UNITED STATES
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WASHINGTON, D.C. 20549
FORM
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2
CROSSFIRST BANKSHARES, INC.
Form 10-Q for the Quarter Ended March 31, 2023
Index
Part I. Financial Information
Item 1. Consolidated Financial Statements
Forward-Looking Information
4
5
6
7
8
9
49
66
67
Part II. Other Information
67
67
68
69
70
71
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,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,”
“plan,” “projection,” “goal,” “target,” “outlook,” “aim,” “would,” “annualized,” “position” 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 Canyon Bancorporation, Inc. and
Canyon Community Bank, N.A. (collectively “Canyon”); 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,
including, without limitation: impacts on us and our clients of a decline in general business and economic conditions and any regulatory
responses thereto, including uncertainty and volatility in the financial markets; interest rate fluctuations; our ability to effectively
execute our growth strategy and manage our growth, including identifying and consummating suitable mergers and acquisitions,
entering new lines of business or offering new or enhanced services or products; the transition away from the London Interbank Offered
Rate (“LIBOR”); fluctuations in fair value of our investments due to factors outside of our control; our ability to successfully manage
credit risk and the sufficiency of our allowance; geographic concentration of our markets; economic impact on our commercial real
estate and commercial-based loan portfolios, including declines in commercial and residential real estate values; an increase in non-
performing assets; our ability to attract, hire and retain key personnel; maintaining and increasing customer deposits, funding
availability, liquidity and our ability to raise and maintain sufficient capital; competition from banks, credit unions and other financial
services providers; the effectiveness of our risk management framework; accounting estimates; our ability to maintain effective internal
control over financial reporting; our ability to keep pace with technological changes; cyber incidents or other failures, disruptions or
security breaches; employee error, fraud committed against the Company or our clients, or incomplete or inaccurate information about
clients and counterparties; mortgage markets; our ability to maintain our reputation; costs and effects of litigation; environmental
liability; risk exposure from transactions with financial counterparties; severe weather, natural disasters, pandemics or other external
events; changes in laws, rules, regulations, interpretations or policies relating to financial institutions, including capital requirements,
higher FDIC insurance premiums and assessments, consumer protection laws and privacy laws; volatility in our stock price; issuance of
our preferred stock; risks inherent with proposed business acquisitions and the failure to achieve projected synergies; 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, 2022 (“2022 Form 10-K), filed with the Securities and Exchange Commission (“SEC”) on March 3, 2023, 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 Consolidated Financial Statements – Unaudited
4
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CROSSFIRST BANKSHARES, INC.
Consolidated Statements of Financial Condition – Unaudited
March 31, 2023
December 31, 2022
(Dollars in thousands)
Assets
Cash and cash equivalents
$
$
Available-for-sale securities - taxable
Available-for-sale securities - tax-exempt
Loans, net of unearned fees
Allowance for credit losses on loans
Loans, net of the allowance for credit losses on loans
Premises and equipment, net
Restricted equity securities
Interest receivable
Foreclosed assets held for sale
Goodwill and other intangible assets, net
Bank-owned life insurance
Other
Total assets
$
$
Liabilities and stockholders’ equity
Deposits
Non-interest-bearing
$
$
Savings, NOW and money market
Time
Total deposits
Federal Home Loan Bank advances
Other borrowings
Interest payable and other liabilities
Total liabilities
Stockholders’ equity
Preferred stock, $
shares at March 31, 2023 and December 31, 2022, respectively
Common stock, $
respectively
Treasury stock, at cost:
2022
(64,127 )
(64,127 )
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
(52,140 )
(64,557 )
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
See Notes to Consolidated Financial Statements – Unaudited
5
CROSSFIRST BANKSHARES, INC.
Consolidated Statements of Operations – Unaudited
Three Months Ended
March 31,
2023
2022
(Dollars in thousands except per share data)
Interest Income
Loans, including fees
$
$
Available-for-sale securities - taxable
Available-for-sale securities - tax-exempt
Deposits with financial institutions
Dividends on bank stocks
Total interest income
Interest Expense
Deposits
Fed funds purchased and repurchase agreements
Federal Home Loan Bank Advances
Other borrowings
Total interest expense
Net Interest Income
Provision for Credit Losses
(625 )
Net Interest Income after Provision for Credit Losses
Non-Interest Income
Service charges and fees on customer accounts
ATM and credit card interchange income
Realized gains (losses) on available-for-sale securities
(26 )
Gain on sale of loans
Gains (losses), net on equity securities
(103 )
Income from bank-owned life insurance
411
Swap fees and credit valuation adjustments, net
Other non-interest income
Total non-interest income
Non-Interest Expense
Salaries and employee benefits
Occupancy
Professional fees
Deposit insurance premiums
Data processing
Advertising
Software and communication
Foreclosed assets, net
(53 )
Other non-interest expense
Core deposit intangible amortization
Total non-interest expense
Net Income Before Taxes
Income tax expense
Net Income
$
Basic Earnings Per Common Share
$
$
Diluted Earnings Per Common Share
$
$
See Notes to Consolidated Financial Statements – Unaudited
6
CROSSFIRST BANKSHARES, INC.
Consolidated Statements of Comprehensive Income (Loss) – Unaudited
Three Months Ended
March 31,
2023
2022
(Dollars in thousands)
Net Income
$
$
Other Comprehensive Income (Loss)
Unrealized gain (loss) on available-for-sale securities
(58,956 )
Less: income tax expense (benefit)
(14,433 )
Unrealized gain (loss) on available-for-sale securities, net of income tax
(44,523 )
Reclassification adjustment for realized gains (losses) included in income
(26 )
Less: income tax expense (benefit)
(6 )
Less: reclassification adjustment for realized gain (loss) included in income, net of income tax
(20 )
Unrealized gain on cash flow hedges
Less: income tax expense
Unrealized gain on cash flow hedges, net of income tax
Other comprehensive income (loss)
(42,501 )
Comprehensive Income (Loss)
$
$
(25,673 )
See Notes to Consolidated Financial Statements – Unaudited
7
CROSSFIRST BANKSHARES, INC.
Consolidated Statements of Stockholders’ Equity – Unaudited
Preferred Stock
Common Stock
Treasury
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shares
Amount
Shares
Amount
(Dollars in thousands)
Balance at December 31, 2021
-
$
-
$
$
(28,347 )
$
$
$
$
Adoption of ASU 2016-13
-
-
-
(2,610 )
(2,610 )
Net income
-
-
-
Other comprehensive loss - available-for-
sale securities
-
-
-
(44,503 )
(44,503 )
Other comprehensive gain - cash flow
hedges
-
-
-
Issuance of shares from equity-based
awards
-
-
(453 )
(450 )
Open market common share repurchases
-
-
(1,058,332 )
(16,762 )
(16,762 )
Employee receivables from sale of stock
-
-
-
Stock-based compensation
-
-
-
Balance at March 31, 2022
-
$
-
$
$
(45,109 )
$
$
$
(21,012 )
$
Preferred Stock
Common Stock
Treasury
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shares
Amount
Shares
Amount
(Dollars in thousands)
Balance at December 31, 2022
$
$
$
(64,127 )
$
$
$
(64,557 )
$
Net income
-
-
-
Other comprehensive gain - available-for-
sale securities
-
-
-
Other comprehensive gain - cash flow
hedges
-
-
-
Issuance of preferred shares
Issuance of shares from equity-based awards
-
-
(623 )
(621 )
Stock-based compensation
-
-
-
Balance March 31, 2023
$
$
$
(64,127 )
$
$
$
(52,140 )
$
See Notes to Consolidated Financial Statements – Unaudited
8
CROSSFIRST BANKSHARES, INC.
Consolidated Statements of Cash Flows – Unaudited
Three Months Ended
March 31,
2023
2022
(Dollars in thousands)
Operating Activities
Net income
$
$
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Provision for credit losses
(625 )
Accretion of discounts on loans
(547 )
Accretion of discounts and amortization of premiums on securities
Equity based compensation
(Gain) loss on disposal of fixed assets
(4 )
Loss (gain) on sale of foreclosed assets and related impairments
(62 )
Gain on sale of loans
(187 )
Deferred income taxes
Net increase in bank owned life insurance
(411 )
(388 )
Net realized (gains) losses on available-for-sale securities
(63 )
Dividends on FHLB stock
(261 )
(142 )
Changes in:
Interest receivable
(878 )
(910 )
Other assets
Other liabilities
(2,693 )
(21,650 )
Net cash provided by operating activities
Investing Activities
Net change in loans
(275,817 )
(94,437 )
Purchases of available-for-sale securities
(93,488 )
(49,138 )
Proceeds from maturities of available-for-sale securities
Proceeds from sale of available-for-sale securities
Proceeds from the sale of foreclosed assets
Purchase of premises and equipment
(2,662 )
(962 )
Proceeds from the sale of premises and equipment and related insurance claims
Purchase of restricted equity securities
(8,226 )
Proceeds from sale of restricted equity securities
Net cash used in investing activities
(332,899 )
(131,161 )
Financing Activities
Net (decrease) increase in demand deposits, savings, NOW and money market accounts
(244,454 )
Net increase (decrease) in time deposits
(112,320 )
Net decrease in federal funds sold
(20,000 )
-
Repayment of Federal Home Loan Bank advances
(12,643 )
(10,000 )
Net proceeds of Federal Home Loan Bank line of credit
Proceeds from issuance of preferred shares, net of issuance cost
Issuance of common shares, net of issuance cost
Proceeds from employee stock purchase plan
Repurchase of common stock
(16,762 )
Acquisition of common stock for tax withholding obligations
(790 )
(793 )
Net decrease in employee receivables
Net cash provided by (used in) financing activities
(89,124 )
Decrease in Cash and Cash Equivalents
(37,167 )
(205,800 )
Cash and Cash Equivalents, Beginning of Period
Cash and Cash Equivalents, End of Period
$
$
Supplemental Cash Flows Information
Interest paid
Income taxes paid
9
CROSSFIRST BANKSHARES, INC.
Notes to Consolidated Financial Statements – Unaudited
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
CrossFirst Investments, Inc. (“CFI”), which 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) Fort Worth, Texas; (viii) Frisco, Texas; (ix) Phoenix, Arizona; (x) Colorado Springs,
Colorado; (xi) Denver, Colorado; and (xii) Clayton, New Mexico.
Basis of Presentation
The accompanying interim unaudited consolidated financial statements serve to update the CrossFirst Bankshares, Inc. Annual
Report on Form 10-K for the year ended December 31, 2022 and include the accounts of the Company, the Bank, CFI, CFBSA I, LLC
and CFBSA II, LLC. The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S.
generally accepted accounting principles (“GAAP”) and where applicable, with general practices in the banking industry or guidelines
prescribed by bank regulatory agencies. However, they may not include all information and notes necessary to constitute a complete set
of financial statements under GAAP applicable to annual periods and accordingly should be read in conjunction with the financial
information contained in the Company's most recent Annual Report on Form 10-K. The unaudited consolidated financial statements
reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results presented. All such
adjustments are of a normal recurring nature. All significant intercompany balances and transactions have been eliminated in
consolidation. Certain reclassifications of prior years' amounts are made whenever necessary to conform to current period presentation.
The results of operations for the interim period are not necessarily indicative of the results that may be expected for the full year or any
other interim period. All amounts are in thousands, except share data, or as otherwise noted.
GAAP requires management to make estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and
disclosures of contingent assets and liabilities. By their nature, estimates are based on judgment and available information. Management
has made significant estimates in certain areas, such as the fair values of financial instruments, and the allowance for credit losses
(“ACL”). Because of the inherent uncertainties associated with any estimation process and future changes in market and economic
conditions, it is possible that actual results could differ significantly from those estimates.
The Company's significant accounting policies followed in the preparation of the unaudited consolidated financial statements are
disclosed in Note 1 of the audited financial statements and notes for the year ended December 31, 2022 and are contained in the
Company's Annual Report on Form 10-K for that period. There have been no significant changes to the application of significant
accounting policies since December 31, 2022 other than those noted below
:
Related Party Transactions
The Bank extends credit and receives deposits from related parties. In management’s opinion, the loans and deposits were made
in the ordinary course of business and made on similar terms as those prevailing at the time with other persons. Related party loans
totaled $
and $
10
Accounting Pronouncements Implemented
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. 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.
Impact of adoption
adoption of this ASU did not impact our consolidated financial statements. The incremental vintage disclosures for gross write-
offs are included within “Note 3: Loans and Allowance for Credit Losses.”
Note 2: 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:
March 31, 2023
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Approximate
Fair Value
(Dollars in thousands)
Available-for-sale securities
Mortgage-backed - GSE residential
$
$
$
$
Collateralized mortgage obligations - GSE residential
State and political subdivisions
Corporate bonds
Total available-for-sale securities
$
$
$
$
December 31, 2022
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Approximate
Fair Value
(Dollars in thousands)
Available-for-sale securities
Mortgage-backed - GSE residential
$
$
$
$
Collateralized mortgage obligations - GSE residential
State and political subdivisions
Corporate bonds
Total available-for-sale securities
$
$
$
$
The carrying value of securities pledged as collateral was $
respectively.
As of March 31, 2023 and December 31, 2022, the available-for-sale securities had $
the amortized cost basis, and presented in “interest receivable” on the consolidated statements of financial condition.
11
The following tables summarize the gross realized gains and losses from sales or maturities of AFS securities:
For the Three Months Ended
March 31, 2023
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Gain
(Dollars in thousands)
Available-for-sale securities
$
$
(130 )
$
For the Three Months Ended
March 31, 2022
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Loss
(Dollars in thousands)
Available-for-sale securities
$
$
(27 )
$
(26 )
The following table shows available-for-sale securities gross unrealized losses, the number of securities that are in an unrealized
loss position, 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 March 31, 2023 and December 31, 2022:
March 31, 2023
Less than 12 Months
12 Months or More
Total
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
Number of
Securities
(Dollars in thousands)
Available-for-sale
securities
Mortgage-backed -
GSE residential
$
$
$
$
$
$
Collateralized
mortgage obligations
- GSE residential
State and political
subdivisions
Corporate bonds
Total temporarily
impaired securities
$
$
$
$
$
$
12
December 31, 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
$
$
$
$
$
$
Collateralized
mortgage obligations
- GSE residential
State and political
subdivisions
Corporate bonds
Total temporarily
impaired securities
$
$
$
$
$
$
Based on the Company’s evaluation at each respective period end, we recorded
of 2023 or fourth quarter of 2022. The unrealized losses in the Company’s investment portfolio were caused by interest rate changes.
As of March 31, 2023 the Company does not intend to sell the investments in loss positions, and it is not more likely than not the
Company will be required to sell the investments before recovery of their amortized cost basis.
13
The amortized cost, fair value, and weighted average yield of available-for-sale securities at March 31, 2023, by contractual
maturity, are shown below:
March 31, 2023
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
$
-
$
$
$
$
Estimated fair value
$
-
$
$
$
$
Weighted average yield
(2)
-
%
%
%
%
%
Collateralized mortgage obligations -
GSE residential
(1)
Amortized cost
$
-
$
-
$
$
$
Estimated fair value
$
-
$
-
$
$
$
Weighted average yield
(2)
-
%
-
%
%
%
%
State and political subdivisions
Amortized cost
$
$
$
$
$
Estimated fair value
$
$
$
$
$
Weighted average yield
(2)
%
%
%
%
%
Corporate bonds
Amortized cost
$
-
$
$
$
-
$
Estimated fair value
$
-
$
$
$
-
$
Weighted average yield
(2)
-
%
%
%
-
%
%
Total available-for-sale securities
Amortized cost
$
$
$
$
$
Estimated fair value
$
$
$
$
$
Weighted average yield
(2)
%
%
%
%
%
(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 using 30/360 day basis. Tax-exempt securities are not tax effected.
Equity Securities
Equity securities consist of $
consolidated statements of financial condition.
The Company elected a measurement alternative for three private equity investments that did not have a readily determinable fair
value and did not qualify for the practical expedient to estimate fair value using the net asset value per share. A cost basis was
calculated for the equity investments. The recorded balance will adjust for any impairment or any observable price changes for an
identical or similar investment of the same issuer. No such events occurred during the three-month period ended March 31, 2023.
14
The following is a summary of the unrealized and realized gains and losses on equity securities recognized in net income:
Three Months Ended
March 31,
2023
2022
(Dollars in thousands)
Net gains (losses) recognized during the reporting period on equity securities
$
$
(103 )
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
$
$
(103 )
15
Note 3: Loans and Allowance for Credit Losses
The table below shows the loan portfolio composition including carrying value by segment as of the dates shown. The carrying value of loans is net of discounts, fees, costs,
and fair value marks of $
March 31, 2023
December 31, 2022
Amount
% of Loans
Amount
% of Loans
(Dollars in thousands)
Commercial and industrial
$
%
$
%
Commercial and industrial lines of credit
Energy
Commercial real estate
Construction and land development
Residential real estate
Multifamily real estate
Consumer
Loans, net of unearned fees
%
%
Less: allowance for credit losses on loans
Loans, net of the allowance for credit losses on loans
$
$
Accrued interest of $
financial condition is excluded from the carrying value 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
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
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 draw down
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.
16
●
Energy
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.
●
Commercial Real Estate
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
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’s CECL committee 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 statement of financial condition 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 -
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.
17
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 poo l 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 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.
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)
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)
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)
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
18
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.
●
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.
19
The following tables present the credit risk profile of the Company’s loan portfolio based on internal rating categories and loan segments as of March 31, 2023 and December
31, 2022:
As of March 31, 2023
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2023
2022
2021
2020
2019
2018 and
Prior
Revolving
Loans
Revolving
Loans
converted to
Term Loans
Total
(Dollars in thousands)
Commercial and industrial
Pass
$
$
$
$
$
$
$
$
$
Special mention
Substandard - accrual
Substandard - non-
accrual
Doubtful
Loss
Total
$
$
$
$
$
$
$
$
$
Commercial and industrial lines of credit
Pass
$
$
$
$
$
$
$
$
$
Special mention
Substandard - accrual
Substandard - non-
accrual
Doubtful
Loss
Total
$
$
$
$
$
$
$
$
$
Energy
Pass
$
$
$
$
$
$
$
$
$
Special mention
Substandard - accrual
Substandard - non-
accrual
Doubtful
Loss
Total
$
$
$
$
$
$
$
$
$
20
As of March 31, 2023
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2023
2022
2021
2020
2019
2018 and
Prior
Revolving
Loans
Revolving
Loans
converted to
Term Loans
Total
(Dollars in thousands)
Commercial real estate
Pass
$
$
$
$
$
$
$
$
$
Special mention
Substandard - accrual
Substandard - non-
accrual
Doubtful
Loss
Total
$
$
$
$
$
$
$
$
$
Construction and land development
Pass
$
$
$
$
$
$
$
$
$
Special mention
Substandard - accrual
Substandard - non-
accrual
Doubtful
Loss
Total
$
$
$
$
$
$
$
$
$
Residential real estate
Pass
$
$
$
$
$
$
$
$
$
Special mention
Substandard - accrual
Substandard - non-
accrual
Doubtful
Loss
Total
$
$
$
$
$
$
$
$
$
21
As of March 31, 2023
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2023
2022
2021
2020
2019
2018 and
Prior
Revolving
Loans
Revolving
Loans
converted to
Term Loans
Total
(Dollars in thousands)
Multifamily real estate
Pass
$
$
$
$
$
$
$
$
$
Special mention
Substandard - accrual
Substandard - non-
accrual
Doubtful
Loss
Total
$
$
$
$
$
$
$
$
$
Consumer
Pass
$
$
$
$
$
$
$
$
$
Special mention
Substandard - accrual
Substandard - non-
accrual
Doubtful
Loss
Total
$
$
$
$
$
$
$
$
$
Total
Pass
$
$
$
$
$
$
$
$
$
Special mention
Substandard - accrual
Substandard - non-
accrual
Doubtful
Loss
Total
$
$
$
$
$
$
$
$
$
22
As of December 31, 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
$
$
$
$
$
$
$
$
$
Special mention
Substandard - accrual
Substandard - non-
accrual
Doubtful
Loss
Total
$
$
$
$
$
$
$
$
$
Commercial and industrial lines of credit
Pass
$
$
$
$
$
$
$
$
$
Special mention
Substandard - accrual
Substandard - non-
accrual
Doubtful
Loss
Total
$
$
$
$
$
$
$
$
$
Energy
Pass
$
$
$
$
$
$
$
$
$
Special mention
Substandard - accrual
Substandard - non-
accrual
Doubtful
Loss
Total
$
$
$
$
$
$
$
$
$
23
As of December 31, 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
$
$
$
$
$
$
$
$
$
Special mention
Substandard - accrual
Substandard - non-
accrual
Doubtful
Loss
Total
$
$
$
$
$
$
$
$
$
Construction and land development
Pass
$
$
$
$
$
$
$
$
$
Special mention
Substandard - accrual
Substandard - non-
accrual
Doubtful
Loss
Total
$
$
$
$
$
$
$
$
$
Residential real estate
Pass
$
$
$
$
$
$
$
$
$
Special mention
-
Substandard - accrual
Substandard - non-
accrual
Doubtful
Loss
Total
$
$
$
$
$
$
$
$
$
24
As of December 31, 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
$
$
$
$
$
$
$
$
$
Special mention
Substandard - accrual
Substandard - non-
accrual
Doubtful
Loss
Total
$
$
$
$
$
$
$
$
$
Consumer
Pass
$
$
$
$
$
$
$
$
$
Special mention
Substandard - accrual
Substandard - non-
accrual
Doubtful
Loss
Total
$
$
$
$
$
$
$
$
$
Total
Pass
$
$
$
$
$
$
$
$
$
Special mention
Substandard - accrual
Substandard - non-
accrual
Doubtful
Loss
Total
$
$
$
$
$
$
$
$
$
25
Loan Portfolio Aging Analysis
The following tables present the Company’s loan portfolio aging analysis as of March 31, 2023 and December 31, 2022:
As of March 31, 2023
Amortized Cost Basis by Origination Year and Past Due Status
Amortized Cost Basis
2023
2022
2021
2020
2019
2018 and
Prior
Revolving
loans
Revolving
loans
converted to
term loans
Total
(Dollars in thousands)
Commercial and industrial
30-59 days
$
$
$
$
$
$
$
$
$
60-89 days
Greater than 90 days
Total past due
Current
Total
$
$
$
$
$
$
$
$
$
Greater than 90 days
and accruing
$
$
$
$
$
$
$
$
$
Commercial and industrial lines of credit
30-59 days
$
$
$
$
$
$
$
$
$
60-89 days
Greater than 90 days
Total past due
Current
Total
$
$
$
$
$
$
$
$
$
Greater than 90 days
and accruing
$
$
$
$
$
$
$
$
$
Energy
30-59 days
$
$
$
$
$
$
$
$
$
60-89 days
Greater than 90 days
Total past due
Current
Total
$
$
$
$
$
$
$
$
$
Greater than 90 days
and accruing
$
$
$
$
$
$
$
$
$
26
As of March 31, 2023
Amortized Cost Basis by Origination Year and Past Due Status
Amortized Cost Basis
2023
2022
2021
2020
2019
2018 and
Prior
Revolving
loans
Revolving
loans
converted to
term loans
Total
(Dollars in thousands)
Commercial real estate
30-59 days
$
$
$
$
$
$
$
$
$
60-89 days
Greater than 90 days
Total past due
Current
Total
$
$
$
$
$
$
$
$
$
Greater than 90 days
and accruing
$
$
$
$
$
$
$
$
$
Construction and land development
30-59 days
$
$
$
$
$
$
$
$
$
60-89 days
Greater than 90 days
Total past due
Current
Total
$
$
$
$
$
$
$
$
$
Greater than 90 days
and accruing
$
$
$
$
$
$
$
$
$
Residential real estate
30-59 days
$
$
$
$
$
$
$
$
$
60-89 days
Greater than 90 days
Total past due
Current
Total
$
$
$
$
$
$
$
$
$
Greater than 90 days
and accruing
$
$
$
$
$
$
$
$
$
27
As of March 31, 2023
Amortized Cost Basis by Origination Year and Past Due Status
Amortized Cost Basis
2023
2022
2021
2020
2019
2018 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
Total
$
$
$
$
$
$
$
$
$
Greater than 90 days
and accruing
$
$
$
$
$
$
$
$
$
Consumer
30-59 days
$
$
$
$
$
$
$
$
$
60-89 days
Greater than 90 days
Total past due
Current
Total
$
$
$
$
$
$
$
$
$
Greater than 90 days
and accruing
$
$
$
$
$
$
$
$
$
Total
30-59 days
$
$
$
$
$
$
$
$
$
60-89 days
Greater than 90 days
Total past due
Current
Total
$
$
$
$
$
$
$
$
$
Greater than 90 days
and accruing
$
$
$
$
$
$
$
$
$
28
As of December 31, 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
$
$
$
$
$
$
$
$
$
60-89 days
Greater than 90 days
Total past due
Current
Total
$
$
$
$
$
$
$
$
$
1,017,678
Greater than 90 days
and accruing
$
$
$
$
$
$
$
$
$
Commercial and industrial lines of credit
30-59 days
$
$
$
$
$
$
$
$
$
60-89 days
Greater than 90 days
Total past due
Current
Total
$
$
$
$
$
$
$
$
$
Greater than 90 days
and accruing
$
$
$
$
$
$
$
$
$
Energy
30-59 days
$
$
$
$
$
$
$
$
$
60-89 days
Greater than 90 days
Total past due
Current
Total
$
$
$
$
$
$
$
$
$
Greater than 90 days
and accruing
$
$
$
$
$
$
$
$
$
29
As of December 31, 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
$
$
$
$
$
$
$
$
$
60-89 days
Greater than 90 days
Total past due
Current
Total
$
$
$
$
$
$
$
$
$
Greater than 90 days
and accruing
$
$
$
$
$
$
$
$
$
Construction and land development
30-59 days
$
$
$
$
$
$
$
$
$
60-89 days
Greater than 90 days
Total past due
Current
Total
$
346,586
$
274,594
$
93,692
$
19,866
$
1,497
$
9,053
$
49,500
$
-
$
794,788
Greater than 90 days
and accruing
$
$
$
$
$
$
$
$
$
Residential real estate
30-59 days
$
$
$
$
$
$
$
$
$
60-89 days
Greater than 90 days
Total past due
Current
Total
$
$
$
$
$
$
$
$
$
Greater than 90 days
and accruing
$
$
$
$
$
$
$
$
$
30
As of December 31, 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
Total
$
$
$
$
$
$
$
$
$
Greater than 90 days
and accruing
$
$
$
$
$
$
$
$
$
Consumer
30-59 days
$
$
$
$
$
$
$
$
$
60-89 days
Greater than 90 days
Total past due
Current
Total
$
$
$
$
$
$
$
$
$
Greater than 90 days
and accruing
$
$
$
$
$
$
$
$
$
Total
30-59 days
$
$
$
$
$
$
$
$
$
60-89 days
Greater than 90 days
Total past due
Current
Total
$
$
$
$
$
$
$
$
$
Greater than 90 days
and accruing
$
$
$
$
$
$
$
$
$
31
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 tables present the Company’s non -accrual loans by loan segments at March 31, 2023 and December 31,
2022:
As of March 31, 2023
Amortized Cost Basis by Origination Year and On Non-accrual
Amortized Cost Basis
2023
2022
2021
2020
2019
2018 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
$
$
$
$
$
$
$
$
$
$
Commercial and industrial
lines of credit
Energy
Commercial real estate
Construction and land
development
Residential real estate
Multifamily real estate
Consumer
Total
$
$
$
$
$
$
$
$
$
$
32
As of December 31, 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
$
$
$
$
$
$
$
$
$
$
Commercial and industrial
lines of credit
Energy
Commercial real estate
Construction and land
development
Residential real estate
Multifamily real estate
Consumer
Total
$
$
$
$
$
$
$
$
$
$
Interest income recognized on non-accrual loans was $
33
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 months ended March 31, 2023:
For the Three Months Ended March 31, 2023
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
$
$
$
$
$
$
$
$
$
Charge-offs
(1,642 )
(1,642 )
Recoveries
Provision (release)
(49 )
Ending balance
$
$
$
$
$
$
$
$
$
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures:
Beginning balance
$
$
$
$
$
$
$
$
$
Provision (release)
(71 )
(246 )
(506 )
(5 )
(575 )
Ending balance
$
$
$
$
$
$
$
$
$
34
The ACL increased $
due to continued improvement in credit quality. In addition, $
reserve on unfunded commitments decreased $
The following table presents the Company’s charge-offs by year of origination for the three months ended March 31, 2023:
For the Quarter Ended March 31, 2023
Gross Charge-offs by Origination Year
Gross Charge-offs
2023
2022
2021
2020
2019
2018 and
Prior
Revolving
loans
Revolving
loans
converted
to term
loans
Gross
Charge-
offs
(Dollars in thousands)
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
$
$
$
$
$
$
$
$
$
35
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 March 31, 2023 and December 31, 2022:
As of March 31, 2023
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 Lines of Credit
All business assets
Energy
Oil and natural gas properties
Consumer
Vehicles & other personal assets
$
$
$
As of December 31, 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
$
$
$
Commercial and Industrial Lines of Credit
All business assets
Energy
Oil and natural gas properties
Commercial Real Estate
Commercial real estate properties
Consumer
Vehicles & other personal assets
$
$
$
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. Effective January 1, 2023, the Company
adopted ASU 2022-02, which eliminates the accounting guidance for TDRs. The Company adopted this accounting standard on a
prospective basis.
The outstanding balance of TDRs recognized prior to the adoption of ASU 2022-02 was $
March 31, 2023 and December 31, 2022, respectively. Under the new guidance, there were
modifications for the three months ended March 31, 2023.
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
36
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 $
credit losses on off-balance sheet credit exposures at March 31, 2023 and December 31, 2022, respectively, are included in “interest
payable and other liabilities” on the statements of financial condition.
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.
Note 4: Leases
The Company’s leases primarily include bank branches located in Kansas City, Missouri; Tulsa, Oklahoma; Dallas, Texas; Frisco,
Texas; Phoenix, Arizona; Denver, Colorado and Colorado Springs, Colorado. The remaining lease terms on these branch leases range
from less than
. 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 March 31, 2023, the Company recognized one finance lease and the remaining Company leases are classified as
operating leases.
The ROU asset is included in “other assets” on the consolidated statements of financial condition, and was $
$
such as initial direct costs paid or incentives received. The lease liability is located in “Interest payable and other liabilities” on the
consolidated statements of financial condition and was $
respectively.
As of March 31, 2023, the remaining weighted-average lease term is
% utilizing the Company’s incremental Federal Home Loan Bank (“FHLB”) borrowing rate for borrowings of a similar term at the
date of lease commencement.
The following table presents components of operating lease expense in the accompanying consolidated statements of operations
for the three-month period ended March 31, 2023:
For the Three Months Ended March 31,
2023
2022
(Dollars in thousands)
Finance lease amortization of right-of-use asset
$
$
Finance lease interest on lease liability
Operating lease expense
Variable lease expense
Short-term lease expense
Total lease expense
$
$
37
Future minimum commitments due under these lease agreements as of March 31, 2023 are as follows:
Operating Leases
Finance Lease
(Dollars in thousands)
Remainder of 2023
$
$
2024
2025
2026
2027
Thereafter
Total lease payments
$
$
Less imputed interest
Total
$
$
Supplemental cash flow information –
Operating cash flows paid for operating lease amounts included in the measurement of
lease liabilities were $
flows paid for finance lease amounts included in the measurement of lease liabilities was $
March 31, 2023. During the three months ended March 31, 2023, the Company did
t record any ROU assets that were exchanged for
operating lease liabilities.
Note 5: Goodwill and Core Deposit Intangible
Goodwill is measured as the excess of the fair value of consideration paid over the fair value of net assets acquired. In accordance
with GAAP, the Company performs annual tests to identify impairment of goodwill and more frequently if events or circumstances
indicate a potential impairment may exist.
As a result of economic conditions resulting from bank failures during the first quarter of 2023, the Company conducted a
goodwill impairment test as of March 31, 2023. A qualitative analysis was performed, and the Company does not believe it is more
likely than not that a goodwill impairment exists.
The Company is amortizing the core deposit intangible (“CDI”) from the Farmers & Stockmens (“Central”) acquisition over its
estimated useful life of approximately
deposit intangible amortization expense of $
The gross carrying amount of goodwill and the gross carrying amount and accumulated amortization of the CDI at March 31,
2023 and December 31, 2022 were:
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
(Dollars in thousands)
March 31, 2023
Goodwill
$
$
$
Core deposit intangible
Total goodwill and intangible assets
$
$
$
December 31, 2022
Goodwill
$
$
$
Core deposit intangible
Total goodwill and intangible assets
$
$
$
38
The following table shows the estimated future amortization expense for the CDI as of March 31, 2023:
Amount
Years ending December 31,
(Dollars in thousands)
For the nine months ending December 31, 2023
$
For the year ending December 31, 2024
For the year ending December 31, 2025
For the year ending December 31, 2026
For the year ending December 31, 2027
Note 6: 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 income and expense and to manage its exposure to interest
rate movements. To accomplish this objective, the Company uses interest rate swaps and collars as part of its interest rate risk
management strategy. 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. Interest rate collars designated as cash flow hedges involve payments of variable-rate amounts if interest rates rise above the
cap strike rate on the contract and the receipt of variable-rate amounts if interest rates fall below the floor strike rate on the contract.
During 2023, such derivatives were used to hedge the variable cash flows associated with existing variable-rate loan assets. The five
swaps that were entered into in 2021 were terminated during the third quarter of 2022, however, the amortization of the gains on these
instruments will start in 2023 based on the original effective dates of these swaps. Derivatives designated and that qualify as cash flow
hedges include
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 income or 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 income and expense as interest payments are received and made on the Company’s variable-rate assets and
liabilities. The derivative financial instruments did not impact the statements of operations for the three months ended March 31, 2023.
The Company estimates that $
The Company is hedging its exposure to the variability in future cash flows for forecasted transactions over a maximum period of
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 statements of operations as swap fee income, net. The effect of the Company’s derivative financial instruments gain (loss) is
reported on the statements of cash flows within “other assets” and “other liabilities”.
39
These
2022, respectively.
Fair Values of Derivative Instruments on the Statements of Financial Condition
The table below presents the fair value of the Company’s derivative financial instruments and their classification on the
Statements of Financial Condition as of March 31, 2023 and December 31, 2022:
Asset Derivatives
Liability Derivatives
Statement of
Financial
Condition
March 31,
December 31,
Statement of
Financial
Condition
March 31,
December 31,
Location
2023
2022
Location
2023
2022
(Dollars in thousands)
Interest rate products:
Derivatives
designated as hedging
instruments
Other assets
$
$
Interest payable
and other
liabilities
$
$
Derivatives not
designated as hedging
instruments
Other assets
Interest payable
and other
liabilities
Total
$
$
$
$
The table below presents the effect of cash flow hedge accounting on Accumulated Other Comprehensive Income (Loss) for the
three months ended March 31, 2023 and 2022.
For the Three Months Ended
For the Three Months Ended
March 31, 2023
March 31, 2022
Location of
Gain or (Loss)
Recognized
from
Accumulated
Other
Comprehensive
Income into
Income
Gain or
(Loss)
Recognized
in OCI on
Derivative
Gain or
(Loss)
Recognized
in OCI
Included
Component
Gain or
(Loss)
Recognized
in OCI
Excluded
Component
Gain or
(Loss)
Recognized
in OCI on
Derivative
Gain or
(Loss)
Recognized
in OCI
Included
Component
Gain or
(Loss)
Recognized
in OCI
Excluded
Component
(Dollars in thousands)
Derivatives in Cash Flow Hedging Relationships:
Interest Rate Products
Total
$
$
$
$
$
$
As of March 31, 2023 and December 31, 2022, the Company had minimum collateral thresholds with certain of its derivative
counterparties and has received collateral of $
40
Note 7: Time Deposits and Borrowings
The scheduled maturities, excluding interest, of the Company’s borrowings at March 31, 2023 were as follows:
March 31, 2023
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
$
$
$
$
$
$
$
FHLB borrowings
FHLB line of credit
Line of credit
SBA secured borrowing
Trust preferred securities
(1)
$
$
$
$
$
$
$
(1)
The contract value of the trust preferred securities is $
Note 8: 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
March 31,
2023
2022
(Dollars in thousands)
Computed at the statutory rate (21%)
$
$
Increase (decrease) resulting from
Tax-exempt income
(880 )
(854 )
Non-deductible expenses
State income taxes
Equity based compensation
(45 )
(169 )
Other adjustments
(6 )
Actual tax expense
$
$
The tax effects of temporary differences related to deferred taxes located in “other assets” on the consolidated statements of
financial condition are presented below:
March 31, 2023
December 31, 2022
(Dollars in thousands)
Deferred tax assets
Net unrealized loss on securities available-for-sale
$
$
Allowance for credit losses
Lease incentive
Loan fees
Accrued expenses
Deferred compensation
Other
Total deferred tax asset
Deferred tax liability
FHLB stock basis
(394 )
(436 )
Premises and equipment
(1,934 )
(2,042 )
Other
(938 )
(1,018 )
Total deferred tax liability
(3,266 )
(3,496 )
Net deferred tax asset
$
$
41
Note 9: Change in Accumulated Other Comprehensive Income (Loss)
Amounts reclassified from AOCI and the affected line items in the consolidated statements of operations during the three months
ended March 31, 2023 and 2022, were as follows:
Three Months Ended
March 31,
Affected Line Item in the
2023
2022
Statements of Operations
(Dollars in thousands)
Unrealized gains (losses) on available-for-sale securities
$
$
(26 )
Gain (loss) on sale of available-
for-sale securities
Less: tax expense (benefit) effect
(6 )
Income tax expense (benefit)
Net reclassified amount
$
$
(20 )
Note 10: 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 March 31, 2023, the Company and the Bank met all capital adequacy requirements to which they are subject.
The capital rules require the Company to maintain a
% 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 “Required to be
Considered Adequately Capitalized” 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, changes in AOCI, net of
tax, do not impact the Company’s or Bank’s regulatory capital ratios.
42
The Company’s and the Bank’s actual capital amounts and ratios as of March 31, 2023 and December 31, 2022 are presented in
the following table:
Actual
Required to be Considered
Well Capitalized
Required to be Considered
Adequately Capitalized
(1)
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
March 31, 2023
Total Capital to Risk-Weighted Assets
Consolidated
$
%
$
%
Bank
$
%
Tier I Capital to Risk-Weighted Assets
Consolidated
N/A
N/A
Bank
Common Equity Tier 1 to Risk-Weighted Assets
Consolidated
Bank
Tier I Capital to Average Assets
Consolidated
N/A
N/A
Bank
$
%
$
%
$
%
December 31, 2022
Total Capital to Risk-Weighted Assets
Consolidated
$
%
$
%
Bank
$
%
Tier I Capital to Risk-Weighted Assets
Consolidated
N/A
N/A
Bank
Common Equity Tier 1 to Risk-Weighted Assets
Consolidated
Bank
Tier I Capital to Average Assets
Consolidated
N/A
N/A
Bank
$
%
$
%
$
%
(1)
Includes capital conservation buffer of
%
Note 11: Stock-Based Compensation
The Company issues stock-based compensation in the form of non-vested restricted stock, restricted stock units 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
March 31, 2023.
43
The table below summarizes the stock-based compensation for the three months ended March 31, 2023 and 2022:
Three Months Ended
March 31,
2023
2022
(Dollars in thousands)
Stock appreciation rights
$
$
Performance-based stock awards
Restricted stock units and awards
Employee stock purchase plan
Total stock-based compensation
$
$
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
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
%
of target and
% of target.
During the three-month period ended March 31, 2023, the Company granted
three-year
The following table summarizes the status of and changes in the PBRSUs:
Performance-Based Restricted
Stock Unit Awards
Number of Shares
Weighted-Average
Grant Date Fair Value
Unvested, January 1, 2023
$
Granted
Vested
(20,736 )
Forfeited
(5,335 )
Unvested, March 31, 2023
$
Unrecognized stock-based compensation related to the performance awards issued through March 31, 2023 was $
is expected to be recognized over
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
.
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, 2023
$
Granted
Vested
(141,857 )
Forfeited
(11,650 )
Unvested, March 31, 2023
$
44
Unrecognized stock-based compensation related to the RSUs and RSAs issued through March 31, 2023 was $
expected to be recognized over
Note 12: Stock Warrants
The Company had
March 31, 2023 and December 31, 2022. The
2023,
Note 13: Earnings Per Common Share
The following table presents the computation of basic and diluted earnings per common share:
Three Months Ended
March 31,
2023
2022
(Dollars in thousands except per share data)
Earnings per Common Share
Net income available to common stockholders
$
$
Weighted average common shares
Earnings per common share
$
$
Diluted Earnings per Common Share
Net income available to common stockholders
$
$
Weighted average common shares
Effect of dilutive common shares
Weighted average dilutive common shares
Diluted earnings per common share
$
$
Stock-based awards not included because to do so would be antidilutive
During March 2023, the Company offered and sold shares of its Series A Non-Cumulative Perpetual Preferred Stock, par value
$
the three months ended March 31, 2023.
Note 14: 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
Level 2
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
45
Recurring Measurements
The following list presents the assets and liabilities recognized in the accompanying consolidated statements of financial
condition measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements
fall at March 31, 2023 and December 31, 2022:
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 2:
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 6:
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 March 31, 2023 and December 31, 2022:
March 31, 2023
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
$
$
$
$
Foreclosed assets held-for-sale
$
$
$
$
December 31, 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 impaired loans
$
$
$
$
Foreclosed assets held-for-sale
$
$
$
$
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 consolidated statements of financial condition.
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.
46
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 unobservable inputs used in non-recurring Level 3 fair value
measurements at March 31, 2023 and December 31, 2022:
March 31, 2023
Fair Value
Valuation Techniques
Unobservable
Inputs
Range
(Weighted Average)
(Dollars in thousands)
$
Market comparable
properties
Marketability
discount
%
-
%
Collateral dependent loans
(
)%
$
Market comparable
properties
Marketability
discount
%
Foreclosed assets held-for-sale
(
)%
December 31, 2022
Fair Value
Valuation Techniques
Unobservable
Inputs
Range
(Weighted Average)
(Dollars in thousands)
$
Market comparable
properties
Marketability
discount
%
-
%
Collateral-dependent impaired loans
(
)%
$
Market comparable
properties
Marketability
discount
10%
Foreclosed assets held-for-sale
(
)%
47
The following tables present the estimated fair values of the Company’s financial instruments at March 31, 2023 and
December 31, 2022:
March 31, 2023
Carrying
Fair Value Measurements
Amount
Level 1
Level 2
Level 3
(Dollars in thousands)
Financial Assets
Cash and cash equivalents
$
$
$
$
Available-for-sale securities
Loans, net of allowance for credit losses
Restricted equity securities
Interest receivable
Equity securities
Derivative assets
Financial Liabilities
Deposits
$
$
$
$
Federal Home Loan Bank line of credit
Federal Home Loan Bank advances
Other borrowings
Interest payable
Derivative liabilities
December 31, 2022
Carrying
Fair Value Measurements
Amount
Level 1
Level 2
Level 3
(Dollars in thousands)
Financial Assets
Cash and cash equivalents
$
$
$
$
Available-for-sale securities
Loans, net of allowance for loan losses
Restricted equity securities
Interest receivable
Equity securities
Derivative assets
Financial Liabilities
Deposits
$
$
$
$
Federal funds purchased and repurchase agreements
Federal Home Loan Bank advances
Other borrowings
Interest payable
Derivative liabilities
48
Note 15: Commitments and Credit Risk
Commitments
The Company had the following commitments at March 31, 2023 and December 31, 2022:
March 31, 2023
December 31, 2022
(Dollars in thousands)
Commitments to originate loans
$
$
Standby letters of credit
Lines of credit
Future lease commitments
Commitments related to investment fund
$
$
Note 16: Subsequent Events
On April 21, 2023, the Company announced its entry into a definitive agreement under which the Company will acquire Canyon
Bancorporation, Inc. and its wholly owned subsidiary, Canyon Community Bank, N.A. (collectively, “Canyon”) in a stock and cash
transaction. The business combination transaction is expected to result in the mergers of Canyon Bancorporation, Inc. with and into
CrossFirst Bankshares, Inc. and Canyon Community Bank, N.A. with and into CrossFirst Bank. Canyon has a branch in Tucson,
Arizona. The transaction is currently expected to close in the second half of 2023, subject to approval by bank regulatory authorities, as
well as the satisfaction or waiver of customary closing conditions.
On April 21, 2023, the Company’s remaining
Warrants” for additional information about these warrants.
49
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following management's discussion and analysis of our financial condition and results of operations should be read in
conjunction with our consolidated financial statements and related notes as of and for the three months ended March 31, 2023, and with
our 2022 Form 10-K, which includes our audited consolidated financial statements and related notes as of and for the years ended
December 31, 2022, 2021 and 2020. This discussion and analysis contains forward-looking statements that involve risks, uncertainties
and assumptions that may cause actual results to differ materially from management's expectations. Factors that could cause such
differences are discussed in the section entitled “Cautionary Note Regarding Forward-Looking Statements” located elsewhere in this
quarterly report and in Item 1A “Risk Factors” in our 2022 Form 10-K and should be read herewith.
First Quarter 2023 Highlights
During the first quarter ended March 31, 2023, we accomplished the following:
●
Completed the core systems conversion for Central
●
Loans grew $275 million for the quarter with our newer markets and verticals contributing meaningfully as we realize scale
in those areas
●
Credit quality improved with non-performing assets decreasing $2.0 million and the non-performing assets to total assets
ratio decreasing to 0.16% at quarter end
●
Recorded $4.4 million of provision expense during the quarter driven by loan growth and net charge-offs of $1.6 million, or
0.12% of average loans
●
Deposits increased $186 million due to a $405 million increase in wholesale deposits. Non-interest-bearing accounts were
lower as elevated deposits at year-end were deployed early in the quarter in addition to clients migrating into savings and
money market accounts
●
Net interest margin – fully tax equivalent (“FTE”) of 3.65% widened four basis points for the quarter entirely due to the
benefit of non-interest-bearing deposits
●
Book value per common share increased to $13.28 at March 31, 2023 compared to $12.56 at December 31, 2022. Tangible
book value per common share
(1)
as of March 31, 2023 increased to $12.54 compared to $11.96 at December 31, 2022
●
Issued $7.8 million of Series A Non-Cumulative Perpetual Preferred Stock, par value $0.01 per share (the Series A Preferred
Stock”), further bolstering our capital position
●
Received regulatory approval to expand into the Fort Worth, Texas market
(1)
Represents a non-GAAP financial measure. See “Non-GAAP Financial Measures” below in Management’s Discussion and Analysis
of Financial Condition and Results of Operations for a reconciliation of these measures.
Banking Industry Events
The banking industry has faced significant upheaval since the collapse of several banks in March 2023 related to their liquidity
and their significant concentration in certain industries, including exposure to the technology sector and cryptocurrency. We do not have
significant industry concentration or any significant exposure to the technology or crypto sectors. Competition for deposits was
exacerbated by renewed focus on deposits in excess of FDIC insurance limits following the failures, in addition to increased focus on
liquidity and interest rate management risks at all banks. These challenges, combined with uncertainties around continued cost pressures
from inflation, potential FDIC special assessments and potential for higher loan loss provisioning all led to a highly volatile market for
banks. During the quarter, we focused on the following strategies and data:
●
Mobilized our business continuity team and aspects of our contingency funding plan in response to the headline and publicity
risk created by the bank failures
●
Conducted frequent executive team meetings (including daily during certain periods) during March to monitor our response
which was focused on client outreach and increasing liquidity
●
Expanded liquidity available by $220 million at the Federal Reserve Bank by pledging additional loans
50
●
Conducted proactive client outreach by bankers to communicate the strength, stability and trust clients have come to expect
from CrossFirst Bank
●
Improved liquidity in our securities portfolio - as of March 31, 2023, $244 million of securities can be pledged and $222
million of securities could be sold with a net gain, based on current market conditions
●
Our total on-balance sheet and off-balance sheet liquidity was $2.3 billion as of March 31, 2023, or 33% of total assets
●
Expanded our partnership with IntraFi as we served clients who were interested in the program; our IntraFi Cash Service
(“ICS”) partnership dates back to 2013
●
Estimated uninsured deposits after excluding pass-thru insured accounts was 35% of total deposits
Mergers and Acquisitions Update
On April 21, 2023, the Company announced its entry into a definitive agreement under which the Company will acquire Canyon
Bancorporation, Inc. and its wholly owned subsidiary, Canyon Community Bank, N.A. (collectively, “Canyon”) in a stock and cash
transaction. The business combination transaction is expected to result in the mergers of Canyon Bancorporation, Inc. with and into
CrossFirst Bankshares, Inc. and Canyon Community Bank, N.A. with and into CrossFirst Bank. Canyon has a branch in Tucson,
Arizona. In accordance with the agreement, the Company has agreed to pay up to 50% of the merger consideration in the form of
Company common stock based on the election of the target stockholders and subject to certain conditions. The Company's common
stock will be valued at a per share price of $14.11 for purposes of calculating the merger consideration. The Company expects to issue
up to approximately 621,000 shares of its common stock at closing assuming: (i) aggregate merger consideration of $17.5 million; and
(ii) that the Company issues 50% of such merger consideration in the form of the Company's common stock. The aggregate transaction
value was estimated at approximately $15.1 million based on the Company’s stock price on April 20, 2023. The transaction is currently
expected to close in the second half of 2023, subject to approval by bank regulatory authorities, as well as the satisfaction or waiver of
customary closing conditions.
Update to Customer Concentrations
As of March 31, 2023, the Company’s top 25 customer relationships represented approximately 23% or $1.4 billion of total
deposits, $0.5 billion of which are ICS deposits. The Company believes it has 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. Deposits at March 31, 2023 are 70% commercial, 17%
consumer, and 13% wholesale, which is consistent with our strategy. We operate largely in the Midwest and in strong markets, with a
diverse deposit composition by state which follows our branch footprint. We also have diversity in depositors by industry with no
industry concentrations above 5% outside of trusts and banking institutions.
Our loan portfolio remains diversified with 45% of loans in commercial and industrial and owner-occupied real estate and 44% of
loans in commercial real estate. We have diversification within each portfolio with the top 25 commercial and industrial clients
representing 27% of total commercial and industrial exposure or 10% of total loan exposure and the top 25 commercial real estate
transactions representing 23% of commercial real estate exposure or 10% of total loan exposure. There also remains diversity within
our loan portfolios with the highest commercial real estate property type accounting for 17% of total commercial real estate exposure,
and the largest industry segment in commercial and industrial being manufacturing at 10% of commercial and industrial exposure. Our
commercial real estate loan portfolio also has geographic diversity with concentrations in high-quality markets including Dallas, Kansas
City, Phoenix, and Denver .
51
Performance Measures
As of or for the Quarter Ended
March 31,
December 31,
September 30,
June 30,
March 31,
2023
2022
2022
2022
2022
(Dollars in thousands, except per share data)
Return on average assets
(1)
0.97
%
0.77
%
1.19
%
1.12
%
1.23
%
Adjusted return on average assets
(1)(2)
1.04
%
1.15
%
1.19
%
1.20
%
1.23
%
Return on average equity
(1)
10.53
%
8.04
%
11.18
%
10.15
%
10.44
%
Adjusted return on average equity
(1)(2)
11.30
%
12.03
%
11.22
%
10.82
%
10.44
%
Earnings per common share – basic
$
0.33
$
0.25
$
0.35
$
0.31
$
0.33
Earnings per common share – diluted
$
0.33
$
0.24
$
0.35
$
0.31
$
0.33
Adjusted earnings per common share – diluted
(2)
$
0.35
$
0.36
$
0.35
$
0.33
$
0.33
Efficiency ratio
(3)
60.81
%
62.40
%
53.20
%
57.36
%
57.57
%
Adjusted efficiency ratio - FTE
(2)(3)(4)
56.42
%
55.01
%
52.25
%
53.95
%
56.66
%
Ratio of equity to assets
9.36
%
9.22
%
9.93
%
10.65
%
11.29
%
(1)
(2)
Results of Operations for a reconciliation of these measures.
(3)
(4)
Results of Operations
Net Interest Income
Net interest income is presented on a fully tax equivalent basis. We believe reporting on an FTE basis provides for improved
comparability between the various earning assets. 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.
52
The following tables present, for the periods indicated, average statement of financial condition information, interest income,
interest expense and the corresponding average yield and rates paid:
Three Months Ended
March 31, 2023
March 31, 2022
Average
Balance
Interest
Income /
Expense
Average
Yield /
Rate
(4)
Average
Balance
Interest
Income /
Expense
Average
Yield /
Rate
(4)
(Dollars in thousands)
Interest-earning assets:
Securities - taxable
$
268,705
$
2,111
3.14
%
$
220,802
$
1,188
2.15
%
Securities - tax-exempt - FTE
(1)
542,268
4,591
3.39
533,674
4,467
3.35
Federal funds sold
1,757
5
1.15
-
-
-
Interest-bearing deposits in other banks
195,289
2,009
4.17
309,948
152
0.20
Gross loans, net of unearned income
(2)(3)
5,539,954
89,618
6.56
4,332,831
42,728
4.00
Total interest-earning assets - FTE
(1)
6,547,973
$
98,334
6.08
%
5,397,255
$
48,535
3.64
%
Allowance for credit losses
(63,235)
(57,922)
Other non-interest-earning assets
228,063
224,405
Total assets
$
6,712,801
$
5,563,738
Interest-bearing liabilities
Transaction deposits
$
542,366
$
3,500
2.62
%
$
585,990
$
222
0.15
%
Savings and money market deposits
2,881,726
23,569
3.32
2,302,552
1,847
0.33
Time deposits
1,100,444
9,656
3.56
587,452
1,442
1.00
Total interest-bearing deposits
4,524,536
36,725
3.29
3,475,994
3,511
0.41
FHLB and short-term borrowings
272,754
2,535
3.77
231,156
1,109
1.95
Trust preferred securities, net of fair value
adjustments
1,062
56
21.39
1,012
25
10.25
Non-interest-bearing deposits
1,194,788
-
-
1,157,387
-
-
Cost of funds
5,993,140
$
39,316
2.66
%
4,865,549
$
4,645
0.39
%
Other liabilities
99,451
44,442
Stockholders’ equity
620,210
653,747
Total liabilities and stockholders’ equity
$
6,712,801
$
5,563,738
Net interest income - FTE
(1)
$
59,018
$
43,890
Net interest spread - FTE
(1)
3.42
%
3.25
%
Net interest margin - FTE
(1)
3.65
%
3.29
%
(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%.
(2)
Loans, net of unearned income include non-accrual loans of $10 million and $33 million as of March 31, 2023 and 2022, respectively.
(3)
Loan interest income includes loan fees of $4 million and $4 million for the three months ended March 31, 2023 and 2022, respectively.
(4)
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.
53
Net interest income -
same period in 2022 driven by increases in average earning assets from strong loan growth and an increase in loan yields, partially offset
by a higher cost of funds due to the rising rate environment. Compared to the first quarter of 2022, FTE net interest income increased
$15.1 million and net interest margin - FTE increased 36 basis points. The higher income and margin were primarily due to increases in
average earning assets from strong loan growth and an increase in loan yields, partially offset by a higher cost of funds due to the rising
rate environment.
Average earning assets totaled $6.5 billion for the three-month period ended March 31, 2023 resulting in an increase of $1.2 billion or
21% compared to the same period in 2022, inclusive of the impact of the Central acquisition. The increase was driven by higher average
loan and investment portfolio balances, partially offset by lower average cash balances for the three-month period ended March 31, 2023
compared to the corresponding period in 2022.
The FTE yield on earning assets increased 2.44% from the first quarter of 2022 to the first quarter of 2023 due to new loan production as
well as repricing of variable rate loans. The cost of funds increased 2.27% over the same period due to pricing pressure on deposits as
well as client migration into higher cost deposit products compared to the prior year.
The Company currently anticipates net interest margin to narrow from the current quarter to be in the range of 3.40% to 3.55% for the
full-year 2023 based on changes in our funding mix. This may be partially offset with a benefit of one to three basis points from any
additional rate increases due to our largely variable loan portfolio.
Non-Interest Income
The components of non-interest income were as follows for the periods shown:
Three Months Ended
March 31,
Change
2023
2022
$
%
(Dollars in thousands)
Service charges and fees on customer accounts
$
1,829
$
1,408
$
421
30
%
ATM and credit card interchange income
1,264
2,664
(1,400)
(53)
Realized gains (losses) on available-for-sale securities
63
(26)
89
Gain on sale of loans
187
-
187
-
Gains (losses), net on equity securities
10
(103)
113
(110)
Income from bank-owned life insurance
411
388
23
6
Swap fees and credit valuation adjustments, net
90
118
(28)
(24)
Other non-interest income
567
493
74
15
Total non-interest income
$
4,421
$
4,942
$
(521)
(11)
%
Non-interest income to average assets (annualized)
0.27%
0.36%
The changes in non-interest income were driven primarily by the following:
Service charges and fees on customer accounts
corresponding period in 2022 was driven primarily by increases in account analysis fees due to client fee increases enacted in 2022.
ATM and credit card interchange income
decrease in credit card fees due to one large customer with pandemic-related activity that did not occur in the current year.
Gain on sale of loans
– The increase for the three months ended March 31, 2023 compared to the same period for 2022 was due to the
expansion of our mortgage business acquired through the 2022 acquisition of Central.
54
Non-Interest Expense
The components of non-interest expense were as follows for the periods indicated:
Three Months Ended
March 31,
Change
2023
2022
$
%
(Dollars in thousands)
Salary and employee benefits
$
22,622
$
17,941
$
4,681
26
%
Occupancy
2,974
2,493
481
19
Professional fees
2,618
805
1,813
225
Deposit insurance premiums
1,531
737
794
108
Data processing
1,242
812
430
53
Advertising
752
692
60
9
Software and communication
1,651
1,270
381
30
Foreclosed assets, net
149
(53)
202
N/M
Other non-interest expense
3,731
2,950
781
26
Core deposit intangible amortization
822
19
803
4,226
Total non-interest expense
$
38,092
$
27,666
$
10,426
38
%
Non-interest income to average assets (annualized)
2.30%
2.02%
Non-interest expense increased $10.4 million for the three-month period ended March 31, 2023 compared to the same period in
2022 and included $1.5 million of transaction costs and $0.8 million of core deposit intangible amortization related to the Central
acquisition. The changes in non-interest expense were driven primarily by the following:
Salary and Employee Benefits
verticals, and the addition of employees as part of the Central acquisition.
Occupancy
properties in Colorado and New Mexico as part of the acquisition of Central.
Professional Fees
Central and digital banking conversion, increased recruiting costs, and timing of legal fees.
Deposit Insurance Premiums
in assets.
Data Processing
banking conversion.
Other Non-interest Expense
- Other non-interest expense increased primarily due to increased post-pandemic travel expenses and
transaction fraud-related losses.
Core Deposit Intangible Amortization
– Core deposit intangible amortization increased due to a full quarter of expense related to the
Central acquisition.
We currently anticipate non-interest expense to be in a range of $35-$36 million per quarter for the remainder of 2023. The
efficiency ratio was 60.81% and the adjusted efficiency ratio – FTE
(1)
(1)
Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" below in Management’s Discussion and Analysis of Financial Condition and
Results of Operations for a reconciliation of these measures.
55
Income Taxes
For the Quarter Ended
March 31,
December 31,
September 30,
June 30,
March 31,
2023
2022
2022
2022
2022
(Dollars in thousands)
Income tax expense
$
4,021
$
3,348
$
4,410
$
4,027
$
4,188
Income before income taxes
20,129
15,294
21,690
19,572
21,016
Effective tax rate
20
%
22
%
20
%
21
%
20
%
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 bank-owned life insurance and tax-exempt municipal securities; state tax credits; and
permanent tax differences from equity-based compensation. Refer to “Note 8: Income Tax” within the notes to consolidated financial
statements – unaudited for a reconciliation of the statutory rate to the Company’s actual income tax expense.
During the three-month periods ended March 31, 2023 and 2022, the Company’s effective tax rate benefited primarily from
permanent tax differences related to tax-exempt interest. We currently anticipate the Company’s effective tax rate to remain within the
20% to 22% range in the near term.
Non-GAAP Financial Measures
In addition to disclosing financial measures determined in accordance with U.S. generally accepted accounting principles
(GAAP), the Company discloses certain non-GAAP financial measures including “tangible common stockholders’ equity,” “tangible
book value per common share,” “adjusted efficiency ratio – FTE,” “adjusted net income,” “adjusted earnings per common share –
diluted,” “adjusted return on average assets,” and “adjusted return on average equity.” We consider the use of select non-GAAP
financial measures and ratios to be useful for financial and operational decision making and useful in evaluating period-to-period
comparisons. We believe that these non-GAAP financial measures provide meaningful supplemental information to investors regarding
our performance by excluding certain expenditures or gains that we believe are not indicative of our primary business operating results.
We believe that management and investors benefit from referring to these non -GAAP financial measures in assessing our performance
and when planning, forecasting, analyzing, and comparing past, present and future periods.
These non-GAAP financial measures should not be considered a substitute for financial information presented in accordance with
GAAP and you should not rely on non-GAAP financial measures alone as measures of our performance. The non-GAAP financial
measures we present may differ from non-GAAP financial measures used by our peers or other companies. We compensate for these
limitations by providing the equivalent GAAP measures whenever we present the non-GAAP financial measures and by including a
reconciliation of the impact of the components adjusted for in the non-GAAP financial measure so that both measures and the individual
components may be considered when analyzing our performance.
A reconciliation of non-GAAP financial measures to the comparable GAAP financial measures follows.
56
Quarter Ended
3/31/2023
12/31/2022
9/30/2022
6/30/2022
3/31/2022
(Dollars in thousands, except per share data)
Adjusted net income:
Net income (GAAP)
$
16,108
$
11,946
$
17,280
$
15,545
$
16,828
Add: Acquisition costs
1,477
3,570
81
239
-
Add: Acquisition - Day 1 CECL provision
-
4,400
-
-
-
Add: Employee separation
-
-
-
1,063
-
Less: Tax effect
(1)
(310)
(2,045)
(17)
(273)
-
Adjusted net income
$
17,275
$
17,871
$
17,344
$
16,574
$
16,828
Diluted weighted average common shares
outstanding
49,043,621
49,165,578
49,725,207
50,203,725
50,910,490
Earnings per common share – diluted (GAAP)
$
0.33
$
0.24
$
0.35
$
0.31
$
0.33
Adjusted earnings per common share – diluted
$
0.35
$
0.36
$
0.35
$
0.33
$
0.33
(1)
Represents the tax impact of the adjustments at a tax rate of 21.0%, plus permanent tax expense associated with merger related transactions
Quarter Ended
3/31/2023
12/31/2022
9/30/2022
6/30/2022
3/31/2022
(Dollars in thousands)
Adjusted return on average assets:
Net income (GAAP)
$
16,108
$
11,946
$
17,280
$
15,545
$
16,828
Adjusted net income
17,275
17,871
17,344
16,574
16,828
Average assets
$
6,712,801
$
6,159,783
$
5,764,347
$
5,545,657
$
5,563,738
Return on average assets (GAAP)
0.97
%
0.77
%
1.19
%
1.12
%
1.23
%
Adjusted return on average assets
1.04
%
1.15
%
1.19
%
1.20
%
1.23
%
Quarter Ended
3/31/2023
12/31/2022
9/30/2022
6/30/2022
3/31/2022
(Dollars in thousands)
Adjusted return on average equity:
Net income (GAAP)
$
16,108
$
11,946
$
17,280
$
15,545
$
16,828
Adjusted net income
17,275
17,871
17,344
16,574
16,828
Average equity
$
620,210
$
589,587
$
613,206
$
614,541
$
653,747
Return on average equity (GAAP)
10.53
%
8.04
%
11.18
%
10.15
%
10.44
%
Adjusted return on average equity
11.30
%
12.03
%
11.22
%
10.82
%
10.44
%
Quarter Ended
3/31/2023
12/31/2022
9/30/2022
6/30/2022
3/31/2022
(Dollars in thousands, except per share data)
Tangible common stockholders' equity:
Total stockholders' equity (GAAP)
$
645,491
$
608,599
$
580,547
$
608,016
$
623,199
Less: goodwill and other intangible assets
28,259
29,081
71
91
110
Less: preferred stock
7,750
-
-
-
-
Tangible common stockholders' equity
$
609,482
$
579,518
$
580,476
$
607,925
$
623,089
Tangible book value per common share:
Tangible common stockholders' equity
$
609,482
$
579,518
$
580,476
$
607,925
$
623,089
Common shares outstanding at end of period
48,600,618
48,448,215
48,787,696
49,535,949
49,728,253
Book value per common share (GAAP)
$
13.28
$
12.56
$
11.90
$
12.27
$
12.53
Tangible book value per common share
$
12.54
$
11.96
$
11.90
$
12.27
$
12.53
57
Quarter Ended
3/31/2023
12/31/2022
9/30/2022
6/30/2022
3/31/2022
(Dollars in thousands)
Adjusted Efficiency Ratio - FTE
(1)
Non-interest expense
$
38,092
$
36,423
$
28,451
$
29,203
$
27,666
Less: Acquisition costs
(1,477)
(3,570)
(81)
(239)
-
Less: Core deposit intangible amortization
(822)
(291)
-
-
-
Less: Employee separation
-
-
-
(1,063)
-
Adjusted Non-interest expense (numerator)
$
35,793
$
32,562
$
28,370
$
27,901
$
27,666
Net interest income
58,221
54,015
49,695
46,709
43,115
Tax equivalent interest income
(1)
797
818
820
808
775
Non-interest income
4,421
4,359
3,780
4,201
4,942
Total tax-equivalent income (denominator)
$
63,439
$
59,192
$
54,295
$
51,718
$
48,832
Efficiency Ratio (GAAP)
60.81
%
62.40
%
53.20
%
57.36
%
57.57
%
Adjusted Efficiency Ratio - FTE
(1)
56.42
%
55.01
%
52.25
%
53.95
%
56.66
%
(1)
Tax exempt income (tax-free municipal securities) is calculated on a tax equivalent basis. The incremental tax rate used is 21.0%.
Analysis of Financial Condition
Investment portfolio
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. The securities portfolio is also maintained to serve as a contingent, on-balance
sheet source of liquidity. As of March 31, 2023, available-for-sale investments totaled $751 million, an increase of $64 million from
December 31, 2022.
The increase in the securities portfolio was driven by the purchase of $81 million in SBA securities and $12 million in tax-exempt
municipal securities and a $15 million reduction in the unrealized loss on available -for-sale securities. The increase was partially offset
by the sale of $37 million in tax-exempt municipal securities at a modest gain as we intentionally improved the liquidity of the portfolio
during the quarter. For additional information, see “Note 2: Securities” in the notes to consolidated financial statements – unaudited.
58
Loan Portfolio
Refer to “Note 3: Loans and Allowance for Credit Losses” within the notes to consolidated financial statements – unaudited for additional information regarding the
Company’s loan portfolio. As of March 31, 2023, gross loans, net of unearned fees increased $275 million or 5% from December 31, 2022. The following table presents the balance
and associated percentage change of each segment within our portfolio as of the dates indicated:
As of March 31,
2023
As of December 31,
2022
December 31, 2022
vs.
March 31, 2023
% Change
(Dollars in thousands)
Commercial and industrial
$
986,636
$
1,017,678
(3.1)
Commercial and industrial lines of credit
1,047,280
957,254
9.4
Energy
193,859
173,218
11.9
Commercial real estate
1,808,888
1,718,947
5.2
Construction and land development
845,085
794,788
6.3
Residential real estate
412,334
409,124
0.8
Multifamily real estate
295,469
237,984
24.2
Consumer
58,088
63,736
(8.9)
Total
$
5,647,639
$
5,372,729
5.1
59
The following table shows the contractual maturities of our gross loans and sensitivity to interest rate changes:
As of March 31, 2023
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
$
50,578
$
113,038
$
327,978
$
358,192
$
52,576
$
64,189
$
19,589
$
496
$
986,636
Commercial and industrial
lines of credit
74,724
395,100
29,926
512,736
17,668
17,126
-
-
1,047,280
Energy
-
30,660
775
162,424
-
-
-
-
193,859
Commercial real estate
78,596
218,319
502,179
480,495
185,242
276,256
6,462
61,339
1,808,888
Construction and land
development
27,932
105,116
72,762
541,254
28,483
15,881
4,747
48,910
845,085
Residential real estate
7,510
2,999
21,965
5,301
65,518
5,530
371
303,140
412,334
Multifamily real estate
4,340
43,640
108,450
123,038
4,808
10,410
-
783
295,469
Consumer
5,783
10,210
5,171
13,749
343
20,944
-
1,888
58,088
Total
$
249,463
$
919,082
$
1,069,206
$
2,197,189
$
354,638
$
410,336
$
31,169
$
416,556
$
5,647,639
Provision and Allowance for Credit Losses
The ACL at March 31, 2023 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
March 31,
December 31,
September 30,
June 30,
March 31,
2023
2022
2022
2022
2022
(Dollars in thousands)
Provision for credit losses - loans
$
4,996
$
4,700
$
1,923
$
1,690
$
(316)
Provision for credit losses - off-balance sheet
(575)
1,957
1,411
445
(309)
Allowance for credit losses - loans
65,130
61,775
55,864
55,817
55,231
Allowance for credit losses - off-balance sheet
8,113
8,688
6,731
5,320
4,875
Net charge-offs
$
1,641
$
(296)
$
1,876
$
1,104
$
1,081
The ACL increased $2.8 million during the quarter. Provision expense of $4.4 million was driven by loan growth partially offset by improvement in qualitative factors, in part
due to continued improvement in credit quality. In addition, $1.6 million in charge-offs on two commercial and industrial loans offset the provision expense for the quarter. The
reserve on unfunded commitments decreased $0.6 million due to higher line utilization in the quarter.
60
The table below presents the allocation of the allowance for credit losses as of the dates indicated. The allocation in one portfolio segment does not preclude its availability to
absorb losses in other segments.
March 31, 2023
December 31, 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
$
12,022
$
174
$
12,196
17
%
17
%
$
12,272
$
245
$
12,517
18
%
19
%
Commercial and industrial
lines of credit
15,207
287
15,494
19
19
14,531
74
14,605
21
18
Energy
4,679
541
5,220
3
3
4,396
787
5,183
7
3
Commercial real estate
20,763
712
21,475
33
33
19,504
700
20,204
29
32
Construction and land
development
5,774
6,324
12,098
15
15
5,337
6,830
12,167
17
15
Residential real estate
3,061
51
3,112
7
7
3,110
35
3,145
4
8
Multifamily real estate
2,880
9
2,889
5
5
2,253
14
2,267
3
4
Consumer
744
15
759
1
1
372
3
375
1
1
Total
$
65,130
$
8,113
$
73,243
100
%
100
%
$
61,775
$
8,688
$
70,463
100
%
100
%
Refer to “Note 3: Loans and Allowance for Credit Losses” within the notes to consolidated financial statements – unaudited for a summary of the changes in the ACL.
61
Charge-offs and Recoveries
Net charge-offs were $1.6 million for the three-month period ended March 31, 2023 primarily related to a charge-off of a collateral-dependent commercial and industrial loan.
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
March 31,
December 31,
September 30,
June 30,
March 31,
2023
2022
2022
2022
2022
Commercial and industrial
0.51
%
(0.02)
%
-
%
0.28
%
(0.27)
%
Commercial and industrial lines of credit
-
(0.01)
1.10
(0.56)
0.76
Energy
-
(0.46)
1.19
4.77
(1.02)
Commercial real estate
-
-
(0.21)
(0.45)
0.34
Construction and land development
-
-
-
-
-
Residential real estate
-
-
-
0.21
-
Multifamily real estate
-
-
-
-
-
Consumer
-
(0.03)
(0.05)
-
0.05
Total net charge-offs to average loans
0.12
%
(0.02)
%
0.16
%
0.10
%
0.10
%
Non-performing Assets and Other Asset Quality Metrics
Non-performing assets include: (i) non-performing loans, which includes non-accrual loans, loans past due 90 days or more and still accruing interest, and loans modified
prior to January 1, 2023 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.
Credit quality metrics generally improved during the first quarter of 2023. Non-performing assets decreased to $11.2 million at March 31, 2023 primarily due to a $1.8 million
decrease from the charge-off of one commercial and industrial loan, as well as paydowns. The non-performing assets to total assets ratio decreased from 0.64% at March 31, 2022 to
0.16% at March 31, 2023. In addition, classified loans decreased $0.7 million during the first quarter of 2023. Net charge-offs were $1.6 million for the first quarter of 2023
compared to net recoveries of ($0.3) million in the prior quarter and net charge-offs of $1.1 million in the prior year first quarter.
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 they 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 partially mitigated by low debt-to-equity ratios. As of March 31, 2023, the Company did not identify any systemic issues
within its loan portfolio that would significantly affect the credit quality of the loan portfolio.
62
The table below summarizes our non-performing assets and related ratios as of the dates indicated:
For the Quarter Ended
March 31,
December 31,
September 30,
June 30,
March 31,
2023
2022
2022
2022
2022
Asset quality
(Dollars in thousands)
Non-accrual loans
$
9,490
$
11,272
$
16,923
$
27,698
$
33,071
Loans past due 90 days or more and still accruing
868
750
303
2,163
1,534
Total non-performing loans
10,358
12,022
17,226
29,861
34,605
Foreclosed assets held for sale
855
1,130
973
973
973
Total non-performing assets
$
11,213
$
13,152
$
18,199
$
30,834
$
35,578
Loans 30-89 days past due
$
5,056
$
19,519
$
21,383
$
16,635
$
15,950
Asset quality metrics (%)
Non-performing loans to total loans
0.18
%
0.22
%
0.37
%
0.66
%
0.79
%
Non-performing assets to total assets
0.16
0.20
0.31
0.54
0.64
ACL to total loans
1.15
1.15
1.19
1.23
1.27
ACL + RUC to total loans
(1)
1.30
1.31
1.34
1.35
1.38
ACL to non-performing loans
629
514
324
187
160
Classified loans / (total capital + ACL)
9.4
10.1
11.3
12.1
10.8
Classified loans / (total capital + ACL + RUC)
(1)
9.3
%
10.0
%
11.2
%
12.0
%
10.7
%
(1)
Includes the accrual for off-balance sheet credit risk from unfunded commitments.
Deposits and Other Borrowings
The following table sets forth the maturity of time deposits as of March 31, 2023:
As of March 31, 2023
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
$
34,077
$
22,585
$
198,742
$
119,578
$
374,982
Time deposits below FDIC insurance limit
291,514
254,286
352,729
102,516
1,001,045
Total
$
325,591
$
276,871
$
551,471
$
222,094
$
1,376,027
At March 31, 2023, our deposits totaled $5.8 billion, an increase of $186 million or 3% from December 31, 2022. The increase included $430 million in time deposits and $186
million in money market, NOW and savings deposits, partially offset by a decrease of $430 million in non-interest-bearing deposits. The increase in time deposits was the result of a
63
$405 million net increase in wholesale funding to support current and expected loan growth and to partially supplement the decrease in client deposits. The increase in money market,
NOW, and savings deposits was driven primarily by increases in money market deposits.
Other borrowings include FHLB advances, a line of credit, SBA loan secured borrowings, and our trust preferred security. At March 31, 2023, other borrowings totaled $332
million, a $78 million, or 31% increase from December 31, 2022. During the three-month period ended March 31, 2023, $6.0 million of FHLB advances matured and were converted
into a drawdown on the FHLB line of credit and $6.5 million of net FHLB advances were paid off. The Company utilized an additional $102.5 million of net draws on the FHLB line
of credit and the conversion of $6.0 million of FHLB advances to the FHLB line of credit to support loan growth and changes in deposits, resulting in a balance of $183.4 million
outstanding on the FHLB line of credit as of March 31, 2023.
As of March 31, 2023, the Company had approximately $2.4 billion of uninsured deposits, which is an estimated amount based on the same methodologies and assumptions
used for the Bank’s regulatory requirements. Excluding pass-thru accounts where clients have deposit insurance at the correspondent financial institution, our uninsured deposits are
$2.0 billion, or 35% of total deposits as of March 31, 2023. The average client account balance as of March 31, 2023 is less than $250 thousand for both individual accounts and
business accounts in total after excluding pass-through and ICS deposits. We have geographic and industry diversity within our deposit base as the majority of our deposits are located
in our footprint states of Kansas, Oklahoma, Texas, Missouri, and Colorado. The Company believes that its current capital ratios and liquidity are sufficient to mitigate the risks of
uninsured deposits.
64
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 7: Time Deposits and Other Borrowings” and “Note 4: Leases”
within the notes to consolidated financial statements – unaudited for a listing of the Company’s significant contractual cash obligations
and contractual obligations to third parties on lease obligations, respectively.
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 15: Commitments and Credit Risk” within the notes to
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 clients
while attempting to achieve adequate earnings for stockholders. The liquidity position is monitored continuously by management. 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
statement of financial condition 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:
March 31, 2023
December 31, 2022
(Dollars in thousands)
Total on-balance sheet liquidity
$
1,014,222
$
986,482
Total off-balance sheet liquidity
1,264,618
770,165
Total liquidity
$
2,278,840
$
1,756,647
On-balance sheet liquidity as a percent of assets
15
%
15
%
Total liquidity as a percent of assets
33
%
27
%
For the three months ended March 31, 2023, the Company’s cash and cash equivalents declined $37 million from December 31,
2022 to $263 million, representing 4% of total assets. During the three-month period ended March 31, 2023, the Company increased the
AFS securities portfolio on an amortized cost basis by $49 million, net of paydowns, maturities, and amortization. As of March 31,
2023, the Company had $244 million in securities that could be pledged and $222 million that could be sold at a net gain based on
market conditions at the time. In addition, the Company increased funded loans by $276 million, net of payoffs and charge-offs during
the three-month period ended March 31, 2023 that reduced cash and cash equivalents.
The Company’s time deposits increased by $430 million primarily from wholesale funding, while savings and money market
deposits increased by $186 million. Non-interest-bearing deposits decreased $430 million as elevated year-end balances were deployed
by clients in the quarter in addition to clients migrating into savings and money market accounts. Other borrowings decreased $17
million during the three-month period ended March 31, 2023, largely related to a reduction in Federal Funds purchased.
The Company did not purchase any common stock during the first three months of 2023. As of March 31, 2023, $16 million
remains available for repurchase under our share repurchase program. The amount and timing of such future share repurchases will be
dependent on a number of factors, including the price of our common stock, overall capital levels and cash flow needs. There is no
assurance that we will repurchase up to the full amount remaining under our program.
65
During March 2023, the Company offered and sold Series A Preferred Stock for an aggregate purchase price of $7.8 million. No
dividends related to the preferred stock were declared or paid during the three months ended March 31, 2023.
The Company believes that its current on and off-balance sheet liquidity will be sufficient to meet anticipated cash requirements
for the next 12 months and thereafter. The Company believes that it has several on and off-balance sheet options to address any resulting
reductions in cash and cash equivalents in order to maintain 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 10:
Regulatory Matters” in the notes to consolidated financial statements – unaudited for additional information. Management believes that
as of March 31, 2023, 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 2022 Form 10-K. There have
been no changes in the Company’s application of critical accounting policies and estimates since December 31, 2022.
Recent Accounting Pronouncements
Refer to “Note 1: Nature of Operations and Summary of Significant Accounting Policies” included in the notes to consolidated
financial statements – unaudited included elsewhere in this Form 10-Q.
66
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
statement of financial condition 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) statement of financial condition 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 Asset/Liability Committee (“ALCO”). The ALCO uses a combination of
three systems to measure the statement of financial condition’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 ALCO’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 ALCO 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.
Management reviews and utilizes both methods in managing interest rate risk, however, both methods represent a risk indicator, not a
forecast. 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
March 31, 2023
March 31, 2022
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
2.0
%
(18.4)
%
6.5
%
(8.1)
%
+200
1.3
(12.3)
3.9
(4.6)
+100
0.6
(5.8)
1.6
(2.0)
Base
-
%
-
%
-
%
-
%
-100
(0.7)
5.7
NA
(1)
NA
(1)
-200
(1.7)
11.7
NA
(1)
NA
(1)
-300
(5.3)
17.6
NA
(1)
NA
(1)
(1)
The Company excluded the down rate environment from its analysis due to the low interest rate environment.
Hypothetical Change in Interest Rate - Rate Ramp
March 31, 2023
March 31, 2022
Change in Interest Rate
Percent change in net interest
income
Percent change in net interest
income
+300
(0.1)
%
2.8
%
+200
(0.1)
1.6
+100
-
0.6
Base
-
%
-
%
-100
0.1
NA
(1)
-200
0.1
NA
(1)
-300
(0.6)
NA
(1)
(1)
67
The Company’s position is slightly asset sensitive as of March 31, 2023 which decreased compared to both March 31, 2022 and
December 31, 2022 due to the drastic change in market rates from the prior year. Compared to December 31, 2022, the Company’s
position is slightly less asset sensitive due to the reduction in demand deposits. The aggregate beta assumption utilized as of March 31,
2023 was approximately 60% which is slightly higher than our previous assumption due to continued competitive and pricing pressure
on deposits. Other key assumptions updated this quarter include updated deposit decay rates, new business spreads and updating market
yield curves. Other assumptions included in the model that are periodically updated include loan prepayments and call provisions within
investment and debt holdings. The Company is monitoring interest rate sensitivity closely as $4.2 billion or 62% of earning assets
mature or reprice within the twelve-month period following March 31, 2023, including $3.1 billion that repriced in the first month. $4.9
billion of interest-bearing liabilities mature or reprice over the same twelve-month period. As of March 31, 2023 and December 31,
2022, the investment portfolio duration was approximately 5.2 years. The Company is reviewing additional options to manage the
statement of financial condition sensitivity based on the interest rate environment and composition of assets and liabilities in the next
twelve months and beyond.
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 March 31, 2023. 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 March 31, 2023.
Changes in Internal Control over Financial Reporting
Our internal control over financial reporting continues to be updated as necessary to accommodate modifications to our business
processes and accounting procedures. There has been no change in our internal control over financial reporting (as such term is defined
in Rule 13a-15(f) under the Exchange Act) during the first quarter of 2023 that has materially affected, or is reasonably likely to
materially affect, our 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 2022 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 2022 Form 10-K.
68
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a)
Sales of Unregistered Securities.
On March 29, 2023, the Company entered into a Securities Purchase Agreement with certain investors qualified as "accredited
investors," as such term is defined in Rule 501(a) of Regulation D ("Regulation D") promulgated under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to which the Company offered and sold 7,750 shares of Series A Preferred Stock, for an
aggregate purchase price of $7,750,000. The offer and sale of the Series A Preferred Stock by the Company was made in reliance
upon the exemptions from registration available under Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D.
Pursuant to the Certificate of Designations for the Series A Preferred Stock filed March 29, 2023, holders of the Series A Preferred
Stock will be entitled to receive, only when, as and if declared by the Company’s Board of Directors or a duly authorized committee
thereof, non-cumulative cash dividends on the liquidation preference of $1,000 per share of Series A Preferred Stock at a rate of
8.00% per annum, payable quarterly in arrears. Such dividends are not mandatory or cumulative and are payable only to the extent
declared by the Company’s Board of Directors or a duly authorized committee thereof. The Series A Preferred Stock is perpetual
and has no maturity date and is not subject to any mandatory redemption, sinking fund, or other similar provisions. The holders of
the Series A Preferred Stock will not have any right to require the redemption or repurchase of their shares of Series A Preferred
Stock. The Company may, at its option and subject to required regulatory approval, redeem the Series A Preferred Stock (i) in whole
or in part, from time to time, on March 29, 2028, or on any dividend payment date on or after March 29, 2028, or (ii) in whole but
not in part at any time within 90 days following a “regulatory capital treatment event” (as defined in the Certificate of Designations)
in each case at a redemption price equal to $1,000 per share, plus the per share amount of any declared and unpaid dividends,
without accumulation of any undeclared dividends.
The Company intends to use the net proceeds from the sale of the Series A Preferred Stock for general corporate purposes, including
providing capital to support strategic growth and for making contributions to the capital of CrossFirst Bank, to support its lending,
investing and other banking activities.
(b)
Not applicable.
(c)
Share Repurchase Program
On May 10, 2022, 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. No shares were repurchased during the three months ended March
31, 2023. As of March 31, 2023, $16 million remains available for repurchase under this share repurchase program. Repurchases
under the program 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 does 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 program.
69
ITEM 5. OTHER INFORMATION
Effective May 1, 2023, the Company refined its organizational structure to support future growth, new business lines, recent
acquisitions, and to effectively utilize the skills and expertise on our team as we optimize for the future. In connection with the
reorganization:
• W. Randall Rapp will continue to serve as President of the Bank with overarching responsibility for all markets and credit
administration.
• Steve Peterson will continue to serve as Chief Banking Officer, with responsibility for sales management, commercial and
industrial (C&I) strategy, and our business lines.
• Amy Fauss will continue to serve as Chief Human Resources Officer and will also assume the role of Chief Administrative
Officer with overarching responsibility for human resources, services and support, and technology.
• Jenny Payne will continue to serve as the Chief Risk Officer and will report to the Chief Executive Officer of the Bank and
the Company.
70
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 management contract or compensatory plan arrangement
71
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.
Date: May 5, 2023
/s/ Benjamin R. Clouse
Benjamin R. Clouse
Chief Financial Officer
(Duly authorized officer and principal financial officer)
CROSSFIRST BANKSHARES, INC.
2018 OMNIBUS EQUITY INCENTIVE PLAN
PERFORMANCE-BASED RESTRICTED STOCK UNIT AWARD AGREEMENT
Date of Grant:
Number of Restricted Stock Units Granted:
Vesting Date:
This Performance-Based Restricted Stock Unit Award Agreement (this "Performance RSU Award Agreement"), is entered into
on , by and between CrossFirst Bankshares, Inc., a Kansas Corporation (the "Company") and ________________________ (the
"Grantee").
RECITALS:
A. Effective October 25, 2018, the Company adopted the CrossFirst Bankshares, Inc. 2018 Omnibus Equity Incentive Plan
(the "Plan") pursuant to which the Company may, from time to time, grant Restricted Stock Units to eligible Service Providers of the
Company and its Affiliates.
B. The Grantee is a Service Provider of the Company or one of its Affiliates and the Company desires to grant to the
Grantee RSUs relating to the Company's Shares on the terms and conditions reflected in this Performance RSU Award Agreement, the
Plan, and as otherwise established by the Committee.
AGREEMENT:
In consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties agree as follows:
Section 1. Incorporation of the Plan.
Grantee hereunder are subject in all respects to the provisions of the Plan, the terms of which are incorporated herein by reference, and the
powers of the Committee therein provided. Capitalized terms used in this Performance RSU Award Agreement but not defined herein
have the meanings set forth in Plan.
Section 2. Grant of Performance RSUs.
As of the Date of Grant identified above, the Company hereby grants to the
Grantee and credits to a separate account maintained on the books of the Company ("Account") that number of Restricted Stock Units
identified above opposite the heading "Number of Restricted Stock Units Granted" (the "Performance RSUs"). On any date each
Performance RSU shall represent a right to receive a percentage (which may be less than 100%, 100%, or more than 100%) of a Share, if
the applicable terms and conditions are satisfied. The Grantee's interest in the Account shall make the Grantee only a general, unsecured
creditor of the Company. Unless otherwise provided for in the Plan, the Performance RSUs may not be sold, transferred, gifted,
bequeathed, pledged, assigned, or otherwise alienated or hypothecated, voluntarily or involuntarily. The rights of the Grantee with respect
to the Performance RSUs shall remain forfeitable at all times prior to the date on which such rights are vested (the date on which the
Grantee's rights with respect to the Performance RSUs become nonforfeitable is the "Vesting Date" set forth above). Notwithstanding that
all the Performance RSUs are a single Award subject to the terms and conditions of this Performance RSU Award Agreement, that portion
of the Performance RSUs which vest based on the Company’s Relative TSR during the Performance Period and that portion of the
Performance RSUs which vest based on the Company’s achievement of actual adjusted earnings per share during the Performance Period
may be accounted for on the books of the Company as two separate awards of Restricted Stock Units, or reflected in the records of the
Company’s equity plan administrator as two separate awards of Restricted Stock Units.
Section 3. Vesting and Settlement of Performance RSUs.
Grantee or his or her Beneficiary, as applicable, either, as determined by the Company in its sole discretion, (a) an amount of cash equal to
the Fair Market Value of a Share as of the Vesting Date multiplied by the number of the Performance RSUs that become vested on the
Vesting Date, or (b) a number of Shares equal to the whole number of the Performance RSUs that become vested on the Vesting Date.
The date on which the Company pays cash or issues Shares to the Grantee in connection with vesting of a Performance RSU is the
settlement date.
Except as specifically provided elsewhere under the Plan or in this RSU Award Agreement, on the Vesting Date the restrictions on the
Performance RSUs subject to this Performance RSU Award Agreement will lapse and the Performance RSUs will become vested based on
the following performance vesting terms and conditions:
[Insert applicable vesting terms and conditions referencing, if applicable, information contained in Exhibits A and B]
Notwithstanding the foregoing, (a) the Committee may, in its sole discretion, accelerate the Vesting Date for any or all of the Performance
RSUs, if in its judgment the performance of the Grantee has warranted such acceleration and/or such acceleration is in the best interests of
the Company, provided that, except with respect to the Performance RSUs granted to a nonemploy ee Director, the Vesting Date may not
be accelerated with respect to the Performance RSUs held by the Grantee for less than a year from the Date of Grant; (b) if the Grantee's
position as a Service Provider with the Company or any of its Affiliates is terminated by reason of the Grantee's death or Disability, the
Vesting Date for all of the Performance RSUs automatically will be accelerated to the date of the Grantee's termination as a Service
Provider and such Performance RSUs will vest at the "at Target level of performance" established by the Committee; and (c) if the Grantee
resigns his or her position as a Service Provider with the Company or any of its Affiliates due to "Retirement" after the first anniversary of
the Date of Grant, the Grantee will not forfeit any of the Performance RSUs and instead shall vest in a pro rata portion of the Performance
RSUs to which the Grantee would have been entitled had the Grantee not resigned on account of Retirement and such pro rata portion of
the Performance RSUs shall be settled promptly following the Vesting Date and after the Compensation Committee’s certification of the
Company’s level of performance during the Performance Period. For purposes of this Performance RSU Award Agreement, the pro rata
portion of the Performance RSUs to which the Grantee is entitled to if the Grantee retires during the Performance Period after the first
anniversary of the Grant Date shall be determined by multiplying the number of the Performance RSUs that would have vested had the
Grantee remained a Service Provider for the entire Performance Period by a fraction, the numerator of which is the total number of days
during the Performance Period for which the Grantee was a Service Provider and the denominator of which is the total number of days in
the Performance Period. Furthermore, for purposes of this Performance RSU Award Agreement , "Retirement" means the Grantee
resigning his or her position as a Service Provider (other than a resignation in connection with the Grantee's employment being terminated
by the Company for Cause) after (i) attaining age 55, (ii) providing 10 years of service to the Company or its Affiliates (for purposes of
this Performance RSU Award Agreement, a "year of service" is a consecutive 365 day period during which the Grantee served as a Service
Provider), and (iii) six months have elapsed from the date the Grantee provided the General Counsel and Corporate Secretary of the
Company, or his or her designee(s), with advance written notice of the Grantee's intent to resign due to Retirement.
Payment of the cash and/or Shares following the Vesting Date shall be made by the Company to the Grantee as soon as administratively
practicable thereafter, but no later than the 60
th
Section 4. Cancellation of Performance RSUs.
Vesting Date, the Grantee's position as a Service Provider to the Company or any of its Affiliates is terminated for any reason (other than
the Grantee's death, Disability, or Retirement) or no reason, the Grantee shall thereupon immediately forfeit all Performance RSUs and all
such Performance RSUs shall be cancelled. For purposes of this Performance RSU Award Agreement, the transfer of employment
between the Company and any of its Affiliates (or between Affiliates) shall not constitute a termination of the Grantee's position as a
Service Provider.
Section 5. Dividends and Voting.
Dividend Equivalents for each Share that ultimately is eligible to be delivered (before any applicable tax withholding) based on the
number of Performance RSUs that ultimately become vested and based on any dividends paid by the Company on Shares, whether payable
in Stock, in cash or in kind, or other distributions, for any dividend record date that occurs (i) after the Date of Grant hereunder and (ii)
prior to the settlement date of Shares following the Vesting Date. All Dividend Equivalents will be paid, if at all, at the same time
following the Vesting Date that the Performance RSUs are settled and shall be subject to the same rights, restrictions on transfer and
conditions applicable to the underlying Performance RSUs. In the event of cancellation of any or all of the Performance RSUs, the
Grantee will forfeit all Dividend Equivalent rights relating to the underlying cancelled Performance RSUs. The Grantee will have no
voting rights with respect to any of the Performance RSUs.
Section 6. Tax Withholding .
The Grantee shall be required to pay to the Company, and the Company shall have the right
to deduct from any compensation paid to the Grantee pursuant to the Plan, or from any other compensation otherwise due to the Grantee,
the amount of any federal, state, and local withholding obligations of the Company with respect to the Performance RSUs. The Company
will not deliver Shares to the Grantee under this Performance RSU Award Agreement unless the Grantee has remitted (or in appropriate
cases agrees to remit) or otherwise provided for the satisfaction of any withholding obligation. Unless specifically denied by the
Committee, the Grantee may elect to satisfy any such withholding obligations by one or a combination of the following methods:
(a) payment of an amount in cash equal to the amount to be withheld;
(b) payment by tendering previously acquired Shares (either actually or by attestation) valued at the Share's then Fair Market
Value and equal to the amount to be withheld; or
(c) requesting that the Company withhold from the Shares otherwise issuable to the Grantee Shares having a Fair Market
Value equal to or less than the amount to be withheld.
To the extent the Committee permits withholding through either the payment of previously acquired Shares or withholding from Shares
otherwise issuable to the Grantee, any such withholding shall be in accordance with any rules or established procedures for election by
Participants, including any rules or restrictions relating to the period of time any previously acquired Shares have been held or owned,
including any elections, the irrevocability of any election, or any special rules relating to a Grantee who is an officer of the Company
within the meaning of Section 16 of the 1934 Act.
Section 7. No Right to Continue as a Service Provider.
Neither the Plan nor this Performance RSU Award Agreement
confers upon the Grantee any right to be retained in any position as an Employee, Consultant, or Director of the Company. Further,
nothing in the Plan or this Performance RSU Award Agreement shall be construed to limit the discretion of the Company to terminate the
Grantee as a Service Provider at any time, with or without Cause.
Section 8. Restrictive Covenants.
In consideration for the granting of the Performance RSUs and in addition to any other
restrictive agreements that the Grantee may have entered into with the Compa ny or an Affiliate, the Grantee accepts and agrees to be
bound (except in cases in which the following covenants conflict with the terms of any employment agreement between the Company or
an Affiliate and the Grantee; in such cases the terms of such an employment agreement shall control) in accordance with the provisions set
forth in Exhibit C.
Section 9.
Compliance with Law.
and the Grantee with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock
exchange on which the Company's Shares may be listed. No Shares shall be issued with respect to the Performance RSUs unless and until
any then applicable requirements of state or federal laws and regulatory agencies have been fully complied with to the satisfaction of the
Company and its counsel. The Grantee understands that the Company is under no obligation to register the Shares with the Securities and
Exchange Commission, any state securities commission or any stock exchange to effect such compliance.
Section 10. Notices.
shall be in writing and addressed to the General Counsel and Corporate Secretary of the Company at the Company's principal corporate
office. Any notice required to be delivered to the Grantee under this Performance RSU Award Agreement shall be in writing and
addressed to the Grantee at the Grantee's address as shown in the records of the Company. Either party may designate another address in
writing (or such other method approved by the Company) from time to time.
Section 11. Governing Law.
This Performance RSU Award Agreement will be construed and interpreted in accordance
with the laws of the State of Kansas without regard to conflict of law principles.
Section 12. Adjustments.
If any change is made to the outstanding Stock or capital structure of the Company, if required,
the Performance RSUs shall be adjusted or terminated in any manner as contemplated by the Plan.
Section 13. Amendment.
adverse to the Grantee only by a writing executed by the parties hereto which specifically states that it is amending this Performance RSU
Award Agreement.
Section 14. Clawback Policy.
The Performance RSUs will be subject to certain provisions of the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010 (“Dodd-Frank”) and any other compensation clawback policy that the Committee has
adopted or is required to adopt pursuant to the listing standards of any national securities exchange on which the Company's securities are
listed or as is otherwise required by Dodd Frank or any other applicable law, including without limitation the CrossFirst Bankshares, Inc.
Incentive Compensation Clawback Policy. Grantee acknowledges that the Performance RSUs may be clawed back by the Company in
accordance with any policies and procedures adopted by the Committee in order to comply with Dodd Frank or as set forth in this
Performance RSU Award Agreement.
Section 15. Interpretation.
Any dispute regarding the interpretation of this Performance RSU Award Agreement shall be
submitted by the Grantee or the Company to the Committee for review. The resolution of such dispute by the Committee shall be final
and binding on the Grantee and the Company.
Section 16. Titles.
Titles are provided herein for convenience only and are not to serve as a basis for interpretation or
construction of this Performance RSU Award Agreement.
Section 17. Section 409A Compliance.
RSU Award Agreement will be exempt from Section 409A of the Code and the Treasury regulations and guidance issued thereunder
("Section 409A") pursuant to the “short-term deferral” exemption. Notwithstanding any provision of the Plan or this Performance RSU
Award Agreement to the contrary, (i) this Performance RSU Award Agreement shall not be amended in any manner that would cause any
amounts payable hereunder that are not subject to Section 409A to become subject thereto (unless they also are in compliance therewith),
and the provisions of any purported amendment that may reasonably be expected to result in such non-compliance shall be of no force or
effect with respect to this Performance RSU Award Agreement and (ii) the Company, to the extent it deems necessary or advisable in its
sole discretion, reserves the right, but shall not be required, to unilaterally amend or modify this Performance RSU Award Agreement to
reflect the intention that the Plan qualifies for exemption from or complies with Section 409A in a manner that as closely as practicable
achieves the original intent of this Performance RSU Award Agreement and with the least reduction, if any, in overall benefit to a Grantee
to comply with Section 409A on a timely basis, which may be made on a retroactive basis, in accordance with regulations and other
guidance issued under Section 409A. Neither the Company nor the Committee makes any representation that this Performance RSU
Award Agreement shall be exempt from or comply with Section 409A and makes no undertaking to preclude Section 409A from applying
to this Performance RSU Award Agreement.
Section 18. Successors and Assigns.
The Company may assign any of its rights under this Performance RSU Award
Agreement. This Performance RSU Award Agreement will be binding upon and inure to the benefit of the successors and assigns of the
Company. Subject to the restrictions on transfer set forth herein, this Performance RSU Award Agreement will be binding upon the
Grantee and the Grantee's beneficiaries, executors, administrators and the person(s) to whom the Performance RSUs may be transferred by
will or the laws of descent or distribution.
Section 19. Severability.
The invalidity or unenforceability of any provision of the Plan or this Performance RSU Award
Agreement shall not affect the validity or enforceability of any other provision of the Plan or this Performance RSU Award Agreement,
and each provision of the Plan and this Performance RSU Award Agreement shall be severable and enforceable to the extent permitted by
law.
Section 20. No Impact on Other Benefits.
expected compensation for purposes of calculating any severance, retirement, welfare, insurance or similar employee benefit.
Section 21.
Counterparts.
be deemed an original but all of which together will constitute one and the same instrument. Counterpart signature pages to this
Performance RSU Award Agreement transmitted by facsimile transmission, by electronic mail in portable document format (.pdf), or by
any other electronic means intended to preserve the original graphic and pictorial appearance of a document, will have the same effect as
physical delivery of the paper document bearing an original signature.
Section 22. Acceptance.
has read and understands the terms and provisions thereof, and accepts the Performance RSUs subject to all of the terms and conditions of
the Plan and this Performance RSU Award Agreement.
Section 23. Entire Agreement and Binding Effect.
This Performance RSU Award Agreement and the Plan constitute the
entire contract between the parties hereto with regard to the subject matter hereof. They supersede any other agreements, representations
or understandings (whether oral or written and whether express or implied) that relate to the subject matter hereof. Except as expressly
stated herein to the contrary, this Performance RSU Award Agreement will be binding upon and inure to the benefit of the respective heirs,
legal representatives, successors and assigns of the parties hereto.
[Signature Page Follows]
The parties to this Performance RSU Award Agreement have executed this Performance RSU Award Agreement as of the date provided in
the preamble to this agreement.
CROSSFIRST BANKSHARES, INC.
By: _____________________
Name:___________________
Title:____________________
[GRANTEE NAME]
By: _____________________
Name:___________________
Exhibit A
[Insert applicable Performance Goal information, as applicable]
Exhibit B
[Insert applicable Performance Goal information, as applicable]
Exhibit C
Restrictive Covenants for Grantee Employed in Arizona, Georgia, Kansas, Missouri, Texas or New Mexico
1.
NONCOMPETITION. For a period of one year following the date of Grantee's termination as a Service
Provider ("Termination Date"), Grantee
will not contribute his or her knowledge, directly or indirectly, in whole or in
part, as an employee, officer, owner, manager, advisor, consultant, agent, partner, director, shareholder, volunteer, intern or in
any other similar capacity to an entity engaged in the same or similar business as the Company or one of its Affiliates within the
state, region or metropolitan statistical area (as appropriate) for which Grantee had responsibility for, or conducted business on
behalf of, the Company or one of its Affiliates during the two years prior to the Termination Date.
2. NONSOLICITATION OF EMPLOYEES. For a period of
one year following
the Termination Date, Grantee will not
directly or indirectly, solicit, hire, recruit, attempt to hire or recruit, or induce the termination of employment of any employee
of the Company or one of its Affiliates.
3. NONSOLICITATION OF COMPANY CUSTOMERS. For a period of
one year following
the Termination Date, Grantee
will not directly or indirectly, solicit, contact (including, but not limited to, e-mail, regular mail, express mail, telephone, fax,
and instant message), attempt to contact or meet with the current, former or prospective customers of the Company or one of its
Affiliates with whom Grantee had material contact during Grantee's employment, for purposes of offering or accepting goods or
services similar to or competitive with those offered by the Company or one of its Affiliates.
4. NO DETRIMENTAL COMMUNICATIONS. Grantee agrees not to disclose or cause to be disclosed at any time any
untrue, negative, adverse or derogatory comments or information about the Company or one of its Affiliates, any product or
service provided by the Company or one of its Affiliates, or prospects for the future of the Company or one of its Affiliates.
Notwithstanding the foregoing, this provision does not in any way limit, restrict or impede Grantee’s ability to provide truthful
testimony or information in response to a subpoena, court or arbitral order, or as otherwise required by law.
5. CONF IDENTIALITY. Grantee acknowledges that it is the policy of the Company to maintain as confidential all
information about the Company’s and its Affiliates' business, proprietary, and technical information that is not known to others,
including without limitation, customer lists, information relating to the Company's or one of its Affiliates' customers, their
businesses, operations, employees and customers, unique concepts, lending practices, sales presentations, marketing programs,
marketing strategies, business practices, pricing information, employment handbooks, training materials/manuals, cost
information, customer leads, documents identifying past, present and future customers, hiring and training methods, investment
policies, financial and other confidential, proprietary and/or trade secret information concerning the Company’s and its
Affiliates' operations and growth plans ("Confidential Information"). Grantee recognizes that the Confidential Information is the
sole and exclusive property of the Company or one of its Affiliates, and that disclosure of Confidential Information would cause
damage to the Company or one of its Affiliates. Grantee shall not at any time disclose or authorize the disclosure of
Confidential Information that (a) is disclosed to or known by Grantee as result of as a consequence of or through the Grantee's
performance of services for the Company or one of its Affiliates, (b) is not publicly or generally known outside the Company or
one of its Affiliates and (c) relates in any manner to the Company's or one of its Affiliates' business. This Section 5 shall apply
in addition to, and not in derogation of any other confidentiality agreements that may exist, now or in the future, between
Grantee and the Company or one of its Affiliates.
a)
On or before the Termination Date
,
Grantee shall return to the 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 Grantee will certify that the
provisions of this paragraph have been complied with.
b)
Notwithstanding the above or any provision of this Exhibit C or any other agreement executed by the Grantee to the
contrary, there shall be no restriction on the Grantee's ability to (i) report violations of any law or regulation, (ii) provide
truthful testimony or information pursuant to subpoena, court order, or similar legal process, (iii) provide truthful
information to government or regulatory agencies, or (iv) otherwise engage in whistleblower activity protected by the
Securities Exchange Act of 1934, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or any rules or
regulations issued thereunder, including, without limitation, Rule 21F-17. In addition, 18 U.S.C. §1833(b) provides, in
part: “(1) An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the
disclosure of a trade secret that (A) is made (i) in confidence to a Federal, State, or local government official, either
directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation
of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made
under seal. …. (2) An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of
law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court
proceeding, if the individual (A) files any document containing the trade secret under seal; and (B) does not disclose the
trade secret, except pursuant to court order. ” Nothing in this Exhibit C, any other agreement executed by the Grantee is
intended to conflict with the statutory protection in 18 U.S.C. §1833(b).
6.
BREACH OF COVENANTS.
In the event of a breach of any of the covenants contained in this Exhibit C: (a) any unvested
portion of the Performance RSUs shall be forfeited effective as of the date of such breach, unless sooner terminated by
operation of another term of condition of the Performance RSU Award Agreement or the Plan; and (b) the Grantee hereby
consents and agrees that the Company or one of its Affiliates shall be entitled to seek, in addition to other available remedies, a
temporary or permanent injunction or other equitable relief against such breach or threatened breach from any court of
competent jurisdiction, without the necessity of showing any actual damages or that money damages would not afford an
adequate remedy, and without the necessity of posting any bond or security. The aforementioned equitable relief shall be in
addition to, not in lieu of, legal remedies, monetary damages or other available forms of relief.
7. SEVERABILITY. If any of the provisions of this Exhibit C shall otherwise contravene or be invalid under the laws of any state,
country or other jurisdiction where this Exhibit C is applicable but for such contravention or invalidity, such contravention or
invalidity shall not invalidate all of the provisions of this Exhibit C 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, or a court of competent jurisdiction may reform any such invalid provision, and the rights and obligations
created hereby shall be construed and enforced accordingly.
Restrictive Covenants for Grantee Employed in Oklahoma
1. NONSOLICITATION OF EMPLOYEES. For a period of one year following
the date of Grantee's termination as a
Service Provider ("Termination Date")
, Grantee will not directly solicit, hire, recruit, attempt to hire or recruit, or induce the
termination of employment of any employee of the Company or one of its Affiliates during the two years prior to the Termination
Date.
2. NONSOLICITATION OF COMPANY CUSTOMERS. For a period of one year following the Termination Date, Grantee will
not directly solicit, interfere with, or attempt to interfere with any of the Company's or one of its Affiliates' established customer
relationships that existed at Grantee's Termination Date for purposes of offering or accepting goods or services similar to or
competitive with those offered by the Company or one of its Affiliates .
3. NO DETRIMENTAL COMMUNICATIONS. Grantee agrees not to disclose or cause to be disclosed at any time any untrue,
negative, adverse or derogatory comments or information about the Compa ny or one of its Affiliates, any product or service
provided by the Company or one of its Affiliates, or prospects for the future of the Company or one of its Affiliates.
Notwithstanding the foregoing, this provision does not in any way limit, restrict or impede Grantee’s ability to provide truthful
testimony or information in response to a subpoena, court or arbitral order, or as otherwise required by law.
4. CONFIDENTIALITY. Grantee acknowledges that it is the policy of the Company to maintain as confidential all information
about the Company’s and its Affiliates' business, proprietary, and technical information that is not known to others, including
without limitation, customer lists, information relating to the Company's or one of its Affiliates' customers, their businesses,
operations, employees and customers, unique concepts, lending practices, sales presentations, marketing programs, marketing
strategies, business practices, pricing information, employment handbooks, training materials/manuals, cost information,
customer leads, documents identifying past, present and future customers, hiring and training methods, investment policies,
financial and other confidential, proprietary and/or trade secret information concerning the Company’s and its Affiliates'
operations and growth plans ("Confidential Information"). Grantee recognizes that the Confidential Information is the sole and
exclusive property of the Company or one of its Affiliates , and that disclosure of Confidential Information would cause damage
to the Company or one of its Affiliates. Grantee shall not at any time disclose or authorize the disclosure of Confidential
Information that (a) is disclosed to or known by Grantee as result of as a consequence of or through the Grantee's performance of
services for the Company or one of its Affiliates, (b) is not publicly or generally known outside the Company or one of its
Affiliates and (c) relates in any manner to the Company's or one of its Affiliates business. This Section 4 shall apply in addition
to, and not in derogation of any other confidentiality agreements that may exist, now or in the future, between Grantee and the
Company or one of its Affiliates.
a) On or before the Termination Date, Grantee shall return to the 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 Grantee will certify that the
provisions of this paragraph have been complied with.
b) Notwithstanding the above or any provision of this Exhibit C or any other agreement executed by the Grantee to the
contrary, there shall be no restriction on the Grantee's ability to (i) report violations of any law or regulation, (ii) provide
truthful testimony or information pursuant to subpoena, court order, or similar legal process, (iii) provide truthful
information to government or regulatory agencies, or (iv) otherwise engage in whistleblower activity protected by the
Securities Exchange Act of 1934, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or any rules or
regulations issued thereunder, including, without limitation, Rule 21F-17. In addition, 18 U.S.C. §1833(b) provides, in
part: “(1) An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the
disclosure of a trade secret that (A) is made (i) in confidence to a Federal, State, or local government official, either
directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation
of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made
under seal. …. (2) An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of
law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court
proceeding, if the individual (A) files any document containing the trade secret under seal; and (B) does not disclose the
trade secret, except pursuant to court order. ” Nothing in this Exhibit C, any other agreement executed by the Grantee is
intended to conflict with the statutory protection in 18 U.S.C. §1833(b).
5. BREACH OF COVENANTS. In the event of a breach of any of the covenants contained in this Exhibit C: (a) any unvested
portion of the Performance RSUs shall be forfeited effective as of the date of such breach, unless sooner terminated by operation
of another term of condition of the Performance RSU Award Agreement or the Plan; and (b) the Grantee hereby consents and
agrees that the Company or one of its Affiliates shall be entitled to seek, in addition to other available remedies, a temporary or
permanent injunction or other equitable relief against such breach or threatened breach from any court of competent jurisdiction,
without the necessity of showing any actual damages or that money damages would not afford an adequate remedy, and without
the necessity of posting any bond or security. The aforementioned equitable relief shall be in addition to, not in lieu of, legal
remedies, monetary damages or other available forms of relief.
6. SEVERABILITY. If any of the provisions of this Exhibit C shall otherwise contravene or be invalid under the laws of any state,
country or other jurisdiction where this Exhibit C is applicable but for such contravention or invalidity, such contravention or
invalidity shall not invalidate all of the provisions of this Exhibit C 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.
Restrictive Covenants for Grantee Employed in Colorado
1. The provisions in paragraphs 2 and 4 are for the protection of the Company's or one of its Affiliates' trade secrets. The provisions
in paragraphs 2 apply only to a Grantee whose annualized cash compensation is equivalent to or greater than the threshold
amount for highly compensated workers established by the Division of Labor Standards and Statistics in the Colorado
Department of Labor and Employment. The provisions in paragraphs 2 and 4 apply only to a Grantee whose annualized cash
compensation is equivalent to or greater than 60% of the threshold amount for highly compensated workers established by the
Division of Labor Standards and Statistics in the Colorado Department of Labor and Employment.
2.
NONCOMPETITION. For a period of one year following the date of Grantee's termination as a Service Provider
("T
ermination Date"), Grantee
will not contribute his or her knowledge, directly or indirectly, in whole or in part, as an
employee, officer, owner, manager, advisor, consultant, agent, partner, director, shareholder, volunteer, intern or in any other
similar capacity to an entity engaged in the same or similar business as the Company or one of its Affiliates within the state,
region or metropolitan statistical area (as appropriate) for which Grantee had responsibility for, or conducted business on behalf
of, the Company or one of its Affiliates during the two years prior to the Termination Date.
3. NONSOLICITATION OF EMPLOYEES. For a period of one year following the Termination Date, Grantee will not directly
solicit, hire, recruit, attempt to hire or recruit, or induce the termination of employment of any employee of the Company or one
of its Affiliates.
4. NONSOLICITATION OF COMPANY CUSTOMERS. For a period of
one year following
the Termination Date, Grantee
will not directly or indirectly, solicit, contact (including, but not limited to, e-mail, regular mail, express mail, telephone, fax, and
instant message), attempt to contact or meet with the current, former or prospective customers of the Company or one of its
Affiliates with whom Grantee had material contact during Grantee's employment, for purposes of offering or accepting goods or
services similar to or competitive with those offered by the Company or one of its Affiliates.
5. NO DETRIMENTAL COMMUNICATIONS. Grantee agrees not to disclose or cause to be disclosed at any time any untrue,
negative, adverse or derogatory comments or information about the Company or one of its Affiliates, any product or service
provided by the Company or one of its Affiliates, or prospects for the future of the Company or one of its Affiliates.
Notwithstanding the foregoing, this provision does not in any way limit, restrict or impede Grantee's ability to provide truthful
testimony or information in response to a subpoena, court or arbitral order, or as otherwise required by law.
6. CONFIDENTIALITY. Grantee acknowledges that it is the policy of the Company to maintain as confidential all information
about the Company’s or one of its Affiliates' business, proprietary, and technical information that is not known to others,
including without limitation, customer lists and information relating to the Company's or one of its Affiliates' customers, their
businesses, operations, employees and customers, unique concepts, lending practices, sales presentations, marketing programs,
marketing strategies, business practices, pricing information, employment handbooks, training materials/manuals, cost
information, customer leads, documents identifying past, present and future customers, hiring and training methods, investment
policies, financial and other confidential, proprietary and/or trade secret information concerning the Company’s or one of its
Affiliates' operations and growth plans ("Confidential Information"). Grantee recognizes that the Confidential Information is the
sole and exclusive property of the Company or one of its Affiliates, and that disclosure of Confidential Information would cause
damage to the Company or one of its Affiliates. Grantee shall not at any time disclose or authorize the disclosure of Confidential
Information that (a) is disclosed to or known by Grantee as result of as a consequence of or through the Grantee's performance of
services for the Company or one of its Affiliates, (b) is not publicly or generally known outside the Company or one of its
Affiliates and (c) relates in any manner to the Company's or one of its Affiliates' business. This Section 6 shall apply in addition
to, and not in derogation of any other confidentiality agreements that may exist, now or in the future, between Grantee and the
Company or one of its Affiliates.
a) On or before the Termination Date, Grantee shall return to the 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 Grantee will certify that the
provisions of this paragraph have been complied with.
b) Notwithstanding the above or any provision of this Exhibit C or any other agreement executed by Grantee to the
contrary, there shall be no restriction on the Grantee’s ability to (i) report violations of any law or regulation, (ii) provide
truthful testimony or information pursuant to subpoena, court order, or similar legal process, (iii) provide truthful
information to government or regulatory agencies, or (iv) otherwise engage in whistleblower activity protected by the
Securities Exchange Act of 1934, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or any rules or
regulations issued thereunder, including, without limitation, Rule 21F-17. In addition, 18 U.S.C. §1833(b) provides, in
part: “(1) An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the
disclosure of a trade secret that (A) is made (i) in confidence to a Federal, State, or local government official, either
directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation
of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made
under seal. …. (2) An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of
law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court
proceeding, if the individual (A) files any document containing the trade secret under seal; and (B) does not disclose the
trade secret, except pursuant to court order.” Nothing in this Exhibit C, any other agreement executed by the Grantee is
intended to conflict with the statutory protection in 18 U.S.C. §1833(b).
7. BREACH OF COVENANTS. In the event of a breach of any of the covenants contained in this Exhibit C: (a) any unvested
portion of the Performance RSUs shall be forfeited effective as of the date of such breach, unless sooner terminated by operation
of another term of condition of the Performance RSU Award Agreement or the Plan; and (b) the Grantee hereby consents and
agrees that the Company or one of its Affiliates shall be entitled to seek, in addition to other available remedies, a temporary or
permanent injunction or other equitable relief against such breach or threatened breach from any court of competent jurisdiction,
without the necessity of showing any actual damages or that money damages would not afford an adequate remedy, and without
the necessity of posting any bond or security. The aforementioned equitable relief shall be in addition to, not in lieu of, legal
remedies, monetary damages or other available forms of relief.
SEVERABILITY. If any of the provisions of this Exhibit C shall otherwise contravene or be invalid under the laws of any state, country or
other jurisdiction where this Exhibit C is applicable but for such contravention or invalidity, such contravention or invalidity shall not
invalidate all of the provisions of this Exhibit C 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, or a court of
competent jurisdiction may reform any such invalid provision, and the rights and obligations created hereby shall be construed and
enforced accordingly.
Annual Incentive Plan (AIP) Worksheet
Pursuant to the CrossFirst Bankshares, Inc. Annual Incentive Plan (Amended and Restated February 26, 2020)
Employee Name:
Employee Title:
Employee Department:
Base Salary:
$ ___________
Target Incentive:
__% of Base Salary
Target AIP Opportunity:
$ __________
Stretch Incentive:
___% of Base Salary
Stretch Opportunity:
$ ___________
Total Maximum AIP Opportunity:
Your AIP payout for the period will be based on attainment of the following performance metrics. The applicable targets for each performance metric and each
applicable payout percentage are listed below. Your AIP payout percentage will be interpolated on a straight-line basis for performance between the listed achievement
levels and rounded to the nearest tenth of a percentage.
Performance Metric
AIP Plan
Weighting
Threshold (50%
payout)
Target (100%
payout)
Bank Performance
70%
Individual Performance
30%
Total Weighting
100%
1 Funding of the total AIP pool for CrossFirst Bankshares, Inc. (the Company) is based on the attainment of Adjusted PPCM of the Company. If the Company
achieves Adjusted PPCM at Target, 100% of the pool for all employees assigned to the Company eligible for AIP during the performance period may be funded.
If the attainment of Adjusted PPCM for the Company is less than Target, the total AIP pool for the Company will be funded at an amount less than Target using
linear interpolation.
Employee
Manager
Page 1 of 2
Payment Terms, Schedule and Criteria
This award issued under the CrossFirst Bankshares, Inc. Annual Incentive Plan (as amended and restated February 26,2020) (as amended, modified,
supplemented or restated, the “Plan”) is subject to the following terms and conditions.
Terms.
Payment based on attainment of each performance metric will be calculated annually based on approved full-year targets for the performance
period from January 1 through December 31 of the year noted on page one of this award (the “Incentive Period”). If you are in an eligible role under
the Plan for less than a full calendar year, your Target AIP Opportunity will be pro rated for that year. Corrections to prior period payments may be
made and applied to current period payments earned to ensure accurate incentive payments
.
Timing.
Payment of earned AIP incentive payout will be made not more than sixty (60) days after the end of the applicable performance period,
subject to satisfaction of the eligibility criteria below
.
Eligibility Criteria.
You must be in good standing on the date that your incentive payment is paid to receive an AIP incentive payment for the
performance period
.
Termination of Eligibility
. Your eligibility under the Plan will be terminated immediately in the event of termination of employment with CrossFirst
Bankshares, Inc. or any of its subsidiaries ("CrossFirst"), for any reason (voluntarily or involuntarily), or transfer to a non-AIP eligible role.
Payments are earned only for the completed Incentive Period (i.e., if employment with CrossFirst is terminated or if participation in the Plan is
otherwise terminated at any time before the completion of an Incentive Period, no incentive is considered earned or will be paid for that period). You
will earn and be entitled to payment for the incentive only if you are employed in your AIP-eligible role on the last day of the applicable incentive
period
.
Discretionary Adjustments.
At the discretion of the Compensation Committee or management, your AIP payout for the Incentive Period may be
decreased or increased based on consideration of your individual performance or other factors deemed relevant. Additionally, the Compensation
Committee or management may partially or fully reduce your AIP payout if you are not in good standing on the incentive payment date
.
Tax Withholding.
All payments under this AIP award will be subject to applicable federal, state, and local payroll and withholding taxes, for which
CrossFirst will collect and withhold
.
No Employment Right.
Nothing in this award shall interfere with or limit in any way the right of CrossFirst to terminate your employment at any
time, with or without cause
.
Incentive Payment Recovery; Clawback.
This award, and any right to receive and retain any incentive payout hereunder, is subject to rescission,
forfeiture, cancellation or recoupment, in whole or in part, if and to the extent so provided under the Plan or the CrossFirst Bankshares, Inc.
Clawback Policy
,
as in effect from time to time, or any other applicable clawback, adjustment or similar policy in effect on or established after the
date of this award (the "Clawback Policy"). By accepting this award of AIP, you agree that you are obligated to provide all assistance necessary to
CrossFirst to recover or recoup any of the incentive payout under this award which is subject to recovery or recoupment pursuant to the Clawback
Policy. Such assistance shall include completing any documentation necessary to recover or recoup any portion of the incentive payout received
pursuant to this AIP award from any accounts you maintain. CrossFirst may deduct the amounts owed from any pending or future compensation or
expense reimbursements owed to you by CrossFirst. To the extent such amounts are not setoff, you will remain liable for any remaining balance
.
Modifications to this Award.
The Plan Administrator (as defined in the Plan) reserves the right, in its sole discretion, to interpret and modify this
award agreement: (a) during the performance period to coincide with changing corporate objectives, and (b) during or after the performance period
to: (i) avoid windfall payments unintentionally derived from the plan design that may result from the highly variable nature of many loans, deposits
or market conditions and/or (ii) adjust payments or terminate this AIP award when your performance has been documented by management to be
unacceptable. Such modifications will occur only under the authority of the Plan Administrator(s), in its sole discretion. Any component of this
award may be adjusted to ensure that you receive adequate, yet reasonable, compensation.
Page 2 of 2
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: May 5, 2023
/s/ Michael J. Maddox
Michael J. Maddox
President and Chief Executive Officer
(Principal Executive Officer)
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: May 5, 2023
/s/ Benjamin R. Clouse
Benjamin R. Clouse
Chief Financial Officer
(Principal Financial Officer)
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 March 31,
2023, 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: May 5, 2023
/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)