503
2,931
1.03
920,307
5,406
1.18
Total interest-bearing deposits
3,438,900
8,243
0.48
4,014,139
10,578
0.53
FHLB and short-term borrowings
280,883
2,477
1.78
289,039
2,566
1.79
Trust preferred securities, net of fair value adjustments
1,018
56
11.11
971
48
9.89
Non-interest-bearing deposits
1,153,499
-
-
766,725
-
-
Cost of funds
4,874,300
$
10,776
0.44
%
5,070,874
$
13,192
0.52
%
Other liabilities
46,312
35,017
Stockholders’ equity
634,036
629,667
Total liabilities and stockholders’ equity
$
5,554,648
$
5,735,558
Net interest income - tax-equivalent
(2)
$
91,407
$
84,883
Net interest spread - tax-equivalent
(2)
3.37
%
3.03
%
Net interest margin - tax-equivalent
(2)
3.41
%
3.07
%
(1)
Actual unrounded values are used to calculate the reported yield or rate. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same amounts.
(2)
Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal income taxes. The incremental tax rate used is 21.0%.
(3)
Loans, net of unearned income include non-accrual loans of $28 million and $55 million as of June 30, 2022 and 2021, respectively.
(4)
Loan interest income includes loan fees of $7 million and $9 million for the six months ended June 30, 2022 and 2021, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
54
Changes in interest income and interest expense result from changes in average
 
balances (volume) of interest earning assets and interest-bearing
 
liabilities, as well as changes
in average interest rates. The following table sets forth the effects of changing rates and volumes
 
on our net interest income during the periods shown. Information is provided
 
with
respect to: (i) changes in volume (change in volume times old rate); (ii) changes
 
in rates (change in rate times old volume); and (iii) changes in rate/volume (change
 
in rate times the
change in volume).
Three Months Ended
Six Months Ended
June 30, 2022 over 2021
June 30, 2022 over 2021
Average Volume
Yield/Rate
Net Change
(1)
Average Volume
Yield/Rate
Net Change
(1)
(Dollars in thousands)
Interest Income
Securities - taxable
$
67
$
201
$
268
$
107
$
433
$
540
Securities - tax-exempt
(2)
643
(221)
422
987
(153)
834
Interest-bearing deposits in other banks
(84)
343
259
(132)
415
283
Gross loans, net of unearned income
287
3,194
3,481
(1,434)
3,885
2,451
Total interest income
(2)
$
913
$
3,517
$
4,430
$
(472)
$
4,580
$
4,108
Interest Expense
Transaction deposits
$
(86)
$
147
$
61
$
(151)
$
70
$
(81)
Savings and money market deposits
(46)
808
762
(163)
384
221
Time deposits
(827)
(114)
(941)
(1,840)
(635)
(2,475)
Total interest-bearing deposits
(959)
841
(118)
(2,154)
(181)
(2,335)
FHLB and short-term borrowings
179
(93)
86
(71)
(18)
(89)
Trust preferred securities, net of fair value adjustments
1
4
5
2
6
8
Total interest expense
(779)
752
(27)
(2,223)
(193)
(2,416)
Net interest income
(2)
$
1,692
$
2,765
$
4,457
$
1,751
$
4,773
$
6,524
(1)
 
The change in interest not due solely to volume or rate has been allocated in proportion to the respective absolute dollar amounts of the change in volume or rate.
(2)
 
Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal income taxes. The incremental tax rate used is 21.0%.
Interest income -
 
Interest income increased for the three-
 
and six-month periods ended June 30, 2022 compared to the same periods
 
in 2021 driven by higher interest rates. The yield
on taxable securities benefited from a slowdown in mortgage-backed
 
securities (“MBS”) prepayments
 
that reduced the premium amortization on MBS by $265 thousand
 
and $509
thousand for the three-
 
and six-month periods ended June 30, 2022, respectively.
 
The loan yield for the three-month period ended June 30, 2022, benefited from
 
$492 thousand in
interest income related to recoveries of interest income and loans placed
 
back on accrual status. Loan yields for the three- and six-month periods ended June 30,
 
2022 compared to
the corresponding periods in 2021 were partially offset by lower PPP loan fees of $1.7 million and $3.2 million,
 
respectively.
Average earning assets totaled $5.4 billion for the three- and six-month
 
periods ended June 30, 2022, a decrease of $92 million or 2% and $158 million or 3%, respectively
 
from the
same periods in 2021. The decrease was driven by a reduction of $210 million and $176
 
million in average interest-bearing deposits in other banks for the three-
 
and six-month
periods ended June 30, 2022 compared to the corresponding periods in
 
2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
55
Interest expense
 
- Interest expense declined for the three-
 
and six-month periods ended June 30, 2022 compared to the same periods
 
in 2021 as higher-rate time deposits continued
to mature,
 
decreasing the cost of time deposits. In addition, the Company was able to lag
 
the rising interest rate environment with a limited impact to liquidity.
 
Average interest-bearing
 
deposits for the three-
 
and six-month periods ending June 30, 2022 decreased $517 million or 13% and $575 million
 
or 14% compared to the same period in
the prior year, respectively.
 
The decline was partially offset by a $348 million or 43% and $387
 
million or 50% increase in non-interest-bearing deposits for the three-
 
and six-month
periods ended June 30, 2022 compared to the corresponding periods in
 
2021.
 
Net interest income
 
- Net interest income increased for the three-
 
and six-month periods ended June 30, 2022 compared to the same periods in 2021 driven by interest-earning
 
assets
repricing quicker than the cost of interest-bearing liabilities as variable
 
rate loans tied to 30-day London Interbank Offered Rate (“LIBOR”) and Secured
 
Overnight Financing Rate
(“SOFR”) rates were rising faster than the Company’s deposit rates that are typically
 
adjusted when the federal funds rate changes.
 
The Company currently anticipates net interest
margin to stay in the upper end of the range that the Company has experienced
 
in 2022 because of the Company’s variable-rate assets and the rising rate environment,
 
although
deposit migration and remaining pressure on loan pricing are expected
 
to be headwinds.
 
Impact of Transition Away from LIBOR
The Company had $897 million in loans tied to LIBOR at June 30, 2022. Starting
 
in October 2021, the Company began limiting loans originated using the LIBOR index.
 
For
current borrowers, the Company is modifying loan document language
 
to account for the transition away from LIBOR as loans renew or originate. The Company
 
plans to replace
LIBOR-based loans with the Secured Overnight Financing Rate (“SOFR”). At June 30, 2022, the Company
 
had approximately $537 million in loans tied to SOFR. The Company
adopted Accounting Standards Update (“ASU”) 2020-04 “Reference Rate Reform (Topic 848): Facilitation
 
of the Effects of Reference Rate Reform on Financial Reporting” in 2020.
The ASU allows the Company to recognize the modification related to LIBOR as a continuation of the old contract,
 
rather than a cancellation of the old contract resulting in a write-
off of unamortized fees and creation of a new contract.
Non-Interest Income
For the Quarter Ended
For the Six Months Ended
June 30,
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
June 30,
 
June 30,
 
2022
2022
2021
2021
2021
2022
2021
(Dollars in thousands)
Total non-interest income (expense)
$
4,201
$
4,942
$
4,796
$
(1,105)
$
5,825
$
9,143
$
9,969
Non-interest income (expense) to average assets
(1)
0.30
%
0.36
%
0.34
%
(0.08)
%
0.41
%
0.33
%
0.35
%
(1)
Interim periods annualized.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
56
The components of non-interest income were as follows for the periods
 
shown:
Three Months Ended
Six Months Ended
June 30,
 
June 30,
 
Change
Change
2022
2021
$
%
2022
2021
$
%
(Dollars in thousands)
Service charges and fees on customer accounts
$
1,546
$
1,177
$
369
31
%
$
2,954
$
2,134
$
820
38
%
Realized losses on available-for-sale securities
(12)
(13)
1
(8)
(38)
(3)
(35)
1,167
Unrealized gains (losses), net on equity securities
(71)
6
(77)
(1,283)
(174)
(33)
(141)
427
Income from bank-owned life insurance
407
2,245
(1,838)
(82)
795
2,661
(1,866)
(70)
Swap fees and credit valuation adjustments, net
12
(30)
42
(140)
130
125
5
4
ATM and credit card interchange income
1,521
1,506
15
1
4,185
3,834
351
9
Other non-interest income
798
934
(136)
(15)
1,291
1,251
40
3
Total non-interest income
$
4,201
$
5,825
$
(1,624)
(28)
%
$
9,143
$
9,969
$
(826)
(8)
%
The changes in non-interest income were driven primarily by the following:
Service charges and fees on customer accounts
 
- This category includes account analysis fees offset by a customer rebate program. The
 
increase for the three-
 
and six-month
periods ended June 30, 2022 compared to the corresponding periods
 
in 2021 was driven primarily by a $352 thousand and $783 thousand increase, respectively,
 
in account analysis
fees due to customer growth, an increase in outstanding balances,
 
and adjustments to the Company’s fee structure.
Income from bank-owned life insurance (“BOLI”)
– The decline in BOLI income related to the recognition of $1.8 million in tax-free death benefits from
 
a BOLI policy during
the quarter ended June 30, 2021 compared to $0 such proceeds for the three-
 
and six-month periods ended June 30, 2022.
ATM and credit card interchange income
 
- The increase in ATM and credit card interchange income for the three- and six-month periods ended June 30, 2022 compared
 
to the
same periods
 
in 2021 was driven by customer growth, partially offset by a $334 thousand
 
and $331 thousand decrease in credit card interest income,
 
respectively, associated with
customers that mobilized their workforce during the COVID-19 pandemic
 
in 2021.
 
Other non-interest income
 
– The decrease in other non-interest income for the three-month period
 
ended June 30, 2022 compared to the same period in 2021 was primarily related
to $120 thousand in multiple state employment incentives received in
 
the second quarter of 2022 compared
 
to $243 thousand in the second quarter of 2021. For the six-month
periods ended June 30, 2022 and 2021, multiple state employment
 
incentives recognized were $246 thousand and $243 thousand, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
57
Non-Interest Expense
For the Quarter Ended
For the Six Months Ended
June 30,
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
June 30,
 
June 30,
 
2022
2022
2021
2021
2021
2022
2020
(1)
(Dollars in thousands)
Total non-interest expense
$
29,203
$
27,666
$
26,715
$
24,036
$
25,813
$
56,869
$
48,631
Non-interest expense to average assets
(1)
2.11
%
2.02
%
1.93
%
1.76
%
1.82
%
2.06
%
1.71
%
(1)
 
Interim periods annualized.
The components of non-interest expense were as follows for the periods indicated:
Quarter Ended
Six Months Ended
June 30,
 
June 30,
 
Change
Change
2022
2021
$
%
2022
2021
$
%
(Dollars in thousands)
Salary and employee benefits
$
17,095
$
15,660
$
1,435
9
%
$
35,036
$
29,213
$
5,823
20
%
Occupancy
2,622
2,397
225
9
5,115
4,891
224
5
Professional fees
1,068
1,138
(70)
(6)
1,873
1,920
(47)
(2)
Deposit insurance premiums
713
917
(204)
(22)
1,450
2,068
(618)
(30)
Data processing
1,160
720
440
61
1,972
1,436
536
37
Advertising
757
435
322
74
1,449
738
711
96
Software and communication
1,198
1,034
164
16
2,468
2,099
369
18
Foreclosed assets, net
15
665
(650)
(98)
(38)
715
(753)
(105)
Other non-interest expense
4,575
2,847
1,728
61
7,544
5,551
1,993
36
Total non-interest expense
$
29,203
$
25,813
$
3,390
13
%
$
56,869
$
48,631
$
8,238
17
%
The changes in non-interest expense were driven primarily by the following:
Salary and Employee Benefits
 
- Salary and employee benefit costs increased for the three-
 
and six-month periods ended June 30, 2022 compared to the same periods in 2021
primarily due to the impact of continued hiring for production talent in a competitive
 
environment, annual merit increases, and an increase related to a change in the maximum
401(k) plan match from 3.5% in 2021 to 5.0% in 2022.
 
For three-month period ended June 30, 2022 compared to the same period
 
in 2021, the increase was partially offset by a $465 thousand decline
 
in stock-based compensation.
For the six-month period ended June 30, 2022 compared to the same period in
 
2021, the increase included larger expected payouts on performance
 
-based awards and higher taxes
and benefits due to incentive payouts.
Occupancy
 
– The increase in occupancy costs was driven by the Company’s
 
expansion into Arizona in July 2021 and the addition of a second location in Dallas, Texas.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
58
Deposit Insurance Premiums
 
- The FDIC uses a risk-based premium system to calculate the quarterly fee. Our premium costs decreased
 
for the three- and six-month periods ended
June 30, 2022 compared to the same periods
 
in 2021 as a result of asset balance changes,
 
changes in asset quality and changes in capital ratios. We currently anticipate deposit
insurance premiums will increase over the next quarter because of
 
expected loan growth and the common stock repurchase program.
 
Data Processing
 
– The increase in data processing costs was driven primarily by increased costs associated with
 
the Company's digital client interface conversion.
Advertising
 
- The increase in advertising costs was driven by increased in-person events for the
 
three- and six-month periods ended June 30, 2022 compared to the same periods in
2021 because of COVID-19 pandemic restrictions being lifted.
Software and Communication
 
- The increase was driven by our continued strategy to invest in technologies that allow us
 
to cover beginning-to-end loan originations, provide
customers with a suite of online tools and analyze operational trends. In
 
addition to the growing number of technologies implemented, a portion of the increase in
 
costs was due to
our growth. We currently
 
anticipate our software and communication costs to continue to increase in 2022
 
as we continue adding and implementing new software products that
improve our customers’
 
experience.
Foreclosed Assets, net
 
– The decrease was due to a $630 thousand write-down in value of a commercial
 
use facility foreclosed upon in 2020 during the three-month period ended
June 30, 2021.
 
Other Non-interest Expense
- Other non-interest expense increased for the three-
 
and six-month periods ended June 30, 2022 compared to the same periods
 
in 2021 driven by $1.1
million in employee separation costs. In addition, commercial card costs
 
increased $225 thousand for the six-month period ended June 30, 2022
 
compared to the same period in 2021
as a result of increased use by current customers and customer growth.
 
Income Taxes
 
For the Quarter Ended
For the Six Months Ended
June 30,
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
June 30,
 
June 30,
 
2022
2022
2021
2021
2021
2022
2021
(Dollars in thousands)
Income tax expense
$
4,027
$
4,188
$
5,725
$
5,660
$
3,263
$
8,215
$
6,171
Income before income taxes
19,572
21,016
26,526
26,660
18,840
40,588
33,783
Effective tax rate
21
%
20
%
22
%
21
%
17
%
20
%
18
%
Our income tax expense differs from the amount that would be calculated
 
using the federal statutory tax rate, primarily from investments in tax advantaged
 
assets, including
BOLI and tax-exempt municipal securities;
 
state tax credits;
 
and permanent tax differences from equity-based compensation. Refer to
 
“Note 10: Income Tax” within the Notes to
Condensed Consolidated Financial Statements (unaudited) for a reconciliation
 
of the statutory rate to the Company’s
 
actual income tax expense.
During the three- and six-month periods
 
ended June 30, 2022, the Company’s effective tax rate benefited from permanent tax differences
 
related to tax-exempt interest.
During the three- and six-month periods
 
ended June 30, 2021, the Company benefited from permanent tax differences related to tax-exempt
 
interest and $2 million in BOLI
settlement benefits that reduced income taxes by $387 thousand and reduced
 
the effective tax rate by approximately 2%.
 
We currently anticipate the Company’s effective tax rate to remain within
 
the 20% to 23% range in the near term.
 
 
59
Analysis of Financial Condition
Securities Portfolio
The securities portfolio is maintained to serve as a contingent, on-balance
 
sheet source of liquidity. The objective of the
investment portfolio is to optimize earnings, manage credit and interest rate
 
risk, ensure adequate liquidity, and meet pledging and
regulatory capital requirements. As of June 30, 2022, available-for-sale investments totaled $696 million, a decrease
 
of $50 million from
December 31, 2021.
 
The decline in the securities portfolio was driven by a $98 million decline in the unrealized
 
gain (loss) on available-for-sale
securities. The decline was partially offset by the purchase of $41 million in tax-exempt
 
municipal securities and $31 million in
mortgage-backed securities.
 
The Company currently anticipates continuing to grow the securities
 
portfolio in proportion to the growth
of the balance sheet. For additional information, see “Note 3: Securities” in the Notes to
 
Condensed Consolidated Financial Statements
(unaudited).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
60
Loan Portfolio
Refer to “Note 4: Loans and Allowance for Credit Losses” within the Notes to Condensed Consolidated Financial Statements (unaudited)
 
for additional information
regarding the Company’s loan portfolio. As of June 30, 2022, gross loans, net of unearned fees increased $272
 
million or 6% from December 31, 2021 and was driven by the
following:
Commercial and Industrial
 
- The $31 million or 5% decline in commercial loans was driven by $49 million of PPP forgiveness.
 
As of June 30, 2022, $14 million of PPP loans
remained outstanding.
 
Commercial and Industrial Lines of Credit
 
- The $170 million or 28% increase in commercial lines of credit was driven by approximately
 
$126 million in loan originations and an
increase in the line of credit utilization rates from 44% to 47%.
 
Energy
 
- Our energy portfolio decreased $46 million or 16% from December
 
31, 2021 primarily due to $43 million in loans paying off.
 
Commercial Real Estate
 
- The $157 million or 12% increase was driven by $312 million in loan originations, partially
 
offset by $145 million in payoffs.
The following table shows the contractual maturities of our gross loans and
 
sensitivity to interest rate changes:
 
As of June 30, 2022
Due in One Year or Less
Due in One Year through
Five Years
Due in Five Year through
Fifteen Years
Due after Fifteen Years
Fixed Rate
Adjustable
Rate
Fixed Rate
Adjustable
Rate
Fixed Rate
Adjustable
Rate
Fixed Rate
Adjustable
Rate
Total
(Dollars in thousands)
Commercial and industrial
$
15,571
$
29,527
$
283,848
$
352,124
$
42,930
$
68,742
$
19,669
$
-
$
812,411
Commercial and industrial
lines of credit
52,195
303,078
19,620
396,523
15,368
880
-
-
787,664
Energy
33
52,364
9,905
170,698
-
-
-
-
233,000
Commercial real estate
43,562
216,978
413,908
378,706
165,949
202,118
-
14,672
1,435,893
Construction and land
development
16,308
38,083
54,881
403,022
16,905
21,255
1,293
32,668
584,415
Residential real estate
2,685
198
12,105
1,608
81,011
2,016
1,357
270,357
371,337
Multifamily real estate
18,999
74,304
45,958
98,137
5,021
7,222
-
-
249,641
Consumer
5,534
19,437
3,002
4,081
-
20,062
-
1,757
53,873
Total
$
154,887
$
733,969
$
843,227
$
1,804,899
$
327,184
$
322,295
$
22,319
$
319,454
$
4,528,234
Provision and Allowance for
 
Credit Losses
The Company implemented the CECL model as of January 1, 2022. Refer to “Note 1: Nature of Operations and
 
Summary of Significant Accounting Policies” and “Note 4:
Loans and Allowance for Credit Losses” within the Notes to Condensed Consolidated Financial Statements (unaudited)
 
for details regarding the transition, including the impact to
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
61
the financial statements. The CECL model compared to the incurred loss model may accelerate the provision for
 
credit losses if the Company’s loan portfolio continues to grow. In
addition, positive (negative) forward-looking indicators may decrease
 
(increase) the required provision for credit losses.
 
The ACL at June 30, 2022 represents our best estimate of the expected credit losses in the Company’s loan portfolio and off-balance sheet
 
commitments, measured over the
contractual life of the underlying instrument.
For the Quarter Ended
For the Six Months Ended
June 30,
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
June 30,
 
June 30,
 
2022
2022
2021
2021
2021
2022
2021
(Dollars in thousands)
Provision for credit losses
(1)
 
- loans
$
1,690
$
(316)
$
(5,000)
$
(10,000)
$
3,500
$
1,374
$
11,000
Provision for credit losses
(1)
 
- off-balance sheet
445
(309)
N/A
N/A
N/A
136
N/A
Allowance for credit losses
(2)
 
- loans
55,817
55,231
58,375
64,152
75,493
55,817
75,493
Allowance for credit losses
(2)
 
- off-balance sheet
5,320
4,875
N/A
N/A
N/A
5,320
N/A
Net charge-offs
$
1,104
$
1,081
$
777
$
1,341
$
2,558
$
2,185
$
10,802
(1)
Prior to March 31, 2022, this line represents the provision for loan losses
(2)
Prior to March 31, 2022, this line represents the allowance for loan
 
and lease losses
January 1, 2022, the adoption date, is presented below instead of December
 
31, 2021 for comparability purposes. The allocation in one portfolio segment does
 
not preclude its
availability to absorb losses in other segments. The table below presents the allocation of
 
the allowance for credit losses as of the dates indicated:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
62
June 30, 2022
January 1, 2022
ACL
 
Amount
Percent of
ACL to
Total ACL
Percent of
Loans to
Total Loans
ACL
 
Amount
Percent of
ACL to
Total ACL
Percent of
Loans to
Total Loans
Loans
Off-
Balance
Sheet
Total
Loans
Off-
Balance
Sheet
Total
(Dollars in thousands)
Commercial and industrial
$
10,920
$
63
$
10,983
18
%
18
%
$
10,139
$
107
$
10,246
17
%
20
%
Commercial and industrial
lines of credit
11,267
-
11,267
19
17
8,866
44
8,910
14
14
Energy
6,428
470
6,898
11
5
9,190
265
9,455
15
7
Commercial real estate
17,042
657
17,699
29
32
18,933
711
19,644
32
30
Construction and land
development
3,918
4,016
7,934
13
13
3,666
3,914
7,580
12
14
Residential real estate
3,134
4
3,138
5
8
3,046
5
3,051
5
8
Multifamily real estate
2,427
109
2,536
4
6
2,465
137
2,602
4
6
Consumer
681
1
682
1
1
323
1
324
1
1
Total
$
55,817
$
5,320
$
61,137
100
%
100
%
$
56,628
$
5,184
$
61,812
100
%
100
%
Refer to “Note 4: Loans and Allowance for Credit Losses” within the Notes to the Condensed Consolidated Financial
 
Statements (unaudited) for a summary of the changes in
the ACL. Provided below is additional information regarding changes to the ACL:
Impaired Loans:
For the three-
 
and six-month periods ended June 30, 2022, the impaired loan reserve decreased $2.2
 
million and $5.2 million, respectively.
 
The decrease included a previously
restructured commercial real estate loan with improved cash flow metrics
 
that resulted in a $1 million reduction in the required reserve and two energy
 
loans that were partially
charged-off that decreased the required reserve by $790 thousand. For the
 
six-month period ended June 30, 2022, the change included a commercial
 
real estate loan with an improved
collateral valuation that resulted in a $1 million reduction in the required reserve,
 
a $628 thousand decline related to a commercial real estate loan charged down and
 
two energy
loans that paid down their outstanding balance, resulting in a $1 million
 
decrease to the required reserve.
Charge-offs and Recoveries:
Net charge-offs were $1 million and $2 million for the three- and six-month periods
 
ended June 30, 2022, respectively. For the three-month period ended June
 
30, 2022
charge-offs included $2.9 million related to two collateral-dependent
 
energy loans, $750 thousand related to a collateral-dependent medical practice,
 
$582 thousand related to a
commercial and industrial, SBA loan originated in 2018, and $217 thousand related to a junior lien on a residential
 
real estate loan. Recoveries included $1.6 million related to a
commercial real estate loan charged-off in 2020 and $1.7 million related to
 
a commercial and industrial line of credit charged-off in 2020.
 
For the six-month period ended June 30, 2022, charge-offs also included
 
$1.2 million related to a commercial and industrial line of credit that originated in 2018
 
and started to
deteriorate at the end of 2021, a $1 million charge-off related to an energy loan originated
 
in 2016 that was significantly impacted by lower oil prices over the past few years, and a
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
63
$750 thousand charge-off on a commercial real estate project that originated in
 
2017 and started to deteriorate in 2020. Charge-offs were partially offset primarily
 
by a $1.8 million
recovery on an energy loan that was charged-off in 2020.
 
During the three months ended June 30, 2021, charge-offs primarily related
 
to a commercial and industrial borrower. The $3 million charged-off was greater than the reserved
balance in the Allowance for Loan and Lease Loss at December 31, 2020 resulting in a $2 million increase in the provision during
 
the three- and six-month periods ended June 30,
2021.
During the three-months ended March 31, 2021, charge-offs primarily
 
related to two commercial and industrial borrowers that were unable to support their debt obligations.
The $8 million charged-off was greater than the reserved balance in the allowance
 
for loan losses at December 31, 2020 resulting in a $5 million increase in the provision
 
during the
quarter ended March 31, 2021.
The below table provides the ratio of net charge-offs (recoveries) to average
 
loans outstanding based on our loan categories for the periods indicated:
For the Quarter Ended
For the Six Months Ended
June 30,
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
June 30,
 
June 30,
 
2022
2022
2021
2021
2021
2022
2021
Commercial and industrial
0.28
%
(0.27)
%
0.27
%
0.04
%
-
%
0.01
%
0.02
%
Commercial and industrial lines of credit
(0.56)
0.76
0.04
0.62
2.20
0.06
4.57
Energy
4.77
(1.02)
0.68
0.64
-
1.72
-
Commercial real estate
(0.45)
0.34
-
-
-
(0.07)
-
Construction and land development
-
-
-
-
-
-
-
Residential real estate
0.21
-
(0.32)
-
-
0.11
-
Multifamily real estate
-
-
(0.06)
(0.01)
-
-
-
Consumer
-
0.05
(0.01)
(0.03)
(0.04)
0.03
0.11
Total net charge-offs to average loans
0.10
%
0.10
%
0.07
%
0.13
%
0.23
%
0.10
%
0.49
%
Non-performing Assets and
 
Other Asset Quality Metrics
Non-performing assets include: (i) non-performing loans - includes
 
non-accrual loans, loans past due 90 days or more and still accruing interest, and loans modified
 
under
TDRs that are not performing in accordance with their modified terms; (ii) foreclosed
 
assets held for sale; (iii) repossessed assets; and (iv) impaired debt securities.
Non-performing assets decreased to $31 million as of June 30, 2022
 
due to a $5 million decrease in non-accrual loans. The decline was driven by $4 million in charge
 
-offs on
non-accrual loans.
 
Improvements in credit metrics continue to be driven by upgrades in COVID-19
 
impacted segments and the energy portfolio.
Non-performing assets increased slightly to $36 million or 0.64% of
 
total assets as of March 31, 2022
 
primarily due to an $11 million, previously identified substandard
commercial and industrial line of credit. The increase was partially offset by a $7 million
 
decline in non-accrual energy loans due to $1 million in charge-offs, $3 million
 
in payoffs
and $3 million in loans placed back on accrual status. As of March 31, 2022, 25% of non-performing assets remained
 
in the energy sector.
During 2021, non-performing assets continued to decrease due primarily
 
to upgrades and pay offs in the commercial and industrial and energy
 
portfolios. As of December 31,
2021, 49% of non-performing assets related to energy credits that were
 
significantly impacted by lower oil prices over the past few years.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
64
Credit quality metrics were generally stable during the second quarter of 2022,
 
reflecting consistency with the prior quarter and significant improvement over the prior
 
year.
The table below summarizes our non-performing assets and related ratios as of
 
the dates indicated:
For the Quarter Ended
June 30,
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
2022
2022
2021
2021
2021
(Dollars in thousands)
Non-accrual loans
$
27,698
$
33,071
$
31,432
$
48,147
$
54,652
Loans past due 90 days or more and still accruing
2,163
1,534
90
342
1,776
Total non-performing loans
29,861
34,605
31,522
48,489
56,428
Foreclosed assets held for sale
973
973
1,148
1,148
1,718
Total non-performing assets
$
30,834
$
35,578
$
32,670
$
49,637
$
58,146
ACL to total loans
1.23
%
1.27
%
1.37
%
1.51
%
1.78
%
ACL + RUC to total loans
(1)
1.35
1.38
 
N/A
 
 
N/A
 
 
N/A
 
ACL to non-accrual loans
202
167
186
133
138
ACL to non-performing loans
187
160
185
132
134
Non-accrual loans to total loans
0.61
0.76
0.74
1.13
1.29
Non-performing loans to total loans
0.66
0.79
0.74
1.15
1.33
Non-performing assets to total assets
0.54
%
0.64
%
0.58
%
0.92
%
1.09
%
(1)
Includes the ACL on off-balance sheet credit exposure that resulted from CECL adoption on January 1, 2022.
Other asset quality metrics management reviews include loans past due
 
30 - 89 days and classified, gross loans. The Company defines classified loans as loans categorized
 
as
substandard - performing, substandard – non-performing,
 
doubtful, or loss. The definitions of substandard, doubtful and loss are provided in “Note 4: Loans and Allowance for
Credit Losses” in the Notes to Condensed Consolidated Financial Statements (unaudited).
 
The following table summarizes our loans past due 30 - 89 days, classified assets,
 
and
related ratios as of the dates indicated:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
65
June 30,
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
2022
2022
2021
2021
2021
(Dollars in thousands)
Loans Past Due Detail
30 - 59 days past due
$
15,700
$
14,815
$
1,671
$
3,072
$
18,758
60 - 89 days past due
935
1,135
1,858
34,528
10
Total loans 30 - 89 days past due
$
16,635
$
15,950
$
3,529
$
37,600
$
18,768
Loans 30 - 89 days past due / loans
0.37
%
0.37
%
0.08
%
0.89
%
0.44
%
Classified Loans
Substandard - performing
$
52,759
$
40,257
$
47,275
$
75,999
$
116,078
Substandard - non-performing
25,530
30,619
28,879
45,063
49,300
Doubtful
2,144
2,451
2,554
3,084
5,352
Loss
-
-
-
-
-
Total classified loans
80,433
73,327
78,708
124,146
170,730
Foreclosed assets held for sale
973
973
1,148
1,148
1,718
Total classified assets
$
81,406
$
74,300
$
79,856
$
125,294
$
172,448
Classified loans / (total capital + ACL)
12.1
%
10.8
%
10.8
%
17.3
%
24.0
%
Classified loans / (total capital + ACL + RUC)
(1)
12.0
10.7
 
N/A
 
 
N/A
 
 
N/A
 
Classified assets / (total capital + ACL)
12.3
%
11.0
%
11.0
%
17.5
%
24.2
%
(1)
Includes the ACL on off-balance sheet credit exposure that resulted from CECL adoption on January 1, 2022.
The increase in loans past due between 30 and 89 days as of June 30, 2022 was primarily
 
driven by the 4% loan growth from the previous quarter.
 
Loans past due between 30
and 89 days to loans remained at 0.37% compared to the prior quarter. Classified loans increased
 
slightly during the second quarter attributable to downgrades
 
in the commercial and
industrial portfolio,
 
but remained in an acceptable range at 12.1% of total capital plus the allowance for
 
credit losses.
The increase in loans past due between 30 and 89 days as of March 31, 2022
 
was primarily driven by an $11 million commercial and industrial line of credit. In
 
the first
quarter of 2022, we experienced improvement in our classified loan totals as classified
 
loans decreased 7% during the quarter to $73 million. Classified totals in
 
the energy portfolio
decreased 24% to $16 million compared to the prior quarter and represent
 
ed 22% of total classified loans.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
66
Deposits and Other Borrowings
The following table sets forth the maturity of time deposits as of June 30, 2022:
As of June 30, 2022
Three Months
 
or Less
Three to Six Months
Six to Twelve
Months
After Twelve Months
Total
(Dollars in thousands)
Time deposits in excess of FDIC insurance limit
$
88,627
$
39,662
$
35,927
$
16,959
$
181,175
Time deposits below FDIC insurance limit
214,311
144,247
131,539
61,799
551,896
Total
$
302,938
$
183,909
$
167,466
$
78,758
$
733,071
At June 30, 2022, our deposits totaled approximately $5 billion, an
 
increase of $61 million or 1% from December 31, 2021. The increase included $109 million
 
in time deposits,
partially offset by a decrease of $48 million in money market, NOW and
 
savings deposits. The increase in time deposits was the result of $221 million in wholesale
 
funding to support
current and expected loan growth through the end of 2022. The wholesale deposits have
 
an average term of five months. The decrease in money market, NOW,
 
and savings deposits
was driven by a decline in business money market deposits due to competition.
Other borrowings include Federal Home Loan Bank (“FHLB”) advances and our
 
trust preferred security. At June
 
30, 2022, other borrowings totaled $298 million, a $60 million
or 25% increase from December 31, 2021. During the six-month period
 
ended June 30, 2022, $15 million of FHLB advances matured and $65 million was converted
 
into a drawdown
on the FHLB line of credit. The Company withdrew an additional $75 million on the
 
FHLB line of credit to support loan growth and changes in deposits, resulting in $140 million on
the FHLB line of credit at June 30, 2022.
As of June 30, 2022, the Company had approximately $2.3 billion of uninsured
 
deposits, which is an estimated amount based on the same methodologies and assumptions
 
used
for the Bank’s regulatory
 
requirements. The Company believes that its current capital ratios and liquidity are sufficient
 
to mitigate the risks of uninsured deposits.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
67
Liquidity and Capital Resources
Contractual Obligations and Off-Balance Sheet
 
Arrangements
The Company is subject to contractual obligations made in the ordinary
 
course of business. The obligations include deposit
liabilities, other borrowed funds, and operating leases. Refer to “Note 6: Time
 
Deposits and Other Borrowings” within the Notes to
Condensed Consolidated Financial Statements (unaudited) for
 
a listing of the Company’s significant contractual
 
cash obligations. Refer
to “Note 14: Leases” within the Notes to Condensed Consolidated Financial Statements
 
(unaudited) for the Company’s contractual
obligations to third parties on lease obligations.
 
As a financial services provider, the Company
 
is a party to various financial instruments with off-balance sheet risks, such
 
as
commitments to extend credit. Off-balance sheet arrangements represent
 
the Company’s future cash requirements.
 
However, a portion
of these commitments may expire without being drawn upon. Refer to
 
“Note 12: Commitments and Credit Risk” within the Notes to
Condensed Consolidated Financial Statements (unaudited) for
 
a listing of the Company’s off
 
-balance sheet arrangements.
The Company’s short-term and long
 
-term contractual obligations, including off-balance
 
sheet obligations, may be satisfied
through the Company’s on-balance
 
sheet and off-balance sheet liquidity discussed below.
Liquidity
The Company’s liquidity strategy is to maintain adequate, but not excessive,
 
liquidity to meet the daily cash flow needs of its
clients while attempting to achieve adequate earnings for its stockholders. The liquidity
 
position is monitored continuously by the
Company’s finance department. The Company's short-term and long-term liquidity
 
requirements are primarily met through cash flow
from operations, redeployment of prepaying and maturing balances in our
 
loan portfolio and security portfolio, increases in client
deposits and wholesale deposits. Liquidity resources can be derived
 
from two sources: (i) on-balance sheet liquidity resources, which
represent funds currently on the balance sheet and (ii) off-balance sheet liquidity
 
resources, which represent funds available from third-
party sources. The Company’s on-balance sheet and off-balance sheet liquidity
 
resources consisted of the following as of the dates
indicated:
June 30, 2022
December 31, 2021
(Dollars in thousands)
Total on-balance sheet liquidity
$
971,874
$
1,224,253
Total off-balance sheet liquidity
740,131
732,748
Total liquidity
$
1,712,005
$
1,957,001
On-balance sheet liquidity as a percent of assets
17
%
22
%
Total liquidity as a percent of assets
30
%
35
%
For the six-months ended June 30, 2022, the Company’s cash and cash equivalents
 
declined $205
 
million from December 31,
2021 to $278 million, representing 5% of total assets. During the six-month
 
period ended June 30, 2022, the Company increased the
AFS securities portfolio on an amortized cost basis by $48 million, net
 
of paydowns,
 
maturities, and amortization, to improve the yield
on interest-earning assets. In addition, the Company increased loan funding
 
by $274 million, net of payoffs and charge-offs during the
six-month period ended June 30, 2022 that reduced cash and cash equivalents.
 
The Company’s time deposits increased by $109 million primarily from
 
wholesale funding. The increase in time deposits was
partially offset by a $48 million reduction in non-interest-bearing
 
deposits, savings, and money market deposits as the Company’s larger
depositors re-allocated their investments and made tax payments. Other borrowings
 
increased $60 million during the six-month period
ended June 30, 2022, as $15 million of FHLB advances matured and $75
 
million was drawn down on the FHLB line of credit.
 
The Company continued its repurchase program, purchasing $20
 
million of common stock during the first six months of 2022. As
of June 30, 2022, $31 million remains available for repurchase under
 
our share repurchase programs. We will continue to repurchase
shares under our share repurchase program, but the amount and timing
 
of such repurchases will be dependent on a number of factors,
 
 
 
68
including the price of our common stock and other cash flow needs. There is no assurance that we will repurchase
 
up to the full amount
remaining under our program.
 
The Company believes that its current liquidity will be sufficient to meet anticipated
 
cash requirements for the next 12 months
and thereafter. The Company has several on and off-balance sheet options to ensure any
 
resulting reductions in cash and cash
equivalents are appropriately offset to ensure appropriate liquidity.
Capital Requirements
The Company and the Bank are subject to various regulatory capital requirements
 
administered by the federal banking agencies.
The regulatory capital requirements involve quantitative
 
measures of the Company’s assets, liabilities, select off-balance sheet items and
equity. Failure to meet minimum capital requirements can initiate certain
 
mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the Company’s
 
consolidated financial statements. Refer to “Note 8:
Regulatory Matters” in the Notes to Condensed Consolidated Financial Statements
 
(unaudited) for additional information. Management
believes that as of June 30, 2022, the Company and the Bank met all capital adequacy
 
requirements to which they are subject.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance
 
with GAAP and with general practices within the financial
services industry. Application of these principles requires management to make complex and subjective estimates and
 
assumptions that
affect the amounts reported in the financial statements and accompanying
 
notes. The Company bases estimates on historical experience
and on various other assumptions that it believes
 
to be reasonable under current circumstances. These assumptions form the basis for
management judgments about the carrying values of assets and liabilities that are
 
not readily available from independent, objective
sources. The Company evaluates estimates on an ongoing basis. Use of alternative assumptions
 
may have resulted in significantly
different estimates. Actual results may differ from these estimates.
A discussion of these policies can be found in the section captioned “Critical Accounting Policies and Estimates” in
Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2021 Form
 
10-K.
 
On January 1, 2022, the Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326):
 
Measurement of
Credit Losses on Financial Instruments. Refer to “Note 1: Nature of
 
Operations and Summary of Significant Accounting Policies” and
“Note 4: Loans and Allowance for Credit Losses” within the Notes to Condensed Consolidated Financial Statements (unaudited)
 
for
information regarding the Company’s ACL implementation and the ACL process. Determining the appropriateness of the ACL
 
is
complex and requires judgment by management about the effect of matters that
 
are inherently uncertain. These critical estimates include
significant use of the Company’s historical data and complex methods to interpret
 
them.
 
It is difficult to estimate how potential changes in any one input might affect the
 
overall ACL because inputs may change at
different rates and may not be consistent across the loan segments. In addition,
 
changes in inputs may be directionally
 
inconsistent such
that one factor may offset deterioration in others. The Company identified the following
 
estimates and assumptions as the main drivers
in the required ACL for loans and the reserve for off-balance sheet commitments:
◾
Fully exhausted loan pool
 
– The historical loss factor is calculated by identifying a group of loans at a point in time (a
“cohort”) and tracking the cohort’s charge-offs, net of recoveries, over
 
a 10-year period (known as the estimated
economic life). A charge-off rate for each cohort is calculated based on charge-offs, net of recoveries over the initial loan
balance. The charge-off rate for a specific cohort is not included in the weighted
 
average historical loss rate until “fully
exhausted.”
 
A cohort balance declines due to modifications, renewals, and paydowns. The Company requires the remaining
 
cohort
balance to be less than 15% of its original cohort balance before being included
 
in the historical loss factor. The 15%
represents the exhaustion rate. Changes to the assumed exhaustion rate could
 
increase or decrease the historical loss rates
 
 
 
69
based on the timing of charge-offs, net of recoveries. For example, an
 
exhaustion rate of 50% on the commercial and
industrial segment would have reduced the required ACL by approximately $3 million for the three-month period ended
June 30, 2022.
◾
Forward looking factors
 
– The Company uses the Federal Reserve Bank’s unemployment rate forecast to adjust
expected losses based on an economic outlook. The Company’s current methodology
 
increases the ACL one basis point
for each 1% increase in the average unemployment rate forecast. As of June 30, 2022, a 1% increase in the average
unemployment rate would increase the ACL by approximately $453 thousand.
◾
Changes in the assumed utilization rate of off-balance sheet commitments
 
– The Company uses a 12-month
historical utilization rate for all loan segments, excluding construction and
 
development loans that use a higher
utilization rate. An ACL
 
on off-balance sheet commitments is required if the end of period utilization
 
rate is less than the
12-month historical utilization rate. For example, a 1% decrease in the utilization
 
rate of commercial and industrial lines
of credit at June 30, 2022 would not impact the required ACL, because the utilization rate would remain above the
average utilization rate. However, if the utilization rate decreased 3% it would
 
increase the required ACL by $236
thousand.
Besides the ACL methodology mentioned above, there have been no additional changes in the Company’s application of critical
accounting policies and estimates since December 31, 2021.
 
Recent Accounting Pronouncements
Refer to “Note 1: Nature of Operations and Summary of Significant Accounting Policies” included in the Notes to Condensed
Consolidated Financial Statements (unaudited) included elsewhere in this Form
 
10-Q.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
70
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
 
ABOUT MARKET RISK
Interest Rate Risk
A primary component of market risk is interest rate volatility. Interest rate risk management is a key element of the Company’s
balance sheet management. Interest rate risk is the risk that net interest margins
 
will erode over time due to changing market conditions.
Many factors can cause margins to erode: (i) lower loan demand; (ii) increased
 
competition for funds; (iii) weak pricing policies; (iv)
balance sheet mismatches; and (v) changing liquidity demands. The objective
 
is to maximize income while minimizing interest rate risk.
The Company manages its sensitivity position using its interest rate risk policy. The management
 
of interest rate risk is a three-step
process and involves: (i) measuring the interest rate risk position; (ii) policy
 
constraints; and (iii) strategic review and implementation.
Our exposure to interest rate risk is managed by the Funds Management
 
Committee (“FMC”). The FMC uses a combination of
three systems to measure the balance sheet’s interest rate risk position. The three systems in
 
combination are expected to provide a better
overall result than a single system alone. The three systems include: (i) gap reports; (ii)
 
earnings simulation; and (iii) economic value of
equity. The FMC’s primary tools to change the interest rate risk position are: (i) investment portfolio
 
duration; (ii) deposit and borrowing
mix; and (iii) on balance sheet derivatives.
The FMC evaluates interest rate risk using a rate shock method and rate ramp method.
 
In a rate shock analysis, rates change
immediately,
 
and the change is sustained over the time horizon. In a rate ramp analysis, rate changes
 
occur gradually over time. The
following tables summarize the simulated changes in net interest income and fair
 
value of equity
 
over a 12-month horizon using a rate
shock and rate ramp method as of the dates indicated:
Hypothetical Change in Interest Rate - Rate Shock
June 30, 2022
June 30, 2021
Change in Interest
Rate (Basis Points)
Percent change in net
interest income
Percent change in fair
value of equity
Percent change in net
interest income
Percent change in fair
value of equity
+300
6.4
%
(9.2)
%
2.9
%
(10.0)
%
+200
4.1
(5.8)
1.4
(6.5)
+100
2.0
(3.0)
0.1
(3.3)
Base
-
%
-
%
-
%
-
%
-100
(2.7)
2.7
NA
(1)
NA
(1)
(1)
The Company decided to exclude the down rate environment from its analysis due to the already low interest rate environment.
Hypothetical Change in Interest Rate - Rate Ramp
June 30, 2022
June 30, 2021
Change in Interest Rate
 
(Basis Points)
Percent change in net interest
income
Percent change in net interest
income
+300
3.1
%
0.9
%
+200
2.0
0.2
+100
1.0
(0.3)
Base
-
%
-
%
-100
(1.1)
NA
(1)
(1)
 
The Company decided to exclude the down rate environment from its analysis due to the already low interest rate environment.
 
71
The Company’s position is slightly asset sensitive as of June 30, 2022. The hypothetical
 
positive change in net interest income as
of June 30, 2022 in an up 100 basis point shock is mainly due to approximately
 
$3.5 billion of the Company’s earning assets repricing or
maturing within the first year, with $2.9 billion of that being in the first 90 days
 
.
 
In addition, $871 million of the Company’s time
deposits and other borrowings mature or reprice within that same 12-month
 
period. Due to rising interest rates a significant portion of
loans with floors have moved above the floor rate. The Company currently anticipates
 
that overall cost of funds will lag interest rate
increases and will result in an increase to net interest income in all upward
 
rate ramp and shock scenarios. In down rate scenarios,
income is predicted to decrease. The Company is monitoring longer term interest rate
 
expectations and is evaluating options to reduce
the impact of any downward rate adjustments, including the use of hedges.
 
The models the Company uses include assumptions regarding interest rates
 
while balances remain unchanged. These assumptions
are inherently uncertain and, as a result, the model cannot precisely estimate net interest income
 
or precisely predict the impact of higher
or lower interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude,
 
and frequency
of interest rate changes as well as changes in market conditions, customer behavior
 
and management strategies, among other factors.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive
 
Officer and Chief Financial Officer, has
evaluated the effectiveness of the Company’s disclosure controls and procedures
 
(as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934 (“Exchange Act”)) as of June 30, 2022. Based on that evaluation, the Company’s Chief Executive Officer and
Chief Financial Officer concluded that the Company’s disclosure controls
 
and procedures were effective as of June 30, 2022.
 
Changes in Internal Control over Financial Reporting
The Company implemented internal controls to ensure the Company adequately
 
calculated changes due to, and properly assessed
the impact of, the accounting standard updates related to the adoption of ASC 326 on January 1, 2022. There were no significant
changes to our internal control over financial reporting due to the adoption of
 
the new standard.
 
No change in the Company’s internal control over financial reporting (as such term
 
is defined in Rule 13a-15(f) under the
Exchange Act) that occurred during the second quarter of 2022 has materially affected, or is reasonably
 
likely to materially affect, the
Company’s internal control over financial reporting.
 
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the normal course of business, we are named or threatened to be named
 
as a defendant in various lawsuits. Management,
following consultation with legal counsel, does not expect the ultimate disposition
 
of any or a combination of these matters to have a
material adverse effect on our business, financial condition, results of operations,
 
cash flows or growth prospects. However, given the
nature, scope and complexity of the extensive legal and regulatory landscape
 
applicable to our business (including laws and regulations
governing consumer protection, fair lending, fair labor, privacy, information
 
security and anti-money laundering and anti-terrorism
laws), we, like all banking organizations, are subject to heightened legal
 
and regulatory compliance and litigation risk.
 
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully
 
consider the factors discussed in Part I, "Item 1A.
Risk Factors" in our 2021 Form 10-K, which could materially affect
 
our business, financial condition or results of operations in future
periods.
 
There were no material changes from the risk factors disclosed in the 2021 Form
 
10-K.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
72
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
 
AND USE OF PROCEEDS
(a)
None.
(b)
Not applicable.
(c)
Share Repurchase Program
The following table summarizes our repurchases of our common shares
 
for the three-months ended June 30, 2022:
Calendar Month
Total Number of
Shares
Repurchased
Average Price
Paid per
Share
Total Number of Shares
Purchased as Part of
Publicly Announced Plans
or Programs
(1)
Approximate Dollar Value of Shares that
may yet be Purchased as Part of
Publicly Announced Plans or
Programs
(1)
April 1 - 30
82,580
$
15.76
82,580
$
3,587,329
May 1 - 31
-
$
-
-
$
33,587,329
June 1 - 30
155,413
$
13.41
155,413
$
31,499,143
Total
237,993
$
14.23
237,993
(1)
 
On October 18, 2021, the Company announced that its Board of Directors approved
 
a share repurchase program under which the
Company may repurchase up to $30 million of its common stock. On May 10, 2022,
 
the Company announced that its Board of
Directors approved a second share repurchase program under which the Company
 
may repurchase up to $30 million of its common
stock. As of June 30, 2022, $31 million remains available for repurchase under our share repurchase programs.
 
Repurchases under
the programs
 
may be made in the open market or privately negotiated transactions in compliance
 
with SEC Rule 10b-18, subject to
market conditions, applicable legal requirements and other relevant factors. The program
 
s
 
do not obligate the Company to acquire
any amount of common stock and may be suspended at any time at the Company's discretion.
 
No time limit has been set for
completion of the programs.
 
 
 
73
ITEM 6. EXHIBITS
 
 
Exhibit
Number
Exhibit Description
**
101.INS*
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags
are embedded within the Inline XBRL document
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
104*
Cover Page Interactive Data File (formation in Inline XBRL and contained in Exhibit 101)
*
 
Filed Herewith
**
 
Furnished Herewith
 
†
 
Indicates a compensatory plan
 
 
74
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on
 
its
behalf by the undersigned thereunto duly authorized.
CrossFirst Bankshares, Inc.
August 3, 2022
/s/ Benjamin R. Clouse
 
Benjamin R. Clouse
 
Chief Financial Officer
 
(Principal Financial Officer and Principal Accounting Officer)
 
exhibit101
 
Table of Contents
 
1
AMENDED AND RESTATED
 
EMPLOYMENT AGREEMENT
THIS
 
AMENDED
 
AND
 
RESTATED
 
EMPLOYMENT
 
AGREEMENT
 
(the
 
“Agreement”),
effective as of July 1, 2022
(the “Effective Date”)
,
 
is entered into by and between CrossFirst Bank, a
 
state
bank organized
 
under the
 
laws of
 
the State
 
of Kansas
 
(the “Company”),
 
and W. Randall
 
Rapp (“Employee”),
and
 
amends
 
and
 
restates
 
in
 
full
 
that
 
certain
 
Employment
 
Agreement
 
dated
 
effective
 
April
 
1,
 
2019,
 
as
amended by that certain First Amendment to Employment Agreement dated
 
effective as of May 11, 2021.
RECITALS:
The parties have
 
agreed to execute
 
this Agreement
 
in order to
 
memorialize the
 
terms and conditions
on
 
which
 
the
 
Company
 
shall
 
continue
 
to
 
employ
 
Employee
 
from
 
and
 
after
 
the
 
Effective
 
Date
 
of
 
this
Agreement.
Certain
 
rights
 
described
 
below
 
may
 
inure
 
to
 
the
 
benefit
 
of
 
other
 
companies
 
affiliated
 
with
 
the
Company
 
by
 
virtue
 
of
 
being
 
controlled
 
by
 
the
 
Company
 
or
 
under
 
common
 
control
 
with
 
CrossFirst
Bankshares,
 
Inc.,
 
a
 
Kansas
 
corporation
 
(the
 
“Holding
 
Company,”
 
each
 
such
 
affiliated
 
company
 
an
""Affiliate," and, collectively all Affiliates, the “Affiliated Companies”).
AGREEMENTS:
Now, THEREFORE, the parties hereto, intending to be legally bound, do hereby agree as follows:
1.
POSITION AND DUTIES.
1.1
POSITION AND TITLE. The
 
Company hereby retains Employee
 
to serve as
 
the President
of the Company.
(a)
 
LIMITS ON AUTHORITY.
 
Employee shall, to the best of his abilities, perform his
duties
 
in
 
such
 
capacity
 
pursuant
 
to
 
this
 
Agreement
 
in
 
compliance
 
with
 
applicable
 
law,
consistent with such direction as the Company
 
provides to Employee from time to time,
 
and
in accordance with Company’s policies and procedures as published from time to time.
(b)
REPORTING
 
AND
 
AUTHORITY.
 
Employee
 
shall
 
report
 
to
 
the
 
Company
 
as
directed by
 
the Company.
 
Subject to
 
the directions
 
of the
 
Company,
 
Employee shall
 
have
full authority and
 
responsibility for supervising and
 
managing to the
 
best of his
 
ability,
 
the
daily affairs in his scope
 
of work or as
 
assigned including but not
 
limited to: (i) presenting
 
to
the Company all business opportunities that
 
come to his attention that are
 
reasonably in the
scope of business of
 
the Company; (ii) working
 
with the Company to
 
develop and approve
business
 
objectives,
 
policies
 
and
 
plans
 
that
 
improve
 
the
 
Company’s
 
profitability;
 
(iii)
communicating business
 
objectives and
 
plans to
 
subordinates, (iv)
 
ensuring that
 
plans and
policies are
 
promulgated to
 
and implemented
 
by subordinate
 
managers, (v)
 
ensuring that
 
each
business plan provides
 
those functions required
 
for achieving its
 
business objectives and
 
that
each
 
plan
 
is
 
properly
 
organized,
 
staffed
 
and
 
directed
 
to
 
fulfill
 
its
 
responsibilities,
 
(vi)
assisting the Company in
 
directing periodic reviews
 
of the Company’s strategic position and
combining
 
this
 
information
 
with
 
corollary
 
analysis
 
of
 
the
 
Company’s
 
production
 
and
financial resources, (vii) providing periodic financial information concerning the operations
of the projects and
 
growth plans to
 
the Company, and (viii) ensuring
 
that the operation
 
of the
projects comply with applicable laws.
1.2
 
ACCEPTANCE.
 
Employee
 
hereby
 
accepts
 
employment
 
by
 
the
 
Company
 
in
 
the
capacity
 
set forth in Section 1.1,
 
above, and agrees
 
to continue
 
to perform the
 
duties of such
 
position
 
Table of Contents
 
2
from
 
and
 
after
 
the
 
Effective
 
Date
 
of
 
this
 
Agreement
 
in
 
a
 
diligent,
 
efficient,
 
trustworthy,
 
and
businesslike manner.
 
Employee agrees
 
that, to
 
the
 
best
 
of
 
the
 
Employee’s
 
ability and
 
experience,
Employee at all
 
times shall loyally
 
and conscientiously
 
discharge all of
 
the duties and
 
responsibilities
imposed upon Employee pursuant to this Agreement.
1.3
 
BUSINESS TIME. Employee
 
shall devote his exclusive
 
business time to the
 
performance of
his duties to the
 
Company under Section 1.1 and
 
elsewhere in this Agreement.
 
Employee shall not
undertake
 
any
 
activities
 
that
 
conflict
 
with
 
or
 
significantly
 
detract
 
from
 
his
 
primary
 
duties
 
to
 
the
Company.
1.4
 
LOCATION.
 
Employee
 
shall
 
perform
 
his
 
duties
 
under
 
this
 
Agreement
 
primarily
 
in
Dallas
,
Texas and potentially other regions of the
 
United States where the
 
Company, or its Affiliated
Companies,
 
are
 
active
 
in
 
conducting
 
banking
 
and
 
other
 
related
 
service
 
activities.
 
Employee
acknowledges and agrees
 
that from time
 
to time he
 
shall be required
 
to travel (at
 
the cost and
 
expense
of the Company) to such other locations in order to discharge his duties under this
 
Agreement.
 
1.5
 
TERM. The term of
 
this Agreement commenced as of
 
the Effective Date
 
and shall be for a
term of three (3)
 
years, which term shall
 
thereafter automatically renew for
 
successive one (1) year
terms unless:
 
i) the
 
Company or
 
Employee serve
 
a Notice
 
of Termination
 
upon the
 
other party
 
of
intent to not
 
renew the term
 
of this Agreement
 
within thirty
 
(30) days prior
 
to the ensuing
 
termination
date, or ii) earlier terminated in accordance with Section 3, below.
1.6
 
STOCKHOLDING REQUIREMENT.
 
The Board
 
of Directors
 
of the
 
Company believes
 
that
it
 
will
 
be
 
essential
 
for
 
Employee
 
to
 
participate
 
in
 
the
 
Company’s
 
future
 
growth
 
as
 
an
 
equity
stakeholder as well as an
 
employee.
 
As a condition to Employee's employment with the
 
Company,
Employee will be required
 
to hold a minimum
 
of $400,000 worth
 
of Shares of the
 
Holding Company
(“Required Stock”) in
 
accordance with the
 
Company’s stock
 
ownership requirement policy,
 
which
may be amended from
 
time to time by
 
the Compensation Committee of
 
the Board of Directors
 
of the
Holding Company (the “Committee”).
 
Unless such failure is waived by
 
the Committee, in the event
Employee fails
 
to hold
 
sufficient Company
 
stock in
 
accordance with
 
the stock
 
ownership requirement
policy Employee shall
 
be deemed to
 
be in material
 
breach of this
 
Agreement.
 
Employee will have
three years from the date hereof to reach the Required Stock threshold.
 
2.
COMPENSATION.
 
The
 
Company
 
shall
 
compensate
 
Employee
 
for
 
his
 
services
 
pursuant
 
to
 
this
Agreement as follows:
2.1
BASE COMPENSATION.
(a)
BASE SALARY.
 
Effective
 
June 1,
 
2022, the
 
Company shall
 
pay to
 
Employee an
initial annual salary
 
in the amount
 
of Four Hundred
 
and Ten
 
Thousand
Dollars ($410,000)
(“Base Salary”), payable in periodic installments in accordance with the Company’s regular
payroll practices as in effect from time to time.
 
In addition, such annual salary is subject to
periodic increases,
 
in such
 
amounts (if
 
any) as
 
the Company
 
may determine
 
to be
 
appropriate,
at the time of Employee’s
 
annual review pursuant to Section 2.1(b), below,
 
or at such other
times (if any) as the Company may select.
(b)
PERIODIC REVIEWS. The Company shall review Employee’s performance of his
duties
 
pursuant
 
to
 
this
 
Agreement
 
at
 
least
 
annually
 
and
 
from
 
time
 
to
 
time
 
and
 
advise
Employee
 
of
 
the
 
results
 
of
 
that
 
review.
 
In
 
connection
 
with
 
each
 
such
 
review,
 
the
Company
 
shall
 
evaluate
 
whether
 
any increase
 
in Employee’s compensation under Section
2.1(a), above, is appropriate. Any annual salary
 
increase shall be effective as of such date as
the Company, in its discretion, determines to be appropriate.
 
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3
2.2
BONUSES.
(a)
CRITERIA.
 
Employee
 
shall
 
be
 
eligible
 
to
 
receive
 
periodic
 
incentive
 
bonuses
 
in
accordance
 
with
 
the
 
terms
 
and
 
conditions
 
of
 
the
 
Company’s
 
Annual
 
Incentive
 
Plan
 
(the
“AIP”), as amended, restated or supplemented from time to time (“each a “Bonus”), in such
amounts,
 
if
 
any,
 
and
 
at
 
such
 
times
 
as
 
may
 
be
 
determined
 
by
 
the
 
Committee,
 
in
 
its
 
sole
discretion.
 
For 2022,
 
Employee’s target bonus
 
opportunity shall
 
be 50%
 
of Employee’s Base
Salary; such
 
bonus opportunity may,
 
based on the
 
Company’s or
 
Employee’s
 
performance
during the applicable year,
 
be increased to a maximum of
 
75% of Employee’s
 
Base Salary.
In accordance with
 
the AIP,
 
the Committee will
 
establish the terms
 
and conditions of
 
such
Bonus for Employee for the following year based upon measurable goals for Employee and
the Company.
(b)
TIMING
 
OF
 
PAYMENT.
 
The
 
Bonus,
 
if
 
any,
 
payable
 
for
 
each
 
calendar
 
year
during
 
the
 
term of this Agreement shall be payable on
 
or before March 15
th
 
of the calendar
year immediately following the end of the calendar year in which
 
such Bonus is earned.
(c)
 
ONE-TIME PROMOTION BONUS.
 
Employee shall receive a one-time
cash promotion bonus of Ten Thousand Dollars ($10,000) which shall be paid in
2022.
 
2.3
FRINGE BENEFITS/VACATION.
(a)
VACATION.
 
Employee is
 
trusted
 
to
 
take reasonable
 
vacation
 
time
 
when needed.
Employee will not receive compensation upon termination or credit in future calendar years
for any unused vacation time.
(b)
OTHER FRINGE
 
BENEFITS. Employee
 
shall be
 
eligible to
 
participate, on
 
the same
terms and conditions
 
as all
 
other employees
 
of the
 
Company, in all reasonable
 
and customary
fringe
 
benefit
 
plans
 
made
 
available
 
to
 
the
 
employees
 
of
 
the
 
Company
 
and
 
its
 
Affiliated
Companies, including
 
but not
 
limited to,
 
Group Health
 
Insurance (medical,
 
vision and
 
dental)
and Long and Short-Term Disability Insurance.
(c)
MOBILE
 
COMMUNICATIONS.
 
The
 
Company
 
at
 
its
 
expense
 
shall
 
provide
Employee
 
with
 
mobile
 
communication
 
devices
 
or
 
a
 
reimbursement
 
for
 
use
 
of
 
a
 
personal
device for his use in connection with the
 
Company’s business with a provider acceptable to
the Company.
 
Employee shall use
 
and maintain such devices
 
in a reasonable
 
manner.
 
The
Company
 
shall
 
pay
 
for
 
the
 
purchase
 
of
 
such
 
initial
 
devices
 
for
 
Employee’s
 
use
 
and
 
a
replacement when
 
such devices
 
are eligible
 
for full replacement
 
under Employee’s data
 
plan.
(d)
AUTOMOBILE ALLOWANCE.
 
The
 
Company
 
shall provide
 
Employee with
 
an
automobile allowance
 
of $600
 
per month,
 
prorated for
 
partial months
 
worked, which
 
shall
be in lieu of any expense reimbursement for automobile or automobile-related expenditures
(other
 
than
 
expenditures
 
for
 
car
 
service
 
or
 
other
 
transportation
 
costs
 
associated
 
with
Employee’s
 
business
 
travel,
 
which
 
shall
 
be
 
reimbursed
 
in
 
accordance
 
with
 
the
 
terms
 
of
Section 2.4, below) or use of a Company-owned or leased vehicle.
2.4
REIMBURSEMENT
 
OF
 
EXPENSES.
 
The
 
Company
 
shall
 
reimburse
 
Employee
 
for
business
 
expenses
 
incurred
 
by
 
Employee
 
in
 
the
 
performance
 
of
 
his
 
duties,
 
provided
 
that
 
such
expenses
 
are
 
authorized
 
under
 
the
 
Company’s
 
Expense
 
Reimbursement
 
policy,
 
in
 
reasonable
amounts, incurred for ordinary and necessary
 
Company-related business expenses and are
 
supported
by itemized accountings and expense receipts that are timely submitted to the Company prior to
 
any
reimbursement.
 
Table of Contents
 
4
2.5
EQUITY INCENTIVE PLAN.
As
 
an
 
active
 
key
 
employee
 
in
 
the
 
Company
 
and
 
its
Affiliates, Employee
 
shall have
 
the right
 
to participate
 
in the
 
current CrossFirst
 
Bankshares, Inc.
 
2018
Omnibus Equity
 
Incentive Plan,
 
as amended,
 
supplemented or
 
restated from
 
time to
 
time (the
 
“Equity
Incentive Plan”),
 
for certain
 
eligible key
 
employees, a
 
copy of
 
which has
 
been provided
 
by Company.
 
As
 
a
 
part
 
of
 
Employee’s
 
compensation
 
under
 
this
 
Agreement,
 
Employee
 
shall
 
have
 
the
 
right
 
to
participate in the Equity
 
Incentive Plan as determined
 
by the Committee, subject
 
to vesting and other
rights described in the Equity
 
Incentive Plan or as approved
 
by the Committee.
 
Employee's rights in
any
 
equity
 
may
 
change
 
in
 
accordance
 
with
 
the
 
provisions
 
of
 
the
 
Equity
 
Incentive
 
Plan.
 
The
Committee
 
reserves
 
the
 
right,
 
in
 
its
 
sole
 
discretion
 
and at
 
any
 
time,
 
to
 
change
 
the
 
type
 
of
 
equity
incentive awards
 
granted to
 
Employee, provided
 
that the
 
Committee shall
 
only grant
 
to Employee
awards which may
 
be granted under
 
the terms of
 
the Equity Incentive
 
Plan.
 
For 2022, Employee
 
will
receive equity
 
awards consisting
 
of: (i)
 
5,000 time-based
 
restricted stock
 
units that
 
vest ratably
 
in
annual increments over three years
 
and (ii) 5,000 stock
 
appreciation rights that vest
 
ratably in annual
increments over seven years
 
with a grant date strike
 
price equal to the fair
 
market value of a Share
 
of
Holding Company on the grant date. For awards granted under
 
the Equity Incentive Plan after 2022,
Employee will be eligible for awards with a fair value as of
 
the grant date equal to 40% of his then-
applicable base salary.
3.
TERMINATION.
3.1
DEFINITIONS. For purposes of this Agreement, the term:
(a)
DATE
 
OF
 
TERMINATION”
 
or
 
“TERMINATION
 
DATE”
 
shall
 
mean
 
the
 
date
specified in
 
a Notice of
 
Termination
 
(as defined
 
below).
 
(b)
 
“NOTICE
 
OF
 
TERMINATION”
 
shall
 
mean
 
a
 
written
 
notice,
 
which
 
includes
 
the
effective
 
Date of
 
Termination
 
and (i)
 
if delivered
 
by the
 
Company in
 
connection with
 
the
Company’s decision
 
to terminate Employee’s
 
employment with the Company,
 
sets forth in
reasonable detail the reason
 
for termination of Employee’s
 
employment, or (ii) if
 
delivered
by Employee in connection with a Constructive Termination
 
(as such term is defined in the
Severance Plan (as defined in Section 3.1(c) below)) specifies in
 
reasonable detail the basis
for such resignation.
(c)
 
“SEVERANCE
 
PLAN”
 
shall
 
mean
 
the
 
CrossFirst
 
Bankshares,
 
Inc.
 
Senior
Executive Severance Plan, as amended, supplemented or restated from time to time.
3.2
TERMINATION
 
BY EMPLOYEE OR
 
COMPANY
 
DUE TO
 
DEATH
 
OR DISABILITY.
If the Company terminates
 
Employee during the term
 
of this Agreement due
 
to death or Disability
 
or
Employee terminates
 
this Agreement
 
due to
 
Disability, then following
 
such termination
 
the Company
shall pay to Employee or Employee’s legal representative:
(a)
 
ACCRUED
 
OBLIGATION.
 
A
 
lump
 
sum
 
cash
 
payment
 
equal
 
to
 
Employee’s
accrued, earned but unpaid compensation
 
and bonuses for the period
 
ending on the Date
 
of
Termination,
 
provided,
 
that
 
such
 
payment
 
shall
 
not
 
include
 
any
 
potential
 
or
 
unearned
bonuses or
 
any other
 
potential or
 
unearned or
 
benefits (“Accrued
 
Obligations”) shall
 
be made
on the sixtieth (60th) day following the Employee’s Date of Termination; and
(b)
 
COBRA PAYMENT.
 
A
 
lump
 
sum
 
cash
 
payment equal
 
to
 
twelve
 
(12)
 
times
 
the
Company-paid portion of the monthly COBRA
 
continuation premium for Employee and his
eligible dependents, if any, for COBRA continuation coverage under the Company’s health,
vision and dental plans in
 
effect as of Employee’s
 
Date of Termination
 
due to Disability or
death. Such amount will
 
include the Company paid
 
portion of the cost
 
of the premiums for
coverage
 
of
 
Employee’s
 
dependents if,
 
and only
 
to
 
the
 
extent that,
 
such
 
dependents were
 
Table of Contents
 
5
enrolled
 
in
 
a
 
health,
 
vision
 
or
 
dental
 
plan
 
sponsored
 
by
 
the
 
Company
 
before
 
the
 
Date
 
of
Termination.
For purposes of this Agreement, “Disability”
 
shall have the meaning ascribed in the
 
Severance Plan.
 
3.3
 
OTHER
TERMINATIONS.
 
In
 
the
 
case
 
of
 
a
 
termination
 
for
 
any
 
reason
 
other
 
than
Employee’s death
 
or Disability,
 
Employee shall only be entitled to
 
those severance benefits, if any,
provided for under the Severance Plan (“Severance Payments”).
3.4
CONDITIONAL
 
NATURE
 
OF
 
SEVERANCE
 
PAYMENTS.
 
Notwithstanding
 
any
 
other
provision of Section 3 or any other provision of this Agreement to the
 
contrary:
(a)
CONFIDENTIALITY.
 
Employee
 
understands
 
and
 
agrees
 
that
 
because
 
of
 
his
employment with the Company that he will acquire or have access to certain information of
a
 
confidential
 
and
 
secret
 
nature
 
derived
 
from
 
the
 
operations
 
of
 
the
 
Company’s
 
and
 
its
Affiliated
 
Companies’
 
business.
 
Employee
 
further
 
understands
 
and
 
agrees
 
that
 
all
correspondence,
 
customer
 
and
 
investor
 
lists
 
and
 
information,
 
loan
 
pricing
 
techniques,
underwriting
 
methods,
 
systems
 
and
 
products
 
of
 
the
 
Company
 
are
 
confidential
 
and
 
trade
secrets
 
(“Confidential
 
Information”)
 
and
 
the
 
disclosure
 
or
 
unauthorized
 
use
 
of
 
such
information would be
 
detrimental to the
 
Company.
 
On or before
 
the Date of
 
Termination,
or
 
upon
 
request
 
of
 
the
 
Company,
 
Employee
 
shall
 
return
 
to
 
Company,
 
all
 
records,
 
lists,
compositions,
 
documents
 
and
 
other
 
items
 
which
 
contain,
 
disclose
 
and/or
 
embody
 
any
Confidential Information
 
(including, without
 
limitation, all
 
copies, reproductions,
 
summaries
and notes of
 
the contents thereof,
 
expressly including all
 
electronically stored data,
 
wherever
stored), regardless
 
of the
 
person causing
 
the same
 
to be
 
in
 
such form,
 
and Employee
 
will
certify that the provisions of this paragraph have been complied with.
Nothing contained in
this Section 3.2(a)
 
shall be construed
 
as preventing Employee
 
from providing Confidential
Information
 
in
 
compliance
 
with
 
a
 
valid
 
court
 
order
 
issued
 
by
 
a
 
court
 
of
 
competent
jurisdiction,
 
providing
 
Employee
 
takes
 
reasonable
 
steps
 
to
 
prevent
 
dissemination
 
of
 
such
Confidential
 
Information
 
and
 
notifies
 
the
 
Company
 
in
 
a
 
reasonable
 
amount
 
of
 
time
 
in
advance
 
of
 
such
 
dissemination.
 
Nothing
 
in
 
this
 
Agreement
 
prohibits
 
Employee
 
from
reporting possible violations of federal or state law or regulation to any
 
government agency
or entity, including but not limited to, the Equal Employment Opportunity Commission, the
Department
 
of
 
Justice,
 
Congress,
 
or
 
other
 
applicable
 
regulatory
 
agency,
 
or
 
making
 
other
disclosures that are protected under the whistleblower provisions of
 
applicable law.
(b)
NONSOLICITATION.
 
Employee
 
understands
 
and
 
agrees
 
that
 
the
 
nature
 
of
 
the
Company’s
 
business
 
is
 
such
 
that
 
if
 
Employee
 
were
 
to
 
directly
 
solicit,
 
interfere
 
with,
 
or
attempt
 
to
 
interfere
 
with
 
any
 
of
 
the
 
Company’s
 
customer
 
relationships
 
or
 
to
 
directly
 
or
indirectly
 
solicit,
 
interfere
 
with,
 
or
 
attempt
 
to
 
interfere
 
with
 
any
 
of
 
the
 
Company’s
 
other
employees relationships that existed
 
at Employee’s Termination Date and during the one (1)
year period following the
 
termination of Employee’s employment with
 
the Company, then it
would be injurious
 
to the Company. Therefore, in
 
consideration of the
 
Company offering the
compensation and
 
perquisites provided
 
under this
 
Agreement, and
 
subject to
 
the condition
precedent of
 
the Company
 
timely providing
 
Employee the
 
payments called
 
for hereunder,
Employee agrees:
(i)
that, without the
 
prior written consent of
 
the Company,
 
he will not
directly
 
or
 
indirectly
 
solicit
 
interfere
 
with
 
or
 
attempt
 
to
 
interfere
 
with
 
any
 
of
 
the
Company’s
 
customer relationships
 
or
 
other
 
employee
 
relationships that
 
existed
 
at
Employee’s Termination Date and with whom
 
Employee personally
 
had any contact
during Employee’s employment and the one (1) year period of time thereafter;
(ii)
 
to
 
assist
 
in
 
the
 
avoidance
 
of
 
the
 
unauthorized
 
disclosure
 
of
 
the
Company’s Confidential Information, in
 
addition to other remedies available to
 
the
 
Table of Contents
 
6
Company
 
and
 
its
 
Affiliated
 
Companies,
 
Employee
 
will
 
not,
 
and
 
understands
 
and
agrees that his right to receive the severance
 
consideration described in Sections 3.2
and
 
3.3
 
above
 
(to
 
the
 
extent
 
Employee
 
is
 
otherwise
 
entitled
 
to
 
such
 
payments
thereunder)
 
shall
 
be
 
conditioned
 
upon
 
Employee
 
not:
 
i)
 
directly
 
or
 
indirectly
engaging
 
in
 
(whether
 
as
 
an
 
employee,
 
consultant,
 
agent,
 
proprietor,
 
principal,
partner,
 
stockholder,
 
corporate officer,
 
director or
 
otherwise); or
 
ii) acquiring
 
any
ownership
 
interest
 
in
 
or
 
participating
 
in
 
the
 
financing,
 
operation,
 
management
 
or
control
 
of,
 
any
 
person,
 
firm,
 
corporation
 
or
 
business
 
that
 
directly
 
or
 
indirectly
solicits, interferes with or attempts to interfere with
 
any of the Company’s customer
relationships or
 
other employee
 
relationships that
 
existed at
 
Employee’s Termination
Date
 
and
 
with
 
whom
 
Employee
 
personally
 
had
 
any
 
contact
 
in
 
any
 
Metropolitan
Statistical Area as defined from time to time by the U.S.
 
Office of Management and
Budget, Bureau of Labor Statistics, in which the Holding Company or its
 
successor
owns a
 
controlling voting
 
interest in
 
any banking
 
or other
 
financial institution
 
as such
banking or
 
other financial
 
institutions are
 
controlled by
 
the Company
 
or its
 
Affiliated
Companies
 
upon
 
Employee’s
 
Termination
 
Date.
 
The
 
limitation
 
upon
 
Employee’s
ownership of outstanding shares or other units of ownership shall be excluded from
this
 
Section
 
3.4,
 
provided
 
such
 
ownership
 
is
 
less
 
than
 
five
 
percent
 
(5%)
 
in
 
any
publicly-traded bank or financial institution;
 
(iii)
 
without the
 
prior written
 
consent of
 
the
 
Company,
 
Employee will
not solicit,
 
directly or
 
indirectly, actively or
 
inactively, the employees
 
or independent
contractors
 
of
 
the
 
Company with
 
whom
 
Employee
 
personally
 
had
 
any
 
contact
 
to
become
 
employees
 
or
 
independent
 
contractors
 
of
 
any
 
person,
 
firm,
 
corporation,
business, or banking
 
or other financial
 
institution that directly
 
or indirectly competes
with
 
the
 
Company
 
or
 
solicits,
 
interferes
 
with,
 
or
 
attempts
 
to
 
interfere
 
with
 
the
Company’s customers; and,
(iv)
 
on
 
or
 
before
 
the
 
Date
 
of
 
Termination,
 
Employee
 
shall
 
return
 
to
Company, all records, lists,
 
compositions, documents
 
and other
 
items which
 
contain,
disclose and/or embody
 
any Confidential Information
 
(including, without
 
limitation,
all
 
copies,
 
reproductions,
 
summaries
 
and
 
notes
 
of
 
the
 
contents
 
thereof,
 
expressly
including all
 
electronically stored
 
data, wherever
 
stored), regardless
 
of the
 
person
causing the same
 
to be in
 
such form, and
 
Employee will certify
 
that the provisions
of this paragraph have been complied with.
If Employee violates
 
any restriction
 
described in Section
 
3.4(a), then
 
all Severance
 
Payments
and consideration to
 
which Employee otherwise
 
may be
 
entitled under Section
 
3.2 and 3.3
above,
 
as
 
applicable,
 
thereupon
 
shall
 
cease
 
and
 
Employee
 
shall
 
promptly
 
return
 
to
 
the
Company all severance payments received
 
and other severance benefits theretofore
 
incurred
by Company for
 
Employee’s benefit. The Company
 
agrees that
 
nothing herein
 
shall preclude
Employee
 
from
 
retaining
 
copies
 
of
 
his
 
calendar,
 
contact
 
list
 
or
 
documents
 
related
 
to
 
his
investment in
 
Company or
 
responsibilities as
 
a director
 
to Company, and that
 
Employee shall
be entitled to freely
 
offer employment references to the
 
Company’s other current
 
or former
employees.
(c)
OTHER
 
EMPLOYMENT.
 
In
 
the
 
event
 
Employee
 
becomes
 
employed
 
as
 
an
employee
 
or
 
consultant for
 
a
 
company
 
that
 
provides financial
 
services
 
similar
 
to
 
services
provided
 
by
 
the
 
Company or
 
its
 
Affiliated
 
Companies in
 
a
 
Metropolitan
 
Statistical
 
Area,
described in
 
Section 3.4(a)(ii)
 
above, Employee shall
 
not be
 
entitled to
 
receive any
 
further
amount of the severance consideration
 
described in Sections 3.2(c) or 3.3
 
above, subsequent
to the date
 
of such employment.
 
Employee acknowledges that this
 
limitation is fair
 
to both
Employee
 
and
 
the
 
Company
 
and
 
does
 
not
 
in
 
any
 
way
 
restrain
 
employee
 
from
 
exercising
Employee’s lawful profession, trade or business.
 
Table of Contents
 
7
(d)
GENERAL RELEASE. Employee shall not be entitled to receive any benefits upon
termination of
 
employment described
 
in
 
Section
 
3
 
(including
 
any
 
Severance
 
Payments
under
 
the
 
Severance
 
Plan
 
or
 
described
 
in
 
Section
 
3.2
 
above)
 
unless
 
prior
 
to
 
receiving
the
 
same
 
Employee
 
executes
 
a
 
release
 
pursuant
 
to
 
Section
 
9
 
of
 
the
 
Severance
 
Plan,
 
as
applicable, or a
 
general release of
 
all known claims
 
against the Company
 
and its directors,
officers, employees, stockholders, and other
 
agents and their respective insurers,
 
successors,
and assigns, of all claims arising from or in any way relating to Employee’s employment by
the
 
Company or
 
the
 
termination of
 
that
 
employment,
 
provided that
 
such
 
release
 
shall
 
not
extend to
 
(i) any claims
 
for benefits
 
under any qualified
 
retirement plan maintained
 
by the
Company,
 
(ii)
 
any
 
claims
 
for
 
governmental
 
unemployment
 
benefits,
 
(iii)
 
any
 
claims
 
for
workers compensation benefits;
 
(iv) Employee’s rights, if any, under the Severance
 
Plan, (v)
Employee’s
 
rights,
 
if
 
any,
 
as
 
an
 
owner
 
of
 
any
 
Shares
 
of
 
the
 
Holding
 
Company,
 
(vi)
Employee’s rights under this
 
Agreement, or
 
(vi) Employee’s right to
 
receive indemnification
from the
 
Company under
 
applicable provisions
 
of the
 
law of
 
the State
 
where Employee
 
is
employed
 
or
 
the
 
articles
 
of
 
organization,
 
articles
 
of
 
incorporation,
 
By
 
Laws
 
or
 
Operating
Agreement of the Company or its Affiliated Companies, as the case may be.
3.5
EQUITABLE REMEDIES. Employee acknowledges that irreparable harm will result to the
Company in the
 
event of a
 
material breach by
 
Employee of any
 
of the covenants
 
contained in Section
3.4.
 
Employee agrees
 
that, in
 
the event
 
of such
 
a breach
 
and in
 
addition to
 
any other
 
legal or
 
equitable
remedies
 
available
 
to
 
the
 
Company,
 
the
 
Company
 
will
 
be
 
entitled
 
to
 
specific
 
performance of
 
the
covenants in
 
Section 3.4;
 
to an
 
injunction to
 
restrain the
 
violation of
 
such covenants
 
by Employee
and all other persons
 
acting for or with Employee;
 
or to both specific
 
performance and an injunction.
 
Employee further agrees that, in the event the Company brings an action for the enforcement of any
of those
 
covenants, and if
 
the court
 
finds any
 
part of the
 
covenant unreasonable as
 
to time,
 
area or
activity covered, then
 
the court shall
 
make a finding
 
as to what
 
is reasonable and
 
shall enforce this
Agreement by judgment or decree to the extent of such findings.
3.6
 
LIMITATION
 
ON PAYMENTS.
 
Notwithstanding any other provision of
 
this Agreement,
payments and benefits which
 
Employee has a right to
 
receive from the Company under
 
Section 3.3
which
 
result
 
in there
 
being
 
a “parachute
 
payment”
 
under
 
Section
 
280G
 
of the
 
Internal
 
Revenue
Code,
 
(the
 
“Code”),
 
then
 
such
 
payments
 
shall
 
be reduced
 
by the
 
minimum
 
amount
 
necessary
 
to
avoid
 
the imposition
 
of the
 
excise
 
tax (“Excise
 
Tax”)
 
under
 
Section
 
4999 of
 
the Code,
 
provided,
however,
 
that no
 
such reduction
 
in such
 
payments shall
 
be made
 
if by
 
not making
 
such reduction,
Employee’s
 
Retained Amount (as
 
hereinafter defined) would
 
be greater than
 
Employee’s Retained
Amount if such payments are so reduced. All determinations required to be made under this Section
3.6 shall be
 
made by tax
 
counsel selected by
 
the Company and
 
reasonably acceptable to
 
Employee
(“Tax
 
Counsel”),
 
which
 
determinations
 
shall
 
be
 
conclusive
 
and
 
binding
 
on
 
Employee
 
and
 
the
Company absent manifest error.
 
All fees and
 
expenses of Tax
 
Counsel shall be
 
borne solely by
 
the
Company.
 
Prior to
 
any reduction
 
in such
 
payments to
 
Employee pursuant
 
to this
 
Section 3.6,
 
Tax
Counsel
 
shall provide
 
Employee and
 
the
 
Company with
 
a report
 
setting forth
 
its calculations
 
and
containing related
 
supporting information.
 
In the
 
event any
 
such reduction
 
is required,
 
such payments
shall be reduced in the following order: (i) any
 
COBRA payments, (ii) the Severance Payments,
 
(iii)
any
 
other
 
portion
 
of
 
such
 
payments
 
that
 
are
 
not
 
subject
 
to
 
Section 409A
 
of
 
the
 
Code
 
(other
 
than
payments resulting
 
from any accelerated
 
vesting of
 
an equity award
 
under the Equity
 
Incentive Plan),
(iv) any payments that are subject to Section 409A of the Code in reverse order of payment, and (v)
any portion
 
of such
 
payments that
 
are not
 
subject to
 
Section 409A
 
and arise
 
from any
 
accelerated
vesting of
 
an award
 
under the
 
Equity Incentive
 
Plan. “Retained
 
Amount” shall
 
mean the
 
present value
(as determined in accordance with
 
Sections 280G(b)(2)(A)(ii) and 280G(d)(4) of the
 
Code) of such
payments net of all federal, state and local taxes imposed on Employee
 
with respect thereto.
4.
MISCELLANEOUS
4.1
NOTICES.
 
Any
 
notices
 
permitted
 
or
 
required
 
to
 
be
 
given
 
pursuant
 
to
 
this
 
Agreement
shall
 
be
 
sufficient
 
if
 
given
 
in
 
writing
 
and
 
if
 
personally delivered
 
by receipted
 
hand
 
delivery to
 
Table of Contents
 
8
Employee or to the
 
Company, or if deposited in the United
 
States mail, postage prepaid,
 
first class or
certified
 
mail,
 
to
 
Employee
 
at
 
his
 
residence
 
address
 
or
 
to
 
the
 
Company’s
 
corporate
 
headquarters
address (attention General
 
Counsel) or to such
 
other addresses as
 
each party may
 
give the other party
notice in accordance with this Agreement.
4.2
EFFECT ON OTHER REMEDIES. Nothing in this Agreement is intended to preclude, and
no
 
provision
 
of
 
this
 
Agreement shall
 
be
 
construed to
 
preclude,
 
the
 
exercise
 
of
 
any
 
other
 
right
 
or
remedy which
 
the Company or
 
Employee may
 
have by reason
 
of the
 
other’s breach
 
of obligations
under this Agreement.
4.3
BINDING
 
ON
 
SUCCESSORS;
 
ASSIGNMENT.
 
This
 
Agreement
 
shall
 
be
 
binding
 
upon,
and inure
 
to the
 
benefit of,
 
each of
 
the parties
 
hereto, as
 
well as
 
their respective
 
heirs, successors,
assigns, and personal representatives.
4.4
GOVERNING LAW,
 
JURISDICTION AND VENUE.
 
This Agreement
 
shall be
 
construed
in accordance
 
with and
 
shall be
 
governed by
 
the laws
 
of the
 
State of
 
Kansas, without
 
regard to
 
conflict
of law principles.
 
Each party consents to
 
the jurisdiction of
 
the courts of
 
the State of
 
Kansas as the
exclusive jurisdiction
 
for the purposes
 
of construing or
 
enforcing this
 
Agreement and the
 
venue of
the District Court of the State of Kansas in Johnson, County, Kansas and that any dispute relating to
this
 
Agreement shall
 
be
 
brought
 
in
 
the
 
District Court
 
of
 
the
 
State
 
of
 
Kansas in
 
Johnson,
 
County,
Kansas.
4.5
SEVERABILITY.
 
If any of the
 
provisions of this Agreement shall otherwise
 
contravene or
be invalid
 
under the
 
laws of
 
any state,
 
country or
 
other jurisdiction
 
where this
 
Agreement is
 
applicable
but for
 
such contravention
 
or invalidity,
 
such contravention
 
or invalidity
 
shall not
 
invalidate all
 
of
the provisions of
 
this Agreement but rather
 
it shall be construed,
 
insofar as the
 
laws of that state
 
or
other jurisdiction
 
are concerned,
 
as not containing
 
the provision
 
or provisions
 
contravening or
 
invalid
under
 
the
 
laws
 
of
 
that
 
state
 
or
 
jurisdiction, and
 
the
 
rights
 
and
 
obligations created
 
hereby
 
shall be
construed and enforced accordingly.
4.6
COUNTERPARTS.
 
This Agreement may
 
be executed in
 
counterparts, each of
 
which shall
be deemed an
 
original and all
 
of which, taken
 
together, shall be one
 
and the same
 
instrument, binding
on all the signatories.
4.7
FURTHER ASSURANCES. Each party agrees, upon the request
 
of another party, to
 
make,
execute, and deliver, and to
 
take such additional steps
 
as may be necessary
 
to effectuate the purposes
of this Agreement.
4.8
REASONABLE
 
VERIFICATION.
 
The
 
Company
 
agrees
 
that
 
Employee
 
shall
 
have
reasonable
 
access
 
to
 
the
 
Company’s
 
books
 
and
 
records
 
in
 
order
 
to
 
verify
 
the
 
accuracy
 
of
 
Bonus
calculations that may be necessary following termination.
4.9
ENTIRE
 
AGREEMENT;
 
AMENDMENT.
 
This
 
Agreement
 
(a)
 
represents
 
the
entire
understanding of the
 
parties with respect to
 
the subject matter hereof,
 
and supersedes all
 
prior
and contemporaneous understandings,
 
whether written or
 
oral, regarding the
 
subject matter hereof,
and
 
(b)
 
may
 
not
 
be
 
modified
 
or
 
amended,
 
except
 
by
 
a
 
written
 
instrument,
 
executed
 
by
 
the
 
party
against whom enforcement of such amendment may be sought.
4.10
TAXES.
(a)
Anything
 
to
 
the
 
contrary notwithstanding,
 
all
 
payments made
 
by the
 
Company to
Employee or Employee’s
 
estate or beneficiaries will be subject
 
to tax withholding pursuant
to any applicable laws or
 
regulations.
 
Employee will be solely liable
 
and responsible for the
payment of taxes
 
arising as a
 
result of any
 
payment hereunder including without
 
limitation
any unexpected or adverse tax consequence.
 
 
Table of Contents
 
9
(b)
This Agreement is intended to comply with the requirements of Code Section 409A
(“Section 409A”). Accordingly, all provisions herein, or
 
incorporated by reference, shall be
construed and interpreted to
 
comply with Section 409A
 
and if necessary, any provision shall
be
 
held
 
null
 
and
 
void
 
to
 
the
 
extent
 
such
 
provision
 
(or
 
part
 
thereof)
 
fails
 
to
 
comply
 
with
Section 409A or regulations thereunder.
(c)
If Employee is a specified employee (within the meaning of Code Section 409A) at
the time Employee
 
incurs a separation from
 
service (within the
 
meaning of Section
 
409A),
then to the extent necessary to comply with Code Section 409A and avoid the imposition of
taxes under
 
Code Section
 
409A, the
 
payment of
 
certain benefits
 
owed to
 
Employee under
this
 
Agreement will
 
be
 
delayed and
 
instead
 
paid (without
 
interest) to
 
Employee upon
 
the
earlier of the first business day of the seventh month following Employee’s separation from
service or death.
(d)
The
 
Company
 
and
 
Employee
 
agree
 
that,
 
for
 
purposes
 
of
 
the
 
limitations
 
on
nonqualified
 
deferred
 
compensation
 
under
 
Section
 
409A,
 
each
 
payment
 
of
 
compensation
under this Agreement
 
shall be treated
 
as a separate
 
payment of compensation
 
for purposes of
applying
 
Section
 
409A
 
deferral
 
election
 
rules
 
and
 
the
 
exclusion
 
from
 
Section
 
409A
 
for
certain
 
short-term
 
deferral
 
amounts.
 
The
 
Company
 
and
 
Employee
 
also
 
agree
 
that
 
any
amounts payable
 
solely on
 
account of
 
an involuntary
 
separation from
 
service of
 
the Executive
within the
 
meaning of
 
Section 409A
 
shall be
 
excludible from
 
the requirements
 
of Section
409A, either as involuntary separation pay
 
or as short-term deferral amounts (e.g.,
 
amounts
payable under
 
the schedule
 
prior to
 
March 15
 
of the
 
calendar year
 
following the
 
calendar
year of involuntary separation) to the maximum possible extent.
(e)
Notwithstanding anything to
 
the contrary in
 
this Agreement, all reimbursements
 
and
in kind benefits
 
provided under
 
this Agreement
 
shall be
 
made or provided
 
in accordance with
the requirements of Section 409A, including, where applicable,
 
the requirement that (i) any
reimbursement is
 
for expenses
 
incurred during
 
the period
 
of time
 
specified in
 
this Agreement,
(ii) the amount of expenses eligible for reimbursement, or
 
in kind benefits provided, during
a calendar year
 
may not affect
 
the expenses eligible
 
for reimbursement, or
 
in kind benefits
to be provided,
 
in any other
 
calendar year, (iii) the
 
reimbursement of an
 
eligible expense will
be made
 
no later
 
than the
 
last day
 
of the
 
calendar year
 
following the
 
year in
 
which the
 
expense
is incurred,
 
and (iv)
 
the right
 
to reimbursement
 
or in
 
kind benefits
 
is not
 
subject to
 
liquidation
or exchange for another benefit.
[The remainder of this page is intentionally blank. Signatures follow.]
 
 
 
Table of Contents
 
10
IN WITNESS
 
WHEREOF,
 
the
 
parties hereto
 
have executed
 
this Agreement,
 
effective
 
as of
 
the
 
date set
forth above.
COMPANY:
EMPLOYEE:
CrossFirst Bank
 
By:
 
/s/ Amy Fauss
 
Signature: /s/ W. Randall Rapp
 
 
Amy Fauss
 
Chief Human Resources Officer
 
 
W.
 
Randall Rapp
exhibit311
 
 
 
Certification of Principal Executive Officer
Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Michael J. Maddox, certify that:
1.
 
I have reviewed this quarterly report on Form 10-Q of CrossFirst Bankshares, Inc.;
2.
 
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3.
 
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4.
 
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c)
 
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d)
 
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
 
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a)
 
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b)
 
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
 
Date:
 
August 3, 2022
 
/s/ Michael J. Maddox
Michael J. Maddox
President and Chief Executive Officer
(Principal Executive Officer)
 
 
exhibit312
 
 
 
Certification of Principal Financial Officer
Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Benjamin R. Clouse, certify that:
1.
 
I have reviewed this quarterly report on Form 10-Q of CrossFirst Bankshares, Inc.;
2.
 
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3.
 
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4.
 
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
 
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c)
 
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d)
 
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5.
 
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a)
 
All significant
 
deficiencies and
 
material weaknesses
 
in the
 
design or
 
operation of
 
internal control
 
over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
(b)
 
Any fraud, whether or not material, that involves management or other employees who
 
have a significant role
in the registrant’s internal control over financial reporting.
 
Date:
 
August 3, 2022
 
/s/ Benjamin R. Clouse
Benjamin R. Clouse
Chief Financial Officer
(Principal Financial Officer)
exhibit321
 
 
 
 
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
UNDER 18 U.S.C. § 1350 FURNISHED PURSUANT TO SECURITIES EXCHANGE ACT RULE 13a-14(b)
In connection with the Quarterly Report of CrossFirst Bankshares, Inc. (the “Company”) on Form 10-Q for the period ended on June 30,
2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in his respective
capacities indicated below, hereby certifies, pursuant to 18 U.S.C. § 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002,
that, to his knowledge and belief, (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
Date: August 3, 2022
 
/s/ Michael J. Maddox
Michael J. Maddox
President and Chief Executive Officer (Principal Executive Officer)
/s/ Benjamin R. Clouse
Benjamin R. Clouse
 
Chief Financial Officer (Principal Financial Officer)