UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2020~~March 31, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission file number 001-39028

CROSSFIRST BANKSHARES, INC.

(Exact Name of Registrant as Specified in its Charter)

Kansas

26-3212879

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

11440 Tomahawk Creek Parkway

Leawood,

66211

(Address of principal executive offices)

(Zip Code)

(913) 312-6822

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

CFB

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐☒

Non-accelerated filer

☒☐

Smaller reporting company

☐

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~November 2, 2020,~~May 5, 2021, the registrant had ~~52,195,778~~51,580,761 shares of common stock, par value $0.01, outstanding.

CrossFirst Bankshares, Inc.

Form 10-Q for the Quarter Ended ~~September 30, 2020~~March 31, 2021

Index


Part I. Financial Information
Item 1. Financial Statements
Forward-Looking Information			3
Consolidated Balance Sheets - Unaudited			4
Consolidated Statements of Income - Unaudited			5
Consolidated Statements of Comprehensive Income - Unaudited			6
Consolidated Statements of Stockholders’ Equity - Unaudited			7
Consolidated Statements of Cash Flows - Unaudited			98
Notes to Consolidated Financial Statements (unaudited)

Note 1: Nature of Operations and Summary of Significant Accounting Policies			109
Note 2: Earnings Per Share			1411
Note 3: Securities			1512
Note 4: Loans and Allowance for Loan Losses (“ALLL ”)			1815

Note 5: Derivatives and Hedging			2724

Note 6: ~~Goodwill and Other Intangible Assets~~			28
~~Note 7:~~ Time Deposits and Borrowings			2925
Note 8:7: Change in Accumulated Other Comprehensive Income (“AOCI”)			2925
Note 9:8: Regulatory Matters			2925

Note ~~10:~~9: Stock-Based Compensation			3026
Note 10: Income Tax			28
Note 11: ~~Income Tax~~Disclosures about Fair Value of Financial Instruments			28
Note 12: Commitments and Credit Risk			32
Note ~~12: Disclosures about Fair Value of Financial Instruments~~			33
~~Note~~ 13: ~~Commitments and Credit Risk~~			36
~~Note 14:~~ Legal and Regulatory Proceedings			3632
~~Note 15: Subsequent Events~~			36
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			3733



~~Third~~First Quarter ~~2020~~2021 Highlights			3733

Results of Operations			4035

Net Interest Income			4035

Non-Interest Income			4338
Non-Interest Expense			4439
Income Taxes			4540
Analysis of Financial Condition			4540

Securities Portfolio			4540
Loan Portfolio			4540
Provision and Allowance for Loan Losses (‘‘ALLL’’)			4541
Nonperforming Assets and Other Asset Quality Metrics			4843
Deposits and Other Borrowings			4945
Liquidity			5045
Contractual Obligations			5045
Capital Resources and Off-Balance Sheet Arrangements			5046
Critical Accounting Policies and Estimates			5046

Item 3. Quantitative and Qualitative Disclosures about Market Risk			5146
Item 4. Controls and Procedures			5247

Part II. Other Information
Item 1. Legal Proceedings			5248
Item 1A. Risk Factors			5348
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			48



Item 6. Exhibits			5449

Signatures

Table of Contents

Forward-Looking Information

This report may contain forward-looking statements that reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “strive,” “projection,” “goal,” “target,” “outlook,” “aim,” “would,” “annualized” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature.

These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. Such possible events or factors include: risks associated with the current outbreak of the novel coronavirus, or the COVID-19 pandemic, changes in economic conditions in the Company’s market area, changes in policies by regulatory agencies, governmental legislation and regulation, fluctuations in interest rates, changes in liquidity requirements, demand for loans in the Company’s market area, changes in accounting and tax principles, estimates made on income taxes, competition with other entities that offer financial services, cybersecurity threats, and such other factors as discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019,~~2020, filed with the Securities and Exchange Commission (“SEC”) on ~~March 10, 2020,~~February 26, 2021, any subsequent quarterly report on Form 10-Q as well as in our other filings with the SEC.

We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CROSSFIRST BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020

		(Unaudited)					(Unaudited)
		(Dollars in thousands)					(Dollars in thousands)
Assets	Assets					Assets

Cash and cash equivalents	Cash and cash equivalents	$	223,636	$	187,320	Cash and cash equivalents	$	630,787	$	408,810
Available-for-sale securities - taxable	Available-for-sale securities - taxable	214,735		298,208		Available-for-sale securities - taxable	192,031		177,238
Available-for-sale securities - tax-exempt	Available-for-sale securities - tax-exempt	437,411		443,426		Available-for-sale securities - tax-exempt	493,423		477,350

Loans, net of allowance for loan losses of $76,035 and $56,896 at September 30, 2020 and December 31, 2019, respectively		4,401,774		3,795,348
Loans, net of allowance for loan losses of $74,551 and $75,295 at March 31, 2021 and December 31, 2020, respectively						Loans, net of allowance for loan losses of $74,551 and $75,295 at March 31, 2021 and December 31, 2020, respectively	4,434,049		4,366,602
Premises and equipment, net	Premises and equipment, net	70,599		70,210		Premises and equipment, net	69,270		70,509
Restricted equity securities	Restricted equity securities	20,923		17,278		Restricted equity securities	14,080		15,543
Interest receivable	Interest receivable	19,003		15,716		Interest receivable	17,987		17,236
Foreclosed assets held for sale	Foreclosed assets held for sale	2,349		3,619		Foreclosed assets held for sale	2,347		2,347
Deferred tax asset		15,864		13,782
Goodwill and other intangible assets, net		227		7,694

Bank-owned life insurance	Bank-owned life insurance	67,063		65,689		Bank-owned life insurance	67,914		67,498
Other	Other	32,112		12,943		Other	76,186		56,170
Total assets	Total assets	$	5,505,696	$	4,931,233	Total assets	$	5,998,074	$	5,659,303
Liabilities and stockholders’ equity	Liabilities and stockholders’ equity					Liabilities and stockholders’ equity
Deposits	Deposits					Deposits
Noninterest-bearing	Noninterest-bearing	$	754,172	$	521,826	Noninterest-bearing	$	794,559	$	718,459
Savings, NOW and money market	Savings, NOW and money market	2,597,691		2,162,187		Savings, NOW and money market	3,325,220		2,932,799
Time	Time	1,140,686		1,239,746		Time	931,791		1,043,482
Total deposits	Total deposits	4,492,549		3,923,759		Total deposits	5,051,570		4,694,740
Federal funds purchased and repurchase agreements	Federal funds purchased and repurchase agreements	13,531		14,921		Federal funds purchased and repurchase agreements	3,294		2,306
Federal Home Loan Bank advances	Federal Home Loan Bank advances	336,100		358,743		Federal Home Loan Bank advances	283,100		293,100

Other borrowings	Other borrowings	952		921		Other borrowings	974		963
Interest payable and other liabilities	Interest payable and other liabilities	44,681		31,245		Interest payable and other liabilities	30,302		43,766
Total liabilities	Total liabilities	4,887,813		4,329,589		Total liabilities	5,369,240		5,034,875
Stockholders’ equity	Stockholders’ equity					Stockholders’ equity
Redeemable preferred stock, $0.01 par value, $25.00 liquidation value:

authorized - 5,000,000 shares, issued - 0 shares at September 30, 2020 and December 31, 2019, respectively		0		0

Common stock, $0.01 par value:	Common stock, $0.01 par value:					Common stock, $0.01 par value:

authorized - 200,000,000 shares, issued - 52,195,778 and 51,969,203 shares at September 30, 2020 and December 31, 2019, respectively		521		520
authorized - 200,000,000 shares, issued - 52,376,779 and 52,289,129 shares at March 31, 2021 and December 31, 2020, respectively						authorized - 200,000,000 shares, issued - 52,376,779 and 52,289,129 shares at March 31, 2021 and December 31, 2020, respectively	523		523
Treasury stock, at cost:						Treasury stock, at cost:
698,110 and 609,613 shares held at March 31, 2021 and December 31, 2020, respectively						698,110 and 609,613 shares held at March 31, 2021 and December 31, 2020, respectively	(7,113)		(6,061)
Additional paid-in capital	Additional paid-in capital	522,226		519,870		Additional paid-in capital	523,156		522,911
Retained earnings	Retained earnings	69,355		64,803		Retained earnings	89,722		77,652

Accumulated other comprehensive income	Accumulated other comprehensive income	25,781		16,451		Accumulated other comprehensive income	22,546		29,403
Total stockholders’ equity	Total stockholders’ equity	617,883		601,644		Total stockholders’ equity	628,834		624,428
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	5,505,696	$	4,931,233	Total liabilities and stockholders’ equity	$	5,998,074	$	5,659,303

See Notes to Consolidated Financial Statements (unaudited)

Table of Contents

CROSSFIRST BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2020		2019		2020		2019			2021		2020
		(Dollars in thousands except per share data)									(Dollars in thousands except per share data)
Interest Income	Interest Income									Interest Income
Loans, including fees	Loans, including fees	$	43,929	$	49,327	$	138,591	$	142,319	Loans, including fees	$	43,758	$	48,339

Available-for-sale securities - taxable	Available-for-sale securities - taxable	1,042		1,991		4,174		6,646		Available-for-sale securities - taxable	751		1,774
Available-for-sale securities - tax-exempt	Available-for-sale securities - tax-exempt	3,186		2,969		9,758		8,820		Available-for-sale securities - tax-exempt	3,351		3,312
Deposits with financial institutions	Deposits with financial institutions	47		970		583		2,452		Deposits with financial institutions	128		491
Dividends on bank stocks	Dividends on bank stocks	248		272		808		801		Dividends on bank stocks	165		292

Total interest income	Total interest income	48,452		55,529		153,914		161,038		Total interest income	48,153		54,208
Interest Expense	Interest Expense									Interest Expense
Deposits	Deposits	7,298		18,003		29,975		51,421		Deposits	5,728		14,272
Fed funds purchased and repurchase agreements	Fed funds purchased and repurchase agreements	54		74		162		501		Fed funds purchased and repurchase agreements	1		62
Federal Home Loan Bank Advances	Federal Home Loan Bank Advances	1,749		1,629		4,980		4,739		Federal Home Loan Bank Advances	1,283		1,611
Other borrowings	Other borrowings	24		37		85		112		Other borrowings	24		35
Total interest expense	Total interest expense	9,125		19,743		35,202		56,773		Total interest expense	7,036		15,980
Net Interest Income	Net Interest Income	39,327		35,786		118,712		104,265		Net Interest Income	41,117		38,228
Provision for Loan Losses	Provision for Loan Losses	10,875		4,850		45,825		10,550		Provision for Loan Losses	7,500		13,950
Net Interest Income after Provision for Loan Losses	Net Interest Income after Provision for Loan Losses	28,452		30,936		72,887		93,715		Net Interest Income after Provision for Loan Losses	33,617		24,278
Non-Interest Income	Non-Interest Income									Non-Interest Income
Service charges and fees on customer accounts	Service charges and fees on customer accounts	792		72		1,947		441		Service charges and fees on customer accounts	957		508
Gain on sale of available-for-sale debt securities		1,012		34		1,725		467
Realized gains on available-for-sale securities										Realized gains on available-for-sale securities	10		393

Impairment of premises and equipment held for sale		0		0		0		(424)
Gain on sale of loans		0		49		0		207

Income from bank-owned life insurance	Income from bank-owned life insurance	464		476		1,373		1,416		Income from bank-owned life insurance	416		456
Swap fee income, net		121		1,879		80		2,415
Swap fees and credit valuation adjustments, net										Swap fees and credit valuation adjustments, net	155		(9)
ATM and credit card interchange income	ATM and credit card interchange income	1,482		476		2,863		1,312		ATM and credit card interchange income	2,328		485
Other non-interest income	Other non-interest income	192		226		804		695		Other non-interest income	278		254
Total non-interest income	Total non-interest income	4,063		3,212		8,792		6,529		Total non-interest income	4,144		2,087
Non-Interest Expense	Non-Interest Expense									Non-Interest Expense
Salaries and employee benefits	Salaries and employee benefits	14,628		14,256		43,022		43,296		Salaries and employee benefits	13,553		14,390
Occupancy	Occupancy	2,144		2,080		6,274		6,301		Occupancy	2,494		2,085
Professional fees	Professional fees	1,132		427		3,098		1,923		Professional fees	782		671
Deposit insurance premiums	Deposit insurance premiums	1,096		302		3,151		2,020		Deposit insurance premiums	1,151		1,016
Data processing	Data processing	652		649		2,065		1,868		Data processing	716		692
Advertising	Advertising	147		580		870		1,770		Advertising	303		500
Software and communication	Software and communication	959		900		2,772		2,407		Software and communication	1,065		876

Foreclosed assets, net	Foreclosed assets, net	20		8		1,174		33		Foreclosed assets, net	50		10
Goodwill impairment		0		0		7,397		0

Other non-interest expense	Other non-interest expense	2,233		1,970		6,421		6,145		Other non-interest expense	2,704		1,975
Total non-interest expense	Total non-interest expense	23,011		21,172		76,244		65,763		Total non-interest expense	22,818		22,215
Net Income Before Taxes	Net Income Before Taxes	9,504		12,976		5,435		34,481		Net Income Before Taxes	14,943		4,150
Income tax expense	Income tax expense	1,498		2,592		928		5,308		Income tax expense	2,908		293
Net Income	Net Income	$	8,006	$	10,384	$	4,507	$	29,173	Net Income	$	12,035	$	3,857
Basic Earnings Per Share	Basic Earnings Per Share	$	0.15	$	0.22	$	0.09	$	0.63	Basic Earnings Per Share	$	0.23	$	0.07
Diluted Earnings Per Share	Diluted Earnings Per Share	$	0.15	$	0.21	$	0.09	$	0.61	Diluted Earnings Per Share	$	0.23	$	0.07

See Notes to Consolidated Financial Statements (unaudited)

Table of Contents

CROSSFIRST BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - UNAUDITED


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2020		2019		2020		2019			2021		2020
		(Dollars in thousands)									(Dollars in thousands)
Net Income	Net Income	$	8,006	$	10,384	$	4,507	$	29,173	Net Income	$	12,035	$	3,857
Other Comprehensive Income
Unrealized gain on available-for-sale debt securities		1,923		5,757		14,073		28,084
Less: income tax		472		1,410		3,440		6,890
Unrealized gain on available-for-sale debt securities, net of income tax		1,451		4,347		10,633		21,194
Other Comprehensive Income (Loss)										Other Comprehensive Income (Loss)
Unrealized gain (loss) on available-for-sale securities										Unrealized gain (loss) on available-for-sale securities	(9,070)		8,532
Less: income tax expense (benefit)										Less: income tax expense (benefit)	(2,221)		2,084
Unrealized gain (loss) on available-for-sale securities, net of income tax										Unrealized gain (loss) on available-for-sale securities, net of income tax	(6,849)		6,448
Reclassification adjustment for realized gains included in income	Reclassification adjustment for realized gains included in income	1,012		34		1,725		467		Reclassification adjustment for realized gains included in income	10		393
Less: income tax	Less: income tax	248		9		422		115		Less: income tax	2		96
Less: reclassification adjustment for realized gains included in income, net of income tax	Less: reclassification adjustment for realized gains included in income, net of income tax	764		25		1,303		352		Less: reclassification adjustment for realized gains included in income, net of income tax	8		297
Other comprehensive income		687		4,322		9,330		20,842
Other comprehensive income (loss)										Other comprehensive income (loss)	(6,857)		6,151
Comprehensive Income	Comprehensive Income	$	8,693	$	14,706	$	13,837	$	50,015	Comprehensive Income	$	5,178	$	10,008

See Notes to Consolidated Financial Statements (unaudited)

Table of Contents

CROSSFIRST BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED


												Accumulated					Common Stock		Additional Paid-in Capital			Retained Earnings				Accumulated Other Comprehensive Income	Treasury Stock				Total
								Additional				Other						Shares			Amount
		Preferred Stock			Common Stock			Paid in		Retained		Comprehensive						(Dollars in thousands)
		Shares	Amount		Shares	Amount		Capital		Earnings		Income		Total
		(Dollars in thousands)
Balance at June 30, 2019		0	$	0	45,367,641	$	453	$	430,347	$	54,816	$	13,579	$	499,195
Balance at December 31, 2019																Balance at December 31, 2019		51,969,203	$	520		$	519,870	$	64,803				$	16,451			$	0	$	601,644
Net income	Net income	—	—		—	—		—		10,384		—		10,384		Net income		—	—			—		3,857			—				—		3,857
Change in unrealized appreciation on available-for-sale securities	Change in unrealized appreciation on available-for-sale securities	—	—		—	—		—		—		4,322		4,322		Change in unrealized appreciation on available-for-sale securities		—	—			—		—			6,151				—		6,151
Issuance of shares		—	—		6,600,245	67		87,154		(1)		—		87,220

Issuance of shares from equity-based awards	Issuance of shares from equity-based awards	—	—		1,317	—		(10)		—		—		(10)		Issuance of shares from equity-based awards		128,859	1			(671)		—			—				—		(670)

Employee receivables from sale of stock	Employee receivables from sale of stock	—	—		—	—		1		(1)		—		0		Employee receivables from sale of stock		—	—			1		29			—				—		30
Stock-based compensation	Stock-based compensation	—	—		—	—		1,324		—		—		1,324		Stock-based compensation		—	—			934		—			—				—		934

Balance at September 30, 2019		0	$	0	51,969,203	$	520	$	518,816	$	65,198	$	17,901	$	602,435
Balance at March 31, 2020																Balance at March 31, 2020		52,098,062	$	521		$	520,134	$	68,689		$	22,602			$	0	$	611,946


												Accumulated					Common Stock		Additional Paid-in Capital			Retained Earnings				Accumulated Other Comprehensive Income	Treasury Stock				Total
								Additional				Other						Shares			Amount
		Preferred Stock			Common Stock			Paid in		Retained		Comprehensive						(Dollars in thousands)
		Shares	Amount		Shares	Amount		Capital		Earnings		Income		Total
		(Dollars in thousands)
Balance at June 30, 2020		0	$	0	52,167,573	$	521	$	521,133	$	61,344	$	25,094	$	608,092
Balance at December 31, 2020																Balance at December 31, 2020		51,679,516	$	523		$	522,911	$	77,652				$	29,403			$	(6,061)	$	624,428
Net income	Net income	—	—		—	—		—		8,006		—		8,006		Net income		—	—			—		12,035			—				—		12,035

Change in unrealized appreciation on available-for-sale securities		—	—		—	—		—		—		687		687
Change in unrealized depreciation on available-for-sale securities																Change in unrealized depreciation on available-for-sale securities		—	—			—		—			(6,857)				—		(6,857)

Issuance of shares from equity-based awards	Issuance of shares from equity-based awards	—	—		28,205	—		(115)		—		—		(115)		Issuance of shares from equity-based awards		87,650	—			(404)		—			—				—		(404)

Open market common share repurchases																Open market common share repurchases		(88,497)	—			—		—			—				(1,052)		(1,052)

Employee receivables from sale of stock	Employee receivables from sale of stock	—	—		—	—		1		5		—		6		Employee receivables from sale of stock		—	—			—		35			—				—		35
Stock-based compensation	Stock-based compensation	—	—		—	—		1,186		—		—		1,186		Stock-based compensation		—	—			649		—			—				—		649
Employee stock purchase additions		—	—		—	—		21		—		—		21

Balance at September 30, 2020		0	$	0	52,195,778	$	521	$	522,226	$	69,355	$	25,781	$	617,883

Balance at March 31, 2021																Balance at March 31, 2021		51,678,669	$	523		$	523,156	$	89,722		$	22,546			$	(7,113)	$	628,834

See Notes to Consolidated Financial Statements (unaudited)

~~Table of Contents~~

Accumulated
Additional Other
Preferred Stock Common Stock Paid in Retained Comprehensive
Shares Amount Shares Amount Capital Earnings Income (Loss) Total
(Dollars in thousands)
Balance at December 31, 2018 1,200,000 $ 12 45,074,322 $ 451 $ 454,512 $ 38,371 $ (3,010) $ 490,336
Net income — — — — — 29,173 — 29,173
Change in unrealized appreciation on available-for-sale securities — — — — — — 20,842 20,842
Issuance of shares — — 6,851,213 68 88,869 — — 88,937
Issuance of shares from equity-based awards — — 53,668 1 (246) — — (245)
Retired shares (1,200,000) (12) (10,000) — (30,088) (55) — (30,155)
Preferred dividends declared — — — — — (175) — (175)
Employee receivables from sale of stock — — — — 5 112 — 117
Stock-based compensation — — — — 3,569 — — 3,569
Employee stock purchase plan additions — — — — 36 — — 36
Adoption of ASU 2016-01 — — — — — (69) 69 0
Adoption of ASU 2018-07 — — — — 2,159 (2,159) — 0
Balance at September 30, 2019 0 $ 0 51,969,203 $ 520 $ 518,816 $ 65,198 $ 17,901 $ 602,435

Accumulated
Additional Other
Preferred Stock Common Stock Paid in Retained Comprehensive
Shares Amount Shares Amount Capital Earnings Income Total
(Dollars in thousands)
Balance at December 31, 2019 0 $ 0 51,969,203 $ 520 $ 519,870 $ 64,803 $ 16,451 $ 601,644
Net income — — — — — 4,507 — 4,507
Change in unrealized appreciation on available-for-sale securities — — — — — — 9,330 9,330
Issuance of shares from equity-based awards — — 226,575 1 (869) — — (868)
Employee receivables from sale of stock — — — — 2 45 — 47
Stock-based compensation — — — — 3,202 — — 3,202
Employee stock purchase plan additions — — — — 21 — — 21
Balance at September 30, 2020 0 $ 0 52,195,778 $ 521 $ 522,226 $ 69,355 $ 25,781 $ 617,883

~~See Notes to Consolidated Financial Statements (unaudited)~~

Table of Contents

CROSSFIRST BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED


		Nine Months Ended					Three Months Ended
		September 30,					March 31,
		2020		2019			2021		2020
		(Dollars in thousands)					(Dollars in thousands)
Operating Activities	Operating Activities					Operating Activities
Net income	Net income	$	4,507	$	29,173	Net income	$	12,035	$	3,857
Items not requiring (providing) cash	Items not requiring (providing) cash					Items not requiring (providing) cash
Depreciation and amortization	Depreciation and amortization	3,888		4,015		Depreciation and amortization	1,375		1,295
Provision for loan losses	Provision for loan losses	45,825		10,550		Provision for loan losses	7,500		13,950

Accretion of discounts and amortization of premiums on securities	Accretion of discounts and amortization of premiums on securities	4,632		4,098		Accretion of discounts and amortization of premiums on securities	1,310		1,473
Equity based compensation	Equity based compensation	3,223		3,606		Equity based compensation	649		934

Foreclosed asset impairment		1,270		0

Deferred income taxes	Deferred income taxes	(5,098)		2,088		Deferred income taxes	1,824		2,881

Net realized gains on available-for-sale debt securities		(1,725)		(467)
Goodwill impairment		7,397		0
Net realized gains on available-for-sale securities						Net realized gains on available-for-sale securities	(10)		(393)

Changes in	Changes in					Changes in

Interest receivable	Interest receivable	(3,287)		(1,817)		Interest receivable	(751)		(1,242)
Other assets	Other assets	(2,845)		(9,837)		Other assets	(28,730)		(717)
Other liabilities	Other liabilities	(4,599)		13,261		Other liabilities	(4,937)		(9,368)
Net cash provided by operating activities		53,188		54,670
Net cash provided by (used in) operating activities						Net cash provided by (used in) operating activities	(9,735)		12,670
Investing Activities	Investing Activities					Investing Activities
Net change in loans	Net change in loans	(652,251)		(576,897)		Net change in loans	(74,947)		(169,595)
Purchases of available-for-sale securities	Purchases of available-for-sale securities	(35,326)		(157,492)		Purchases of available-for-sale securities	(74,575)		(11,861)
Proceeds from maturities of available-for-sale securities	Proceeds from maturities of available-for-sale securities	102,529		48,658		Proceeds from maturities of available-for-sale securities	33,329		21,528
Proceeds from sale of available-for-sale securities	Proceeds from sale of available-for-sale securities	31,810		63,515		Proceeds from sale of available-for-sale securities	0		3,841

Purchase of premises and equipment	Purchase of premises and equipment	(4,849)		(649)		Purchase of premises and equipment	(118)		(331)
Proceeds from the sale of fixed assets		121		3,324
Purchase of restricted equity securities, net		(2,839)		(732)

Purchase of restricted equity securities						Purchase of restricted equity securities	0		(970)

Proceeds from sale of restricted equity securities						Proceeds from sale of restricted equity securities	1,626		0

Net cash used in investing activities	Net cash used in investing activities	(560,805)		(620,273)		Net cash used in investing activities	(114,685)		(157,388)

Financing Activities	Financing Activities					Financing Activities

Net increase in demand deposits, savings, NOW and money market accounts	Net increase in demand deposits, savings, NOW and money market accounts	667,849		237,934		Net increase in demand deposits, savings, NOW and money market accounts	468,521		185,747
Net increase (decrease) in time deposits		(99,060)		212,077
Net decrease in time deposits						Net decrease in time deposits	(111,691)		(136,684)

Net decrease in repurchase agreements and federal funds purchased		(1,390)		(50,596)
Net increase in fed funds purchased and repurchase agreements						Net increase in fed funds purchased and repurchase agreements	988		24,025

Net increase in federal funds sold		0		25,000

Proceeds from Federal Home Loan Bank advances	Proceeds from Federal Home Loan Bank advances	138,000		45,000		Proceeds from Federal Home Loan Bank advances	0		70,000
Repayment of Federal Home Loan Bank advances	Repayment of Federal Home Loan Bank advances	(160,643)		(50,181)		Repayment of Federal Home Loan Bank advances	(10,000)		(26,063)

Retirement of preferred stock		0		(30,000)

Issuance of common shares, net of issuance cost	Issuance of common shares, net of issuance cost	0		88,782		Issuance of common shares, net of issuance cost	0		1

Repurchase of common stock						Repurchase of common stock	(1,052)		0
Acquisition of common stock for tax withholding obligations	Acquisition of common stock for tax withholding obligations	(869)		(245)		Acquisition of common stock for tax withholding obligations	(404)		(671)
Net decrease in employee receivables	Net decrease in employee receivables	46		117		Net decrease in employee receivables	35		30
Dividends paid on preferred stock		0		(700)

Net cash provided by financing activities	Net cash provided by financing activities	543,933		477,188		Net cash provided by financing activities	346,397		116,385
Increase (Decrease) in Cash and Cash Equivalents	Increase (Decrease) in Cash and Cash Equivalents	36,316		(88,415)		Increase (Decrease) in Cash and Cash Equivalents	221,977		(28,333)
Cash and Cash Equivalents, Beginning of Period	Cash and Cash Equivalents, Beginning of Period	187,320		216,541		Cash and Cash Equivalents, Beginning of Period	408,810		187,320
Cash and Cash Equivalents, End of Period	Cash and Cash Equivalents, End of Period	$	223,636	$	128,126	Cash and Cash Equivalents, End of Period	$	630,787	$	158,987

Supplemental Cash Flows Information	Supplemental Cash Flows Information					Supplemental Cash Flows Information
Interest paid	Interest paid	$	37,238	$	54,998	Interest paid	$	7,287	$	17,199
Income taxes paid	Income taxes paid	7,335		1,030		Income taxes paid	$	130	$	0
Foreclosed assets in settlement of loans		$	0	$	2,471

See Notes to Consolidated Financial Statements (unaudited)


Table of Contents			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 ~~subsidiaries,~~subsidiary, CrossFirst Bank (the “Bank”) ~~and CFSA, LLC, which holds cash.~~. In addition, the Bank has three subsidiaries including CrossFirst Investments, Inc. (“CFI”) ~~is a wholly-owned subsidiary of the Bank, which~~that holds investments in marketable ~~securities.~~securities, CFBSA I, LLC that holds foreclosed assets and CFBSA II, LLC that holds foreclosed assets.

Basis of Presentation

The Company’s accounting and reporting policies conform to accounting principles generally accepted in the United States (“GAAP”). The consolidated financial statements include the accounts of the Company, the Bank, CFI, CFBSA I, LLC and ~~CFSA,~~CFBSA II, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation.

The consolidated interim financial statements are unaudited and certain information and footnote disclosures presented in accordance with GAAP have been condensed or omitted and should be read in conjunction with the Company’s consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 (the ~~“2019~~“2020 Form 10-K”), filed with the Securities and Exchange Commission (the “SEC”) on ~~March 10, 2020.~~February 26, 2021.

In the opinion of management, the interim financial statements include all adjustments which are of a normal, recurring nature necessary for the fair presentation of the financial position, results of operations, and cash flows of the Company and the disclosures made are adequate to make the interim financial information not misleading. The consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q adopted by the SEC.

~~Except for the accounting changes mentioned under “Coronavirus Aid, Relief, and Economic Security Act” and “Change in Accounting Principle” section below, no other~~No significant changes in the accounting policies of the Company occurred since December 31, ~~2019,~~2020, the most recent date financial statements were provided within the Company’s ~~2019~~2020 Form 10-K. The information contained in the financial statements and footnotes for the period ended December 31, 2019 included in the Company’s 2019 Form 10-K should be referred to in connection with these unaudited interim consolidated financial statements. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

Use of Estimates

The Company identified accounting policies and estimates that, due to the difficult, subjective or complex judgments and assumptions inherent in those policies and estimates and the potential sensitivity of the Company’s financial statements to those judgments and assumptions, are critical to an understanding of the Company’s financial condition and results of operations. Actual results could differ from those estimates. In particular, the novel coronavirus (“COVID-19”) pandemic and resulting impacts to economic conditions, as well as adverse impacts to the Company’s operations, may impact future estimates. The ~~Allowance~~allowance for ~~Loan~~loan losses, deferred tax asset, and ~~Lease Losses, Deferred Tax Asset, and Fair Value~~fair value of ~~Financial Instruments~~financial instruments are particularly susceptible to significant change.

Cash Equivalents

The Company had ~~$176~~$541 million of cash and cash equivalents at the Federal Reserve Bank of Kansas City as of ~~September 30, 2020.~~March 31, 2021. The reserve required at ~~September 30, 2020~~March 31, 2021 was $0.

Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)

The CARES Act ~~allows~~gave financial institutions the right to elect ~~not~~ to ~~consider whether~~suspend GAAP principles and regulatory determinations for loan modifications relating to ~~the~~ COVID-19 ~~pandemic~~ that ~~they make between~~would otherwise be categorized as TDRs from March 1, 2020, ~~and the earlier of~~through December 31, 2020. On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law, which extended the period during which the Company may suspend GAAP principles and regulatory determinations for loan modifications relating to COVID-19 that would otherwise be categorized as TDRs through January 1, 2022 or 60 days after the date when the national emergency ~~related to the~~concerning COVID-19 pandemic ends are troubled debt restructurings (“TDRs”), which require additional disclosures. The relief can be applied to modifications of loans to borrowers that were not more than 30 days past due as of December 31, 2019.terminates. The Company elected to apply the guidance ~~during~~starting in the first quarter of 2020. ~~The review of loans that meet the criteria is overseen by the Office of the Chief Credit Officer and his team.~~

~~Loans Individually Evaluated for Impairment~~Changes Affecting Comparability

~~Prior to~~Beginning with the quarter ended ~~June 30, 2020, loans risk rated substandard or lower were considered impaired~~March 31, 2021, the Company consolidated the “Goodwill and ~~evaluated~~other intangible assets, net” into “other assets” within the Consolidated Balance Sheets. The consolidation was due to the immateriality of the remaining intangible assets. The change had no impact on an individual basis. As of June 30, 2020 and periods going forward, loans risk rated substandard and on accrual were evaluated collectively. The new approach provided a better estimate of potential losses inherent in the substandard portfolio.net income.

109


Table of Contents			Notes to Consolidated Financial Statements (unaudited)

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. The Company’s definition of a substandard credit was unchanged. Substandard loans exhibit a well-defined weakness or weaknesses that jeopardize repayment. A distinct possibility exists that the Company will sustain some loss if deficiencies are not corrected.

Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual loans classified substandard. As a result, the Company revised its allowance methodology to evaluate substandard, performing loans collectively for impairment as opposed to evaluating these loans individually for impairment. At June 30, 2020, the change in methodology impacted $200 million of performing, substandard loans that were reviewed on a collective basis.

~~Change in Accounting Principle~~

On January 1, 2020, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standard Update (“ASU”) 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which was applied on a prospective basis. A description of the nature and reason for the change in accounting principle is provided below in the recent accounting pronouncements section.

On January 1, 2020, the Company adopted FASB ASU 2019-12, Simplifying the Accounting for Income Taxes, which was applied as of the adoption date. A description of the nature and reason for the change in accounting principle is provided below in the recent accounting pronouncements section.

~~Changes Affecting Comparability~~

~~Beginning with~~For the quarter ended ~~June 30, 2020,~~March 31, 2021, the Company ~~separated the “Foreclosed assets, net” from the~~consolidated “equipment costs, other asset depreciation and amortization” into “other ~~non-interest~~noninterest expense” ~~category~~ within the Consolidated Statements of Income. In addition, the Company broke out “foreclosed assets, net” that was previously consolidated. As a result, changes within the Consolidated Statements of Income in the prior periods were made to conform to the current period presentation. The ~~separation was due to an increase in foreclosed asset expenses during 2020.~~changes: (i) consolidate lower balance line items or (ii) provide additional detail about the Company’s operations. The ~~change~~changes had no impact on net ~~income or total stockholders’ equity.~~

Beginning with the quarter ended June 30, 2020, the Company changed loans individually evaluated for impairment. A discussion regarding this change is provided above under “Loans Individually Evaluated for Impairment” and in “Note 4: Loans and Allowance for Loan Losses (“ALLL”)” within the Notes to the Unaudited Consolidated Financial Statements. The Company separated substandard loans into performing and nonperforming categories that were previously consolidated within the loan footnote disclosures. The change in disclosure did not impact the Company's impaired loan information at December 31, 2019 or ALLL information for the three and nine months ended September 30, 2019 as presented in “Note 4: Loans and Allowance for Loan Losses (“ALLL”)” within the Notes to the Unaudited Consolidated Financial Statements.

Beginning with the quarter ended March 31, 2020, the Company consolidated the “Other” line item previously included in stockholders’ equity into retained earnings within the Consolidated Balance Sheets and the Consolidated Statements of Stockholders’ Equity. The consolidation was made due to the immateriality of the “Other” line item. The change had no impact on net income or total stockholders’ equity.income.

Emerging Growth Company (“EGC”)

The Company is currently an EGC. An EGC may take advantage of reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. Among the reductions and reliefs, the Company elected to extend the transition period for complying with new or revised accounting standards affecting public companies. This means that the financial statements the Company files or furnishes, will not be subject to all new or revised accounting standards generally applicable to public companies for the transition period for so long as the Company remains an EGC or until the Company affirmatively and irrevocably opts out of the extended transition period under the JOBS Act.


~~Table of Contents~~			~~Notes to Consolidated Financial Statements (unaudited)~~

Recent Accounting Pronouncements

The following table provides information about Accounting Standard Updates (“ASUs”) the Company ~~has implemented the following ASUs during 2020:~~

~~Standard~~

~~Date of Adoption~~

~~Description~~

~~Effect on Financial Statements or Other Significant Matters~~

~~ASU 2020-04:~~

~~Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~

~~June 30, 2020~~

The ASU provides optional expedients and exceptions to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The ASU only applies to transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments include:

(1) Optional expedients to contract modifications that allow the Company to adjust the effective interest rate of receivables and debt, account for lease modifications as a continuation of the existing lease, and remove the requirement to reassess its original conclusions for contract modifications about whether that contract contains an embedded derivative that is clearly and closely related to the economic characteristics and risks of the host contract under Subtopic 815-15, Derivatives and Hedging—Embedded Derivatives;

(2) Exceptions to the guidance in Topic 815 related to changes in the critical terms of a hedging relationship due to reference rate reform; and

(3) Optional expedients for cash flow and fair value hedges.

~~The Company had more than $1 billion in loans tied to LIBOR as of September 30, 2020.~~

The Company does not believe the adoption will have a material accounting impact on the Company’s consolidated financial position or results of operations. Additionally, LIBOR fallback language has been included in key loan provisions of new and renewed loans in preparation for transition from LIBOR to the new benchmark rate when such transition occurs. This standard is expected to ease the administrative burden in accounting for the future effects of reference rate reform.

The ASU allows the Company to recognize the modification related to LIBOR as a continuation of the old contract, rather than a cancellation of the old contract resulting in a write off of unamortized fees and creation of a new contract.

~~ASU 2019-12:~~

~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~

January 1, 2020

(Early Adoption)

The ASU simplifies the accounting for income taxes. Among other changes, the ASU:

(1) Removes the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items;

(2) Removes the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year;

(3) Requires an entity to recognize a franchise tax that is partially based on income as an income-based tax and account for any incremental amount incurred as a nonincome based tax; and

(4) Requires an entity to reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date.

~~The amendments in the ASU did not have a material impact on the Company’s tax methodology, processes, or the Company’s financial statements.~~


~~Table of Contents~~			~~Notes to Consolidated Financial Statements (unaudited)~~

~~Standard~~

~~Date of Adoption~~

~~Description~~

~~Effect on Financial Statements or Other Significant Matters~~

~~ASU 2018-13:~~

~~Fair Value Measurement (Topic 820): Disclosure Framework~~

~~January 1, 2020~~

Improves the effectiveness of disclosures in the notes to financial statements by facilitating clear communication of the information. The amendments modify certain disclosure requirements of fair value measurements in Topic 820, Fair Value Measurement.

Entities are no longer required to disclose transfers between Level 1 and Level 2 of the fair value hierarchy or qualitatively disclose the valuation process for Level 3 fair value measurements. The updated guidance requires disclosure of the changes in unrealized gains and losses for the period included in Other Comprehensive Income for recurring Level 3 fair value measurements. Entities are required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The additional provisions of the guidance should be adopted prospectively. The eliminated requirements should be adopted retrospectively.

The adoption did not have a material impact to the Company’s financial statements.

No transfers between Level 1 and Level 2 occurred in 2019 or 2020 and the Company did not have any recurring Level 3 fair value measurements that created an unrealized gain or loss in Other Comprehensive Income. In addition, the Company previously disclosed the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements.

~~ASU 2017-04:~~

~~Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~

January 1, 2020

(Early Adoption)

Eliminates Step 2 from the goodwill impairment test which required entities to compute the implied fair value of goodwill. An entity should perform an annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

On the date of adoption there was no impact to the Company’s financial statements.

The Company’s process for evaluating goodwill impairment was modified to align with the elimination of Step 2. In the second quarter of 2020, the Company performed a Step 0 analysis then a Step 1 analysis and determined that goodwill was fully impaired.

~~The Company provided updates~~anticipates to ~~the following ASUs that have not been adopted. A complete list of recent, applicable accounting pronouncements was provided~~adopt in the ~~Company’s 2019 Form 10-K:~~future:

Standard

Anticipated Date of Adoption

Description

Effect on Financial Statements or Other Significant Matters

ASU 2016-13

Financial Instruments-Credit Losses

If the Company maintains its EGC status, the Company is not required to implement this standard until January 2023. The Company ~~will continue to monitor its progress and the requirements related to adoption.~~anticipates an adoption date of January 2022.

Requires an entity to utilize a new impairment model known as the current expected credit loss ~~(“CECL”)~~ model to estimate its lifetime expected credit loss and record an allowance that, when deducted from ~~the~~ amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset.

The Company established a committee of individuals from applicable departments to oversee the implementation process. The Company completed the ~~third party~~third-party software implementation phase that included data capture and portfolio segmentation amongst other items.

The Company completed parallel runs in 2019. During the ~~first nine months of~~period ended December 31, 2020, the Company continued to perform parallel runs using 2020 data and continued to recalibrate inputs as necessary. The Company is evaluating the internal control changes that will be necessary to transition to the third-party ~~platform.~~platform and third-party testing is anticipated later in 2021.

At this time, an estimate of the impact cannot be established as the Company continues to evaluate the inputs into the model. The actual impact could be significantly affected by the composition, characteristics, and quality of the underlying loan portfolio at the time of adoption.


~~Table of Contents~~			~~Notes to Consolidated Financial Statements (unaudited)~~

~~Standard~~

~~Anticipated Date of Adoption~~

~~Description~~

~~Effect on Financial Statements or Other Significant Matters~~

ASU 2016-02

Leases (Topic 842)

The Company expects to implement this standard on January 1, 2022, unless the Company loses its EGC status during 2021. If EGC status changes, the Company would therefore be required to implement the ASU as of the beginning of 2021.

Requires lessees and lessors to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements.

The update requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach with the option to elect certain practical expedients.

The update will also increase disclosures around leases, including qualitative and specific quantitative measures.

The Company expects to apply the update as of the beginning of the period of adoption and the Company does not plan to restate comparative periods. The Company expects to elect certain optional practical expedients.

The Company gathered all potential lease and embedded lease agreements ~~during 2019 and 2020~~ and is evaluating the applicability and impact to the financial statements.

The Company’s current operating leases relate primarily to four branch locations. Based on the current leases, the Company anticipates recognizing a lease liability and related right-to-use asset on its balance sheet, with an immaterial impact to its income statement compared to the current lease accounting model. However, the ultimate impact of the standard will depend on the Company's lease portfolio as of the adoption date.


Table of Contents			Notes to Consolidated Financial Statements (unaudited)

Note 2:Earnings Per Share

The following table presents the computation of basic and diluted earnings per share:


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2020		2019		2020		2019			2021		2020
		(Dollars in thousands except per share data)									(Dollars in thousands except per share data)
Earnings per Share	Earnings per Share									Earnings per Share
Net income		$	8,006	$	10,384	$	4,507	$	29,173
Less: preferred stock dividends		0		0		0		175

Net income available to common stockholders	Net income available to common stockholders	$	8,006	$	10,384	$	4,507	$	28,998	Net income available to common stockholders	$	12,035	$	3,857
Weighted average common shares	Weighted average common shares	52,136,286		48,351,553		52,104,372		46,239,021		Weighted average common shares	51,657,204		52,071,484
Earnings per share	Earnings per share	$	0.15	$	0.22	$	0.09	$	0.63	Earnings per share	$	0.23	$	0.07
Dilutive Earnings Per Share	Dilutive Earnings Per Share									Dilutive Earnings Per Share

Net income available to common stockholders	Net income available to common stockholders	$	8,006	$	10,384	$	4,507	$	28,998	Net income available to common stockholders	$	12,035	$	3,857
Weighted average common shares	Weighted average common shares	52,136,286		48,351,553		52,104,372		46,239,021		Weighted average common shares	51,657,204		52,071,484
Effect of dilutive shares	Effect of dilutive shares	423,840		812,996		463,219		842,706		Effect of dilutive shares	724,270		588,786
Weighted average dilutive common shares	Weighted average dilutive common shares	52,560,126		49,164,549		52,567,591		47,081,727		Weighted average dilutive common shares	52,381,474		52,660,270
Diluted earnings per share	Diluted earnings per share	$	0.15	$	0.21	$	0.09	$	0.61	Diluted earnings per share	$	0.23	$	0.07

Stock-based awards not included because to do so would be antidilutive	Stock-based awards not included because to do so would be antidilutive	1,214,433		541,556		1,053,393		507,167		Stock-based awards not included because to do so would be antidilutive	669,112		905,406

1411


Table of Contents			Notes to Consolidated Financial Statements (unaudited)

Note 3:Securities

The amortized cost and approximate fair values, together with gross unrealized gains and losses, of period end available-for-sale ~~debt and equity~~ securities consisted of the following:


		September 30, 2020									March 31, 2021
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Approximate Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Approximate Fair Value
		(Dollars in thousands)									(Dollars in thousands)
Available-for-sale debt securities
Available-for-sale securities										Available-for-sale securities
Mortgage-backed - GSE residential	Mortgage-backed - GSE residential	$	122,093	$	4,690	$	0	$	126,783	Mortgage-backed - GSE residential	$	138,231	$	2,912	$	1,464	$	139,679
Collateralized mortgage obligations - GSE residential	Collateralized mortgage obligations - GSE residential	71,735		1,271		7		72,999		Collateralized mortgage obligations - GSE residential	38,206		785		26		38,965
State and political subdivisions	State and political subdivisions	421,075		28,339		220		449,194		State and political subdivisions	474,912		28,517		862		502,567
Corporate bonds	Corporate bonds	860		67		2		925		Corporate bonds	4,251		74		82		4,243
Total available-for-sale debt securities		615,763		34,367		229		649,901
Equity securities
Mutual funds		2,222		23		0		2,245
Total equity securities		2,222		23		0		2,245
Total available-for-sale securities	Total available-for-sale securities	$	617,985	$	34,390	$	229	$	652,146	Total available-for-sale securities	$	655,600	$	32,288	$	2,434	$	685,454


		December 31, 2019									December 31, 2020
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Approximate Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Approximate Fair Value
		(Dollars in thousands)									(Dollars in thousands)
Available-for-sale debt securities
Available-for-sale securities										Available-for-sale securities
Mortgage-backed - GSE residential	Mortgage-backed - GSE residential	$	151,037	$	1,668	$	193	$	152,512	Mortgage-backed - GSE residential	$	104,839	$	4,277	$	0	$	109,116
Collateralized mortgage obligations - GSE residential	Collateralized mortgage obligations - GSE residential	128,876		625		289		129,212		Collateralized mortgage obligations - GSE residential	52,070		984		42		53,012
State and political subdivisions	State and political subdivisions	436,448		19,996		104		456,340		State and political subdivisions	454,486		33,642		31		488,097
Corporate bonds	Corporate bonds	1,321		88		0		1,409		Corporate bonds	4,259		104		0		4,363
Total available-for-sale debt securities		717,682		22,377		586		739,473
Equity securities
Mutual funds		2,190		0		29		2,161
Total equity securities		2,190		0		29		2,161
Total available-for-sale securities	Total available-for-sale securities	$	719,872	$	22,377	$	615	$	741,634	Total available-for-sale securities	$	615,654	$	39,007	$	73	$	654,588

1512


Table of Contents			Notes to Consolidated Financial Statements (unaudited)

The amortized cost and fair value of available-for-sale ~~debt~~ securities at ~~September 30, 2020,~~March 31, 2021, by contractual maturity, are shown below:


		September 30, 2020																March 31, 2021
		Within			After One to			After Five to			After							Within			After One to			After Five to			After
		One Year			Five Years			Ten Years			Ten Years			Total				One Year			Five Years			Ten Years			Ten Years			Total
		(Dollars in thousands)																(Dollars in thousands)
Available-for-sale debt securities
Available-for-sale securities																	Available-for-sale securities
Mortgage-backed - GSE residential(1)	Mortgage-backed - GSE residential(1)																Mortgage-backed - GSE residential(1)
Amortized cost	Amortized cost	$	0		$	55		$	199		$	121,839		$	122,093		Amortized cost	$	0		$	48		$	181		$	138,002		$	138,231
Estimated fair value	Estimated fair value	$	0		$	58		$	213		$	126,512		$	126,783		Estimated fair value	$	0		$	50		$	193		$	139,436		$	139,679
Weighted average yield(2)	Weighted average yield(2)	0		%	4.57		%	3.91		%	2.03		%	2.06		%	Weighted average yield(2)	0		%	4.60		%	3.91		%	1.72		%	1.72		%
Collateralized mortgage obligations - GSE residential(1)	Collateralized mortgage obligations - GSE residential(1)																Collateralized mortgage obligations - GSE residential(1)
Amortized cost	Amortized cost	$	0		$	0		$	2,496		$	69,239		$	71,735		Amortized cost	$	0		$	0		$	2,469		$	35,737		$	38,206
Estimated fair value	Estimated fair value	$	0		$	0		$	2,735		$	70,264		$	72,999		Estimated fair value	$	0		$	0		$	2,645		$	36,320		$	38,965
Weighted average yield(2)	Weighted average yield(2)	0		%	0		%	2.77		%	1.10		%	1.16		%	Weighted average yield(2)	0		%	0		%	2.75		%	1.59		%	1.66		%
State and political subdivisions	State and political subdivisions																State and political subdivisions
Amortized cost	Amortized cost	$	653		$	7,407		$	59,992		$	353,023		$	421,075		Amortized cost	$	652		$	5,947		$	65,518		$	402,795		$	474,912
Estimated fair value	Estimated fair value	$	654		$	7,573		$	65,059		$	375,908		$	449,194		Estimated fair value	$	654		$	6,024		$	70,889		$	425,000		$	502,567
Weighted average yield(2)	Weighted average yield(2)	8.02		%	5.44		%	3.52		%	3.08		%	3.19		%	Weighted average yield(2)	3.54		%	3.86		%	3.32		%	2.82		%	2.90		%
Corporate bonds	Corporate bonds																Corporate bonds
Amortized cost	Amortized cost	$	0		$	0		$	860		$	0		$	860		Amortized cost	$	0		$	357		$	3,894		$	0		$	4,251
Estimated fair value	Estimated fair value	$	0		$	0		$	925		$	0		$	925		Estimated fair value	$	0		$	366		$	3,877		$	0		$	4,243
Weighted average yield(2)	Weighted average yield(2)	0		%	0		%	5.57		%	0		%	5.57		%	Weighted average yield(2)	0		%	4.10		%	4.54		%	0		%	4.51		%
Total available-for-sale debt securities
Total available-for-sale securities																	Total available-for-sale securities
Amortized cost	Amortized cost	$	653		$	7,462		$	63,547		$	544,101		$	615,763		Amortized cost	$	652		$	6,352		$	72,062		$	576,534		$	655,600
Estimated fair value	Estimated fair value	$	654		$	7,631		$	68,932		$	572,684		$	649,901		Estimated fair value	$	654		$	6,440		$	77,604		$	600,756		$	685,454
Weighted average yield(2)	Weighted average yield(2)	8.02		%	5.44		%	3.52		%	2.59		%	2.73		%	Weighted average yield(2)	3.54		%	3.88		%	3.37		%	2.48		%	2.59		%
(1) Actual maturities may differ from contractual maturities because issuers may have the rights to call or prepay obligations with or without prepayment penalties.	(1) Actual maturities may differ from contractual maturities because issuers may have the rights to call or prepay obligations with or without prepayment penalties.																(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.	(2) Yields are calculated based on amortized cost.																(2) Yields are calculated based on amortized cost.

1613


Table of Contents			Notes to Consolidated Financial Statements (unaudited)

The following tables show the number of securities, unrealized loss, and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired (“OTTI”), aggregated by investment class and length of time that individual securities have been in a continuous unrealized loss position at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:


		September 30, 2020																March 31, 2021
		Less than 12 Months					12 Months or More					Total						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		Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities
		(Dollars in thousands)																(Dollars in thousands)
Available-for-sale debt securities
Available-for-sale securities																	Available-for-sale securities
Mortgage-backed - GSE residential	Mortgage-backed - GSE residential	$	0	$	0	0	$	0	$	0	0	$	0	$	0	0	Mortgage-backed - GSE residential	$	55,185	$	1,464	8	$	0	$	0	0	$	55,185	$	1,464	8
Collateralized mortgage obligations - GSE residential	Collateralized mortgage obligations - GSE residential	3,178		7		1	0		0		0	3,178		7		1	Collateralized mortgage obligations - GSE residential	7,591		26		6	0		0		0	7,591		26		6
State and political subdivisions	State and political subdivisions	14,998		220		19	26		0		1	15,024		220		20	State and political subdivisions	44,008		861		32	24		1		1	44,032		862		33
Corporate bonds	Corporate bonds	457		2		1	0		0		0	457		2		1	Corporate bonds	3,418		82		1	0		0		0	3,418		82		1
Total temporarily impaired debt securities		$	18,633	$	229	21	$	26	$	0	1	$	18,659	$	229	22
Total temporarily impaired securities																	Total temporarily impaired securities	$	110,202	$	2,433	47	$	24	$	1	1	$	110,226	$	2,434	48


		December 31, 2019																December 31, 2020
		Less than 12 Months					12 Months or More					Total						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		Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities
		(Dollars in thousands)																(Dollars in thousands)
Available-for-sale debt securities
Available-for-sale securities																	Available-for-sale securities
Mortgage-backed - GSE residential	Mortgage-backed - GSE residential	$	7,959	$	38	2	$	20,396	$	155	4	$	28,355	$	193	6	Mortgage-backed - GSE residential	$	0	$	0	0	$	0	$	0	0	$	0	$	0	0
Collateralized mortgage obligations - GSE residential	Collateralized mortgage obligations - GSE residential	48,980		199		7	8,622		90		9	57,602		289		16	Collateralized mortgage obligations - GSE residential	9,933		42		5	0		0		0	9,933		42		5
State and political subdivisions	State and political subdivisions	21,412		102		11	167		2		2	21,579		104		13	State and political subdivisions	8,525		31		8	25		0		1	8,550		31		9
Corporate bonds	Corporate bonds	530		0		1	0		0		0	530		0		1	Corporate bonds	0		0		0	0		0		0	0		0		0
Total temporarily impaired debt securities		$	78,881	$	339	21	$	29,185	$	247	15	$	108,066	$	586	36
Total temporarily impaired securities																	Total temporarily impaired securities	$	18,458	$	73	13	$	25	$	0	1	$	18,483	$	73	14

The Company expects to recover the amortized cost basis over the term of the securities. The Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity.

Gains and losses on the sale of debt securities are recorded on the trade date and are determined using the specific identification method. Gross gains of ~~$2 million~~$21 thousand and ~~$506~~$402 thousand and gross losses of ~~$60~~$11 thousand and ~~$39~~$9 thousand resulting from sales of available-for-sale securities were realized for the ~~nine-months~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. The gross gains as of ~~September 30,~~March 31, 2020, included $75 thousand related to a previously disclosed OTTI municipal security that was settled in 2020.

1714


Table of Contents			Notes to Consolidated Financial Statements (unaudited)

Equity Securities

Equity securities consist of a $2 million investment in a Community Reinvestment Act (“CRA”) mutual fund and an $11 million privately-held security acquired in the fourth quarter of 2020 as part of a debt restructuring. Equity securities are included in “other assets” on the Consolidated Balance Sheets.

The privately-held security was acquired in partial satisfaction of debts previously contracted. The Company elected a measurement alternative that allows the security to remain at cost until an impairment is identified or an observable price change for an identical or similar investment of the same issuer occurs. Impairment is recorded when there is evidence that the expected fair value of the investment has declined to below the recorded cost. No changes to the cost basis occurred during the first quarter of 2021. The Company is required to make good faith efforts to dispose of the security. The shares may be held for a maximum of five years, subject to a five-year extension that would result in a change to Tier 1 capital.

The following is a summary of the unrealized and realized gains and losses recognized in net income on equity securities:


	Three Months Ended
	March 31,
	2021		2020
	(Dollars in thousands)
Net gains (losses) recognized during the reporting period on equity securities	$	(39)	$	34
Less: net gains recognized during the reporting period on equity securities sold during the reporting period	0		0
Unrealized gain (losses) recognized during the reporting period on equity securities still held at the reporting date	$	(39)	$	34

Note 4:Loans and Allowance for Loan Losses (“ALLL”)

Categories of loans at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 include:


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020

		(Dollars in thousands)					(Dollars in thousands)
Commercial	Commercial	$	1,291,572	$	1,356,817	Commercial	$	1,284,047	$	1,338,757
Energy	Energy	384,181		408,573		Energy	342,899		345,233
Commercial real estate	Commercial real estate	1,195,631		1,024,041		Commercial real estate	1,191,634		1,179,534
Construction and land development	Construction and land development	587,617		628,418		Construction and land development	617,200		563,144
Residential real estate		618,082		398,695
Residential and multifamily real estate						Residential and multifamily real estate	687,893		680,932
Paycheck Protection Program (“PPP”)	Paycheck Protection Program (“PPP”)	369,260		0		Paycheck Protection Program (“PPP”)	336,355		292,230

Consumer	Consumer	46,771		45,163		Consumer	62,917		55,270
Gross loans	Gross loans	4,493,114		3,861,707		Gross loans	4,522,945		4,455,100
Less: Allowance for loan losses	Less: Allowance for loan losses	76,035		56,896		Less: Allowance for loan losses	74,551		75,295
Less: Net deferred loan fees and costs	Less: Net deferred loan fees and costs	15,305		9,463		Less: Net deferred loan fees and costs	14,345		13,203
Net loans	Net loans	$	4,401,774	$	3,795,348	Net loans	$	4,434,049	$	4,366,602

Allowance for Loan Losses

The ALLL is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the loan balance is not collectible. Subsequent recoveries, if any, are credited to the allowance.

The ALLL is evaluated on a regular basis by management and is based upon management’s periodic review of its ability to collect the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The ALLL consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers all loans on


Table of Contents			Notes to Consolidated Financial Statements (unaudited)

accrual and is based on historical charge-off experience and expected loss given default derived from the Company’s internal risk rating process and loan categories. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

The Company evaluates the loan risk grading system definitions, portfolio segment definitions and ALLL methodology on an ongoing basis. Starting with the quarter ended June 30, 2020, the Company distinguished between performing and nonperforming substandard loans, as previously discussed in “Note 1: Nature of Operations and Summary of Significant Accounting Policies”. In addition, the Company separated PPP loans that are 100% guaranteed by the Small Business Administration (“SBA”). No ~~additional~~ changes to loan definitions, segmentation, and ALLL methodology occurred during the ~~third~~first quarter of ~~2020.~~

2021.

The following tables summarize the activity in the ALLL by portfolio segment and disaggregated based on the Company’s impairment methodology. The allocation in one portfolio segment does not preclude its availability to absorb losses in other segments:

Commercial Energy Commercial Real Estate Construction and Land Development Residential Real Estate PPP Consumer Total
(Dollars in thousands)
Three months ended September 30, 2020
Allowance for loan losses
Beginning balance $ 26,543 $ 17,372 $ 16,899 $ 5,019 $ 4,868 $ 0 $ 484 $ 71,185
Provision charged to expense 7,439 2,168 908 (530) 882 0 8 10,875
Charge-offs (5,781) 0 0 0 (256) 0 0 (6,037)
Recoveries 2 0 0 0 0 0 10 12
Ending balance $ 28,203 $ 19,540 $ 17,807 $ 4,489 $ 5,494 $ 0 $ 502 $ 76,035


	Commercial		Energy		Commercial Real Estate		Construction and Land Development		Residential and Multifamily Real Estate		PPP		Consumer		Total
	(Dollars in thousands)
Three months ended March 31, 2021
Allowance for loan losses
Beginning balance	$	24,693	$	18,341	$	22,354	$	3,612	$	5,842	$	0	$	453	$	75,295
Provision charged to expense	7,015		1,951		(1,745)		225		214		0		(160)		7,500
Charge-offs	(8,266)		0		0		0		0		0		0		(8,266)
Recoveries	22		0		0		0		0		0		0		22
Ending balance	$	23,464	$	20,292	$	20,609	$	3,837	$	6,056	$	0	$	293	$	74,551


	Commercial		Energy		Commercial Real Estate		Construction and Land Development		Residential and Multifamily Real Estate		PPP		Consumer		Total
	(Dollars in thousands)
Three months ended March 31, 2020
Allowance for loan losses
Beginning balance	$	35,864	$	6,565	$	8,085	$	3,516	$	2,546	$	0	$	320	$	56,896
Provision charged to expense	3,271		2,313		4,538		1,505		2,141		0		182		13,950
Charge-offs	(18,077)		(1,279)		0		0		0		0		(104)		(19,460)
Recoveries	71		0		0		0		0		0		1		72
Ending balance	$	21,129	$	7,599	$	12,623	$	5,021	$	4,687	$	0	$	399	$	51,458

1816


Table of Contents			Notes to Consolidated Financial Statements (unaudited)


	Commercial		Energy		Commercial Real Estate		Construction and Land Development		Residential and Multifamily Real Estate		PPP		Consumer		Total
	(Dollars in thousands)
March 31, 2021
Period end allowance for loan losses allocated to:
Individually evaluated for impairment	$	832	$	4,938	$	2,990	$	0	$	0	$	0	$	0	$	8,760
Collectively evaluated for impairment	$	22,632	$	15,354	$	17,619	$	3,837	$	6,056	$	0	$	293	$	65,791
Ending balance	$	23,464	$	20,292	$	20,609	$	3,837	$	6,056	$	0	$	293	$	74,551

Allocated to loans:
Individually evaluated for impairment	$	39,287	$	27,215	$	36,028	$	0	$	6,302	$	0	$	241	$	109,073
Collectively evaluated for impairment	$	1,244,760	$	315,684	$	1,155,606	$	617,200	$	681,591	$	336,355	$	62,676	$	4,413,872
Ending balance	$	1,284,047	$	342,899	$	1,191,634	$	617,200	$	687,893	$	336,355	$	62,917	$	4,522,945

Commercial Energy Commercial Real Estate Construction and Land Development Residential Real Estate PPP Consumer Total
(Dollars in thousands)
Three months ended September 30, 2019
Allowance for loan losses
Beginning balance $ 22,975 $ 7,300 $ 7,533 $ 2,602 $ 2,138 $ 0 $ 304 $ 42,852
Provision charged to expense 3,535 1,077 (249) 414 82 0 (9) 4,850
Charge-offs (1,700) (3,000) 0 0 0 0 (8) (4,708)
Recoveries 1 0 0 0 0 0 0 1
Ending balance $ 24,811 $ 5,377 $ 7,284 $ 3,016 $ 2,220 $ 0 $ 287 $ 42,995

Commercial Energy Commercial Real Estate Construction and Land Development Residential Real Estate PPP Consumer Total
(Dollars in thousands)
Nine months ended September 30, 2020
Allowance for loan losses
Beginning balance $ 35,864 $ 6,565 $ 8,085 $ 3,516 $ 2,546 $ 0 $ 320 $ 56,896
Provision charged to expense 16,210 15,253 9,722 973 3,393 0 274 45,825
Charge-offs (23,946) (2,278) 0 0 (445) 0 (104) (26,773)
Recoveries 75 0 0 0 0 0 12 87
Ending balance $ 28,203 $ 19,540 $ 17,807 $ 4,489 $ 5,494 $ 0 $ 502 $ 76,035

Commercial Energy Commercial Real Estate Construction and Land Development Residential Real Estate PPP Consumer Total
(Dollars in thousands)
Nine months ended September 30, 2019
Allowance for loan losses
Beginning balance $ 16,584 $ 10,262 $ 6,755 $ 2,475 $ 1,464 $ 0 $ 286 $ 37,826
Provision charged to expense 11,166 (2,461) 529 541 756 0 $ 19�� 10,550
Charge-offs (2,954) (3,000) 0 0 0 0 (19) (5,973)
Recoveries 15 576 0 0 0 0 1 592
Ending balance $ 24,811 $ 5,377 $ 7,284 $ 3,016 $ 2,220 $ 0 $ 287 $ 42,995


	Commercial		Energy		Commercial Real Estate		Construction and Land Development		Residential and Multifamily Real Estate		PPP		Consumer		Total
	(Dollars in thousands)
December 31, 2020
Period end allowance for loan losses allocated to:
Individually evaluated for impairment	$	1,115	$	3,370	$	5,048	$	0	$	0	$	0	$	0	$	9,533
Collectively evaluated for impairment	$	23,578	$	14,971	$	17,306	$	3,612	$	5,842	$	0	$	453	$	65,762
Ending balance	$	24,693	$	18,341	$	22,354	$	3,612	$	5,842	$	0	$	453	$	75,295
Allocated to loans:
Individually evaluated for impairment	$	44,678	26,045		$	44,318	$	0	$	6,329	$	0	$	244	$	121,614
Collectively evaluated for impairment	$	1,294,079	$	319,188	$	1,135,216	$	563,144	$	674,603	$	292,230	$	55,026	$	4,333,486
Ending balance	$	1,338,757	$	345,233	$	1,179,534	$	563,144	$	680,932	$	292,230	$	55,270	$	4,455,100


~~Table of Contents~~			~~Notes to Consolidated Financial Statements (unaudited)~~

Commercial Energy Commercial Real Estate Construction and Land Development Residential Real Estate PPP Consumer Total
(Dollars in thousands)
September 30, 2020
Period end allowance for loan losses allocated to:
Individually evaluated for impairment $ 2,432 $ 2,540 $ 1,525 $ 0 $ 0 $ 0 $ 0 $ 6,497
Collectively evaluated for impairment $ 25,771 $ 17,000 $ 16,282 $ 4,489 $ 5,494 $ 0 $ 502 $ 69,538
Ending balance $ 28,203 $ 19,540 $ 17,807 $ 4,489 $ 5,494 $ 0 $ 502 $ 76,035
Allocated to loans:
Individually evaluated for impairment $ 38,589 $ 21,318 $ 17,035 $ 0 $ 6,406 $ 0 $ 246 $ 83,594
Collectively evaluated for impairment $ 1,252,983 $ 362,863 $ 1,178,596 $ 587,617 $ 611,676 $ 369,260 $ 46,525 $ 4,409,520
Ending balance $ 1,291,572 $ 384,181 $ 1,195,631 $ 587,617 $ 618,082 $ 369,260 $ 46,771 $ 4,493,114

Commercial Energy Commercial Real Estate Construction and Land Development Residential Real Estate PPP Consumer Total
(Dollars in thousands)
December 31, 2019
Period end allowance for loan losses allocated to:
Individually evaluated for impairment $ 19,942 $ 1,949 $ 210 $ 0 $ 197 $ 0 $ 0 $ 22,298
Collectively evaluated for impairment $ 15,922 $ 4,616 $ 7,875 $ 3,516 $ 2,349 $ 0 $ 320 $ 34,598
Ending balance $ 35,864 $ 6,565 $ 8,085 $ 3,516 $ 2,546 $ 0 $ 320 $ 56,896
Allocated to loans:
Individually evaluated for impairment $ 70,876 9,744 $ 10,492 $ 0 $ 2,388 $ 0 $ 0 $ 93,500
Collectively evaluated for impairment $ 1,285,941 $ 398,829 $ 1,013,549 $ 628,418 $ 396,307 $ 0 $ 45,163 $ 3,768,207
Ending balance $ 1,356,817 $ 408,573 $ 1,024,041 $ 628,418 $ 398,695 $ 0 $ 45,163 $ 3,861,707

2017


Table of Contents			Notes to Consolidated Financial Statements (unaudited)

Credit Risk Profile

The Company analyzes its loan portfolio based on internal rating categories (grades 1 - 8), portfolio segmentation and payment activity. These categories are utilized to develop the associated ALLL. A description of the loan grades and segments follows:

Loan Grades

•Pass (risk rating 1-4) - ~~Considered~~The category includes loans that are considered satisfactory. ~~Includes~~The category includes borrowers that generally maintain good liquidity and financial condition or the credit is currently protected with sales trends remaining flat or declining. Most ratios compare favorably with industry norms and Company policies. Debt is programmed and timely repayment is expected.

•Special Mention (risk rating 5) - ~~Borrowers~~The category includes borrowers that generally exhibit adverse trends in operations or an imbalanced position in their balance sheet that has not reached a point where repayment is jeopardized. Credits are currently protected but, if left uncorrected, the potential weaknesses may result in deterioration of the repayment prospects for the credit or in the Company’s credit or lien position at a future date. These credits are not adversely classified and do not expose the Company to enough risk to warrant adverse classification.

•Substandard (risk rating 6) - ~~Credits~~The category includes borrowers that generally exhibit well-defined weakness(es) that jeopardize repayment. Credits are inadequately protected by the current worth and paying capacity of the obligor or of the collateral pledged. A distinct possibility exists that the Company will sustain some loss if deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified substandard. Substandard loans include both performing and nonperforming loans and are broken out in the table below.

•Doubtful (risk rating 7) - ~~Credits which~~The category includes borrowers that exhibit weaknesses inherent in a substandard credit ~~with the added characteristic~~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.

Loan Portfolio Segments

•Commercial - ~~Includes~~The category includes loans to commercial customers for use in financing working capital, equipment purchases and expansions. 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.

•Energy - ~~Includes~~The category includes loans to oil and natural gas customers for use in financing working capital needs, exploration and production activities, and acquisitions. The loans are repaid primarily from the conversion of crude oil and natural gas to cash. Credit risk is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability from business operations. Energy loans are typically collateralized with the underlying oil and gas reserves.

•Commercial Real Estate - ~~Loans~~The category includes loans that typically involve larger principal amounts and repayment of these loans is generally dependent on the successful operations of the property securing the loan or the business conducted on the property securing the loan. These are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Credit risk may be impacted by the creditworthiness of a borrower, property values and the local economies in the borrower’s market areas.

•Construction and Land Development - ~~Loans~~The category includes loans that are usually based upon estimates of costs and estimated value of the completed project and include independent appraisal reviews and a financial analysis of the developers and property owners. Sources of repayment include permanent loans, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are higher risk than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, general economic conditions and the availability of long-term financing. Credit risk may be impacted by the creditworthiness of a borrower, property values and the local economies in the borrower’s market areas.

•Residential and Multifamily Real Estate - The category includes loans that are generally secured by owner-occupied 1-4 family residences or multifamily properties. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers or underlying 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, a borrower’s personal income, or residents’ income.~~

•~~PPP~~ - The loans were established by the CARES Act which authorized forgivable loans to small businesses to pay their employees during the COVID-19 pandemic. The program requires all loan terms to be the same for everyone. The loans

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Table of Contents			Notes to Consolidated Financial Statements (unaudited)

conditions within or outside the borrower’s market areas that might impact either property values, a borrower’s personal income, or residents’ income.

•PPP - The category includes loans that were established by the CARES Act which authorized forgivable loans to small businesses to pay their employees during the COVID-19 pandemic. The loans are 100 percent guaranteed by the SBA and repayment is primarily dependent on the borrower’s cash flow or SBA repayment approval.

•Consumer - The ~~loan portfolio consists of~~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.

The following tables present the credit risk profile of the Company’s loan portfolio based on internal rating categories (grades 1 - 8), portfolio segmentation, and payment activity:


		Pass		Special Mention		Substandard Performing		Substandard Nonperforming		Doubtful		Loss		Total			Pass		Special Mention		Substandard Performing		Substandard Nonperforming		Doubtful		Loss		Total
		(Dollars in thousands)															(Dollars in thousands)
September 30, 2020
March 31, 2021																March 31, 2021
Commercial	Commercial	$	1,106,338	$	71,746	$	75,714	$	34,528	$	3,246	$	0	$	1,291,572	Commercial	$	1,171,818	$	43,247	$	46,912	$	20,409	$	1,661	$	0	$	1,284,047
Energy	Energy	186,881		58,726		117,389		17,435		3,750		0		384,181		Energy	141,441		82,314		92,032		23,421		3,691		0		342,899
Commercial real estate	Commercial real estate	1,114,802		41,030		26,624		12,377		798		0		1,195,631		Commercial real estate	1,054,675		66,101		60,037		10,821		0		0		1,191,634
Construction and land development	Construction and land development	581,160		5,299		1,158		0		0		0		587,617		Construction and land development	616,061		0		1,139		0		0		0		617,200
Residential real estate		610,909		527		3,467		3,179		0		0		618,082
Residential and multifamily real estate																Residential and multifamily real estate	679,335		43		5,440		3,075		0		0		687,893
PPP	PPP	369,260		0		0		0		0		0		369,260		PPP	336,355		0		0		0		0		0		336,355

Consumer	Consumer	46,525		0		0		246		0		0		46,771		Consumer	62,676		0		0		241		0		0		62,917
		$	4,015,875	$	177,328	$	224,352	$	67,765	$	7,794	$	0	$	4,493,114		$	4,062,361	$	191,705	$	205,560	$	57,967	$	5,352	$	0	$	4,522,945

Pass Special Mention Substandard
Performing Substandard
Nonperforming Doubtful Loss Total
(Dollars in thousands)
December 31, 2019
Commercial $ 1,258,952 $ 27,069 $ 38,666 $ 32,130 $ 0 $ 0 $ 1,356,817
Energy 392,233 9,460 2,340 0 4,540 0 408,573
Commercial real estate 1,007,921 9,311 5,746 120 943 0 1,024,041
Construction and land development 628,418 0 0 0 0 0 628,418
Residential real estate 394,495 1,789 469 1,942 0 0 398,695
PPP 0 0 0 0 0 0 0
Consumer 45,163 0 0 0 0 0 45,163
$ 3,727,182 $ 47,629 $ 47,221 $ 34,192 $ 5,483 $ 0 $ 3,861,707



	Pass		Special Mention		Substandard Performing		Substandard Nonperforming		Doubtful		Loss		Total
	(Dollars in thousands)
December 31, 2020
Commercial	$	1,182,519	$	66,142	$	63,407	$	26,124	$	565	$	0	$	1,338,757
Energy	145,598		90,134		83,574		22,177		3,750		0		345,233
Commercial real estate	1,035,056		67,710		57,680		19,088		0		0		1,179,534
Construction and land development	561,871		125		1,148		0		0		0		563,144
Residential and multifamily real estate	672,327		305		5,199		3,101		0		0		680,932
PPP	292,230		0		0		0		0		0		292,230


Consumer	55,026		0		0		244		0		0		55,270
	$	3,944,627	$	224,416	$	211,008	$	70,734	$	4,315	$	0	$	4,455,100

2219


Table of Contents			Notes to Consolidated Financial Statements (unaudited)

Loan Portfolio Aging Analysis

The following tables present the Company’s loan portfolio aging analysis as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:


		30-59 Days Past Due		60-89 Days Past Due		90 Days or More		Total Past Due		Current		Total Loans Receivable		Loans >= 90 Days and Accruing				30-59 Days Past Due		60-89 Days Past Due		90 Days or More		Total Past Due		Current		Total Loans Receivable		Loans >= 90 Days and Accruing
		(Dollars in thousands)														(Dollars in thousands)
September 30, 2020
March 31, 2021																	March 31, 2021
Commercial	Commercial	$	12,274	$	28,487	$	6,641	$	47,402	$	1,244,170	$	1,291,572	$	1,141		Commercial	$	7,813	$	403	$	15,709	$	23,925	$	1,260,122	$	1,284,047	$	0
Energy	Energy	0		1,540		3,055		4,595		379,586		384,181		0			Energy	748		0		6,741		7,489		335,410		342,899		0
Commercial real estate	Commercial real estate	1,459		0		4,475		5,934		1,189,697		1,195,631		0			Commercial real estate	0		0		4,097		4,097		1,187,537		1,191,634		0
Construction and land development	Construction and land development	0		0		0		0		587,617		587,617		0			Construction and land development	862		0		0		862		616,338		617,200		0
Residential real estate		1,591		0		6,124		7,715		610,367		618,082		3,183
Residential and multifamily real estate																	Residential and multifamily real estate	1,160		0		6,028		7,188		680,705		687,893		3,183
PPP	PPP	0		0		0		0		369,260		369,260		0			PPP	0		0		0		0		336,355		336,355		0

Consumer	Consumer	0		0		0		0		46,771		46,771		0			Consumer	0		0		0		0		62,917		62,917		0
		$	15,324	$	30,027	$	20,295	$	65,646	$	4,427,468	$	4,493,114	$	4,324			$	10,583	$	403	$	32,575	$	43,561	$	4,479,384	$	4,522,945	$	3,183


		30-59 Days Past Due		60-89 Days Past Due		90 Days or More		Total Past Due		Current		Total Loans Receivable		Loans >= 90 Days and Accruing			30-59 Days Past Due		60-89 Days Past Due		90 Days or More		Total Past Due		Current		Total Loans Receivable		Loans >= 90 Days and Accruing
		(Dollars in thousands)															(Dollars in thousands)
December 31, 2019
December 31, 2020																December 31, 2020
Commercial	Commercial	$	1,091	$	276	$	30,911	$	32,278	$	1,324,539	$	1,356,817	$	37	Commercial	$	8,497	$	264	$	11,236	$	19,997	$	1,318,760	$	1,338,757	$	0
Energy	Energy	2,340		0		4,593		6,933		401,640		408,573		53		Energy	0		0		7,173		7,173		338,060		345,233		372
Commercial real estate	Commercial real estate	316		0		4,589		4,905		1,019,136		1,024,041		4,501		Commercial real estate	63		7,677		4,825		12,565		1,166,969		1,179,534		0
Construction and land development	Construction and land development	196		0		0		196		628,222		628,418		0		Construction and land development	0		0		0		0		563,144		563,144		0
Residential real estate		2,347		0		1,919		4,266		394,429		398,695		0
Residential and multifamily real estate																Residential and multifamily real estate	1,577		0		3,520		5,097		675,835		680,932		652
PPP	PPP	0		0		0		0		0		0		0		PPP	0		0		0		—		292,230		292,230		0
Consumer	Consumer	2		254		0		256		44,907		45,163		0		Consumer	0		0		0		0		55,270		55,270		0
		$	6,292	$	530	$	42,012	$	48,834	$	3,812,873	$	3,861,707	$	4,591		$	10,137	$	7,941	$	26,754	$	44,832	$	4,410,268	$	4,455,100	$	1,024

2320


Table of Contents			Notes to Consolidated Financial Statements (unaudited)

Impaired Loans

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. The intent of concessions is to maximize collection.

Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. The following tables present loans individually evaluated for impairment, including all restructured and formerly restructured loans, for the periods ended ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:


				Unpaid								Unpaid
		Recorded Balance		Principal Balance		Specific Allowance				Recorded Balance		Principal Balance		Specific Allowance
		(Dollars in thousands)						(Dollars in thousands)
September 30, 2020
March 31, 2021									March 31, 2021
Loans without a specific valuation	Loans without a specific valuation								Loans without a specific valuation
Commercial	Commercial	$	29,439	$	35,220	$	—		Commercial	$	36,174	$	38,124	$	—
Energy	Energy	0		0		—			Energy	103		103		—
Commercial real estate	Commercial real estate	4,628		4,628		—			Commercial real estate	10,553		12,138		—
Construction and land development	Construction and land development	0		0		—			Construction and land development	0		0		—
Residential real estate		6,406		6,662		—
Residential and multifamily real estate									Residential and multifamily real estate	6,302		6,558		—
PPP	PPP	0		0		—			PPP	0		0		—

Consumer	Consumer	246		246		—			Consumer	241		241		—
Loans with a specific valuation	Loans with a specific valuation								Loans with a specific valuation
Commercial	Commercial	9,150		20,538		2,432			Commercial	3,113		15,297		832
Energy	Energy	21,318		26,597		2,540			Energy	27,112		35,204		4,938
Commercial real estate	Commercial real estate	12,407		13,206		1,525			Commercial real estate	25,475		25,475		2,990
Construction and land development	Construction and land development	0		0		0			Construction and land development	0		0		0
Residential real estate		0		0		0
Residential and multifamily real estate									Residential and multifamily real estate	0		0		0
PPP	PPP	0		0		0			PPP	0		0		0

Consumer	Consumer	0		0		0			Consumer	0		0		0

Total	Total								Total
Commercial	Commercial	38,589		55,758		2,432			Commercial	39,287		53,421		832
Energy	Energy	21,318		26,597		2,540			Energy	27,215		35,307		4,938
Commercial real estate	Commercial real estate	17,035		17,834		1,525			Commercial real estate	36,028		37,613		2,990
Construction and land development	Construction and land development	0		0		0			Construction and land development	0		0		0
Residential real estate		6,406		6,662		0
Residential and multifamily real estate									Residential and multifamily real estate	6,302		6,558		0
PPP	PPP	0		0		0			PPP	0		0		0

Consumer	Consumer	246		246		0			Consumer	241		241		0
		$	83,594	$	107,097	$	6,497			$	109,073	$	133,140	$	8,760

2421


Table of Contents			Notes to Consolidated Financial Statements (unaudited)


				Unpaid								Unpaid
		Recorded Balance		Principal Balance		Specific Allowance				Recorded Balance		Principal Balance		Specific Allowance
		(Dollars in thousands)						(Dollars in thousands)
December 31, 2019
December 31, 2020									December 31, 2020
Loans without a specific valuation	Loans without a specific valuation								Loans without a specific valuation
Commercial	Commercial	$	35,846	$	35,846	$	—		Commercial	$	36,111	$	50,245	$	—
Energy	Energy	2,864		2,864		—			Energy	3,864		6,677		—
Commercial real estate	Commercial real estate	9,464		9,464		—			Commercial real estate	10,079		11,663		—
Construction and land development	Construction and land development	0		0		—			Construction and land development	0		0		—
Residential real estate		2,139		2,139		—
Residential and multifamily real estate									Residential and multifamily real estate	6,329		6,585		—
PPP	PPP	0		0		—			PPP	0		0		—
Consumer	Consumer	0		0		—			Consumer	244		244		—
Loans with a specific valuation	Loans with a specific valuation								Loans with a specific valuation
Commercial	Commercial	35,030		40,030		19,942			Commercial	8,567		8,567		1,115
Energy	Energy	6,880		9,880		1,949			Energy	22,181		27,460		3,370
Commercial real estate	Commercial real estate	1,028		1,028		210			Commercial real estate	34,239		34,239		5,048
Construction and land development	Construction and land development	0		0		0			Construction and land development	0		0		0
Residential real estate		249		249		197
Residential and multifamily real estate									Residential and multifamily real estate	0		0		0
PPP	PPP	0		0		0			PPP	0		0		0
Consumer	Consumer	0		0		0			Consumer	0		0		0

Total	Total								Total
Commercial	Commercial	70,876		75,876		19,942			Commercial	44,678		58,812		1,115
Energy	Energy	9,744		12,744		1,949			Energy	26,045		34,137		3,370
Commercial real estate	Commercial real estate	10,492		10,492		210			Commercial real estate	44,318		45,902		5,048
Construction and land development	Construction and land development	0		0		0			Construction and land development	0		0		0
Residential real estate		2,388		2,388		197
Residential and multifamily real estate									Residential and multifamily real estate	6,329		6,585		0
PPP	PPP	0		0		0			PPP	0		0		0
Consumer	Consumer	0		0		0			Consumer	244		244		0
		$	93,500	$	101,500	$	22,298			$	121,614	$	145,680	$	9,533

The table below shows interest income recognized during the three ~~and nine~~ month periods ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ for impaired loans, including all restructured and formerly restructured loans, held at the end of each period:


		Three Months Ended				Nine Months Ended				Three Months Ended
		September 30,				September 30,				March 31,
		2020		2019		2020		2019				2021		2020
		(Dollars in thousands)								(Dollars in thousands)
Commercial	Commercial	$	12	$	386	$	841	$	862		Commercial	$	303	$	910
Energy	Energy	2		98		257		324			Energy	16		122
Commercial real estate	Commercial real estate	58		200		346		613			Commercial real estate	287		123
Construction and land development	Construction and land development	0		0		0		0			Construction and land development	0		0
Residential real estate		36		8		108		17
Residential and multifamily real estate											Residential and multifamily real estate	36		40
PPP	PPP	0		0		0		0			PPP	0		0

Consumer	Consumer	0		0		0		0			Consumer	0		0
Total interest income recognized	Total interest income recognized	$	108	$	692	$	1,552	$	1,816		Total interest income recognized	$	642	$	1,195

2522


Table of Contents			Notes to Consolidated Financial Statements (unaudited)

The table below shows the three ~~and nine~~ month average balance of impaired loans for the periods ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ by loan category for impaired loans, including all restructured and formerly restructured loans, held at the end of each period:


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2020		2019		2020		2019			2021		2020
		(Dollars in thousands)									(Dollars in thousands)
Commercial	Commercial	$	45,482	$	54,410	$	49,538	$	49,265	Commercial	$	41,919	$	86,626
Energy	Energy	21,396		13,623		23,220		15,091		Energy	27,431		16,976
Commercial real estate	Commercial real estate	17,937		16,690		18,132		16,528		Commercial real estate	36,215		14,927
Construction and land development	Construction and land development	0		0		0		0		Construction and land development	0		0
Residential real estate		6,419		2,538		6,304		2,354
Residential and multifamily real estate										Residential and multifamily real estate	6,316		5,230
PPP	PPP	0		0		0		0		PPP	0		0
Consumer	Consumer	248		0		253		0		Consumer	243		254
Total average impaired loans	Total average impaired loans	$	91,482	$	87,261	$	97,447	$	83,238	Total average impaired loans	$	112,124	$	124,013

Non-accrual Loans

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.

All interest accrued but not collected for loans that are placed on non-accrual or charged off are reversed against interest income. The interest on these loans is accounted for on the cash basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. The following table presents the Company’s non-accrual loans by loan category at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
		(Dollars in thousands)					(Dollars in thousands)
Commercial	Commercial	$	37,774	$	32,130	Commercial	$	22,070	$	26,691
Energy	Energy	21,185		4,540		Energy	27,112		25,927
Commercial real estate	Commercial real estate	13,176		1,063		Commercial real estate	10,821		19,088
Construction and land development	Construction and land development	0		0		Construction and land development	0		0
Residential real estate		3,179		1,942
Residential and multifamily real estate						Residential and multifamily real estate	3,075		3,101
PPP	PPP	0		0		PPP	0		0
Consumer	Consumer	246		0		Consumer	241		244
Total non-accrual loans	Total non-accrual loans	$	75,560	$	39,675	Total non-accrual loans	$	63,319	$	75,051

Troubled Debt Restructurings

Restructured loans are those extended to borrowers who are experiencing financial difficulty and who have been granted a concession, excluding loan modifications as a result of the COVID-19 pandemic. The modification of terms typically includes the extension of maturity, reduction or deferment of monthly payment, or reduction of the stated interest rate.

For the three ~~and nine-month~~month periods ended ~~September 30,~~March 31, 2021 and 2020, the modifications related to the TDRs below did not impact the ALLL because the loans were previously impaired and evaluated on an individual basis or enough collateral was obtained.

2623


Table of Contents			Notes to Consolidated Financial Statements (unaudited)

The table below presents loans restructured, excluding loans restructured as a result of the COVID-19 pandemic, during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ including the post-modification outstanding balance and the type of concession made:


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,		September 30,		September 30,		September 30,			March 31,		March 31,
		2020		2019		2020		2019			2021		2020
		(Dollars in thousands)									(Dollars in thousands)
Commercial	Commercial									Commercial
- Interest rate reduction	- Interest rate reduction	$	0	$	0	$	3,171	$	0	- Interest rate reduction	$	0	$	3,171
- Reduction of monthly payment		0		0		0		994
- Extension of maturity date		0		0		0		30,005

Energy	Energy									Energy
- Extension of maturity date	- Extension of maturity date	0		0		2,340		0		- Extension of maturity date	0		2,340
Commercial real estate

- Reduction of monthly payment		0		0		0		3,767

Residential real estate
- Payment deferral		0		0		65		0

Total troubled debt restructurings	Total troubled debt restructurings	$	0	$	0	$	5,576	$	34,766	Total troubled debt restructurings	$	0	$	5,511

The balance of restructured loans, excluding loans restructured as a result of the COVID-19 pandemic, is provided below as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. In addition, the balance of those loans that are in default at any time during the past twelve months at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 is provided below:


		September 30, 2020					December 31, 2019						March 31, 2021					December 31, 2020
		Number of Loans	Outstanding Balance		Balance 90 days past due at any time during previous 12 months(1)		Number of Loans	Outstanding Balance		Balance 90 days past due at any time during previous 12 months(1)			Number of Loans	Outstanding Balance		Balance 90 days past due at any time during previous 12 months(1)		Number of Loans	Outstanding Balance		Balance 90 days past due at any time during previous 12 months(1)
		(Dollars in thousands)											(Dollars in thousands)
Commercial	Commercial	6	$	7,895	$	3,762	7	$	31,770	$	831	Commercial	6	$	21,631	$	4,115	7	$	22,759	$	2,776
Energy	Energy	3	3,373		2,713		2	2,864		0		Energy	4	10,850		2,619		4	11,053		2,713
Commercial real estate	Commercial real estate	3	4,683		0		3	4,909		0		Commercial real estate	4	25,990		0		4	26,038		0
Construction and land development	Construction and land development	0	0		0		0	0		0		Construction and land development	0	0		0		0	0		0
Residential real estate		2	3,247		45		0	0		0
Residential and multifamily real estate												Residential and multifamily real estate	2	3,244		0		2	3,245		0
PPP	PPP	0	0		0		0	0		0		PPP	0	0		0		0	0		0
Consumer	Consumer	0	0		0		0	0		0		Consumer	0	0		0		0	0		0
Total troubled debt restructured loans	Total troubled debt restructured loans	14	$	19,198	$	6,520	12	$	39,543	$	831	Total troubled debt restructured loans	16	$	61,715	$	6,734	17	$	63,095	$	5,489
(1) Default is considered to mean 90 days or more past due as to interest or principal.	(1) Default is considered to mean 90 days or more past due as to interest or principal.											(1) Default is considered to mean 90 days or more past due as to interest or principal.

The TDRs above had an allowance of $3$5 million and ~~$18~~$4 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

Note 5:Derivatives and Hedging

Derivatives not designated as hedges are not speculative and result from a service the Company provides 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. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings. ~~The gains~~

As of March 31, 2021 and ~~losses are included~~December 31, 2020, the Company had the following outstanding derivatives that were not designated as hedges in ~~“other assets” on the Statements of Cash Flows.~~qualifying hedging relationships:



	March 31, 2021			December 31, 2020
Product	Number of Instruments	Notional Amount		Number of Instruments	Notional Amount
	(Dollars in thousands)
Back-to-back swaps	56	$	546,947	56	$	515,567

2724


Table of Contents			Notes to Consolidated Financial Statements (unaudited)

During 2019, the Company changed an input associated with the fair market value related to derivatives not designated as hedges. The model utilized to calculate the non-performance risk, also known as the credit valuation adjustment, or CVA, was adjusted from a more conservative default methodology to a review of the historical defaults recognized by the Company. Management believes this change better aligns with the Company’s credit methodology and underwriting standards.

~~As of September 30, 2020 and December 31, 2019, the Company had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships:~~

September 30, 2020 December 31, 2019
Product Number of Instruments Notional Amount Number of Instruments Notional Amount
(Dollars in thousands)
Back-to-back swaps 60 $ 545,559 56 $ 380,050

The table below presents the fair value of the Company’s derivative financial instruments and their classification on the Balance Sheet as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:


		Asset Derivatives					Liability Derivatives						Asset Derivatives					Liability Derivatives
		Balance Sheet	September 30,		December 31,		Balance Sheet	September 30,		December 31,			Balance Sheet	March 31,		December 31,		Balance Sheet	March 31,		December 31,
		Location	2020		2019		Location	2020		2019			Location	2021		2020		Location	2021		2020
		(Dollars in thousands)											(Dollars in thousands)
Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments											Derivatives not designated as hedging instruments
Interest rate products	Interest rate products	Other assets	$	27,873	$	9,838	Other liabilities	$	27,949	$	9,907	Interest rate products	Other assets	$	15,561	$	24,094	Other liabilities	$	15,766	$	24,454

The effect of the Company’s derivative financial instruments that are not designated as hedging instruments are reported on the Consolidated Statements of Income as swap fee income, ~~net.~~net, which includes swap fees earned upon origination and credit valuation adjustments that represents the risk of a counterparty’s default. The effect of the Company’s derivative financial instruments gain (loss) are reported on the Consolidated Statements of Cash Flows within ~~other assets~~“other assets” and ~~other liabilities.~~“other liabilities”.

~~Note 6: Goodwill and Other Intangible Assets~~

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. The Company compares the reporting unit’s fair value with its carrying amount, including goodwill. If the carrying amount exceeds fair value, an impairment loss is recognized in an amount equal to that excess.

As a result of the recent economic conditions resulting from the COVID-19 pandemic and oil market volatility, the Company conducted a June 30, 2020 goodwill impairment test. The test required a goodwill impairment charge of $7 million, representing full impairment of goodwill. The primary causes of the goodwill impairment were economic conditions, volatility in the market capitalization of the Company, increased loan provision in light of the COVID-19 pandemic, and other changes in key variables driven by the uncertain macro-environment that when combined, resulted in the reporting unit’s fair value being less than the carrying value. The Tulsa, Oklahoma market represented the reporting unit and included all goodwill previously recorded.

The reporting unit’s fair value was determined using a combination of: (i) the capitalization of earnings method, an income approach, and (ii) the public company method, a market approach. The income approach estimated fair value by determining the cash flow in a single period, adjusted for growth that is adjusted by a capitalization rate. The market approach estimated fair value by averaging the price-to-book multiples from peer, public banks and adding a control premium.

The Company conducted an impairment test of its core deposit intangible (“CDI”) as of June 30, 2020. The Company used an income approach to calculate a CDI fair market value. The results indicated the CDI was not impaired as of June 30, 2020.

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual reporting units requires management to make assumptions and estimates regarding the Company’s future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future cash flows, income tax rates, discount rates, growth rates, and other market factors.

~~The following table summarizes the change in the Company’s goodwill and CDI for the nine-months ended September 30, 2020:~~

Goodwill Core Deposit Intangible Total Intangible Assets
(Dollars in thousands)
Balance at December 31, 2019 $ 7,397 $ 297 $ 7,694
Impairment (7,397) 0 (7,397)
Amortization — (70) (70)
Balance at September 30, 2020 $ 0 $ 227 $ 227

Note 7:6:Time Deposits and Borrowings

The scheduled maturities, excluding interest, of the Company’s borrowings at ~~September 30, 2020~~March 31, 2021 were as follows:


		September 30, 2020															March 31, 2021
		Within One Year		One to Two Years		Two to Three Years		Three to Four Years		Four to Five Years		After Five Years		Total			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)															(Dollars in thousands)
Time deposits	Time deposits	$	948,251	$	115,197	$	52,074	$	24,669	$	495	$	0	$	1,140,686	Time deposits	$	763,848	$	115,321	$	42,981	$	8,193	$	1,411	$	37	$	931,791
Fed funds purchased & repurchase agreements	Fed funds purchased & repurchase agreements	13,531		—		—		—		—		—		13,531		Fed funds purchased & repurchase agreements	3,294		—		—		—		—		—		3,294
FHLB borrowings	FHLB borrowings	59,500		21,500		35,000		0		5,100		215,000		336,100		FHLB borrowings	16,500		11,500		35,000		0		5,100		215,000		283,100

Trust preferred securities(1)	Trust preferred securities(1)	0		0		0		0		0		952		952		Trust preferred securities(1)	0		0		0		0		0		974		974
		$	1,021,282	$	136,697	$	87,074	$	24,669	$	5,595	$	215,952	$	1,491,269		$	783,642	$	126,821	$	77,981	$	8,193	$	6,511	$	216,011	$	1,219,159

(1) The contract value of the trust preferred securities is $2.6 million and is currently being accreted to the maturity date of 2035.

Note 8:7:Change in Accumulated Other Comprehensive Income (“AOCI”)

Amounts reclassified from AOCI and the affected line items in the ~~consolidated~~Consolidated Statements of ~~Operations~~Income during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ were as follows:


		Three Months Ended				Nine Months Ended						Three Months Ended
		September 30,				September 30,				Affected Line Item in the		March 31,				Affected Line Item in the
		2020		2019		2020		2019		Statements of Operations		2021		2020			Statements of Income
		(Dollars in thousands)										(Dollars in thousands)
Unrealized gains on available-for-sale securities	Unrealized gains on available-for-sale securities	$	1,012	$	34	$	1,725	$	467	Gain on sale of available-for-sale debt securities	Unrealized gains on available-for-sale securities	$	10	$	393		Gain on sale of available-for-sale debt securities

Less: tax effect	Less: tax effect	248		9		422		115		Income tax expense	Less: tax effect	2		96			Income tax expense
Net reclassified amount	Net reclassified amount	$	764	$	25	$	1,303	$	352		Net reclassified amount	$	8	$	297

Note 9:8:Regulatory Matters

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Management believes that, as of ~~September 30, 2020,~~March 31, 2021, the Company and the Bank met all capital adequacy requirements to which they are subject.

The capital rules require the Company to maintain a 2.5% capital conservation buffer with respect to Common Equity Tier I capital, Tier I capital to risk-weighted assets, and total capital to risk-weighted assets, which is included in the column “Minimum Capital Required - Basel ~~III Fully Phased-In”~~III” within the table below. A financial institution with a conservation buffer of less than the required amount is ~~subject to limitations on capital distributions, including dividend payments and stock repurchases, as well as certain discretionary bonus payments to executive officers.~~

2925


Table of Contents			Notes to Consolidated Financial Statements (unaudited)

subject to limitations on capital distributions, including dividend payments and stock repurchases, as well as certain discretionary bonus payments to executive officers.

The Company’s and the Bank’s actual capital amounts and ratios as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 are presented in the following table:


		Actual				Minimum Capital Required - Basel III Fully Phased-In			Required to be Considered Well Capitalized					Actual								Minimum Capital Required - Basel III	Required to be Considered Well Capitalized
		Amount		Ratio			Amount		Ratio			Amount			Ratio			Amount		Ratio			Amount		Ratio		Amount		Ratio
		(Dollars in thousands)									(Dollars in thousands)
September 30, 2020
March 31, 2021																	March 31, 2021
Total Capital to Risk-Weighted Assets	Total Capital to Risk-Weighted Assets																Total Capital to Risk-Weighted Assets
Consolidated	Consolidated	$	652,827	13.2	%		$	518,259	10.5	%		N/A			N/A		Consolidated	$	668,393	13.3	%		$	528,882	10.5	%	N/A		N/A
Bank	Bank	601,491		12.2			518,063		10.5			$	493,393		10.0	%	Bank	624,240		12.4			528,704		10.5		$	503,528	10.0	%
Tier I Capital to Risk-Weighted Assets	Tier I Capital to Risk-Weighted Assets																Tier I Capital to Risk-Weighted Assets
Consolidated	Consolidated	590,952		12.0			419,543		8.5			N/A			N/A		Consolidated	605,281		12.0			428,143		8.5		N/A		N/A
Bank	Bank	539,639		10.9			419,384		8.5			394,714			8.0		Bank	561,155		11.1			427,999		8.5		402,822		8.0
Common Equity Tier 1 to Risk-Weighted Assets	Common Equity Tier 1 to Risk-Weighted Assets																Common Equity Tier 1 to Risk-Weighted Assets
Consolidated	Consolidated	590,000		12.0			345,506		7.0			N/A			N/A		Consolidated	604,307		12.0			352,588		7.0		N/A		N/A
Bank	Bank	539,639		10.9			345,375		7.0			320,706			6.5		Bank	561,155		11.1			352,470		7.0		327,293		6.5
Tier I Capital to Average Assets	Tier I Capital to Average Assets																Tier I Capital to Average Assets
Consolidated	Consolidated	590,952		10.8			217,932		4.0			N/A			N/A		Consolidated	605,281		10.5			230,468		4.0		N/A		N/A
Bank	Bank	$	539,639	9.9	%		$	217,994	4.0	%		$	272,492		5.0	%	Bank	$	561,155	9.7	%		$	230,354	4.0	%	$	287,942	5.0	%
December 31, 2019
December 31, 2020																	December 31, 2020
Total Capital to Risk-Weighted Assets	Total Capital to Risk-Weighted Assets																Total Capital to Risk-Weighted Assets
Consolidated	Consolidated	$	633,228	13.4	%		$	495,095	10.5	%		N/A			N/A		Consolidated	$	656,806	13.1	%		$	527,486	10.5	%	N/A		N/A
Bank	Bank	581,600		12.3			494,954		10.5			$	471,385		10.0	%	Bank	611,533		12.2			527,217		10.5		$	502,111	10.0	%
Tier I Capital to Risk-Weighted Assets	Tier I Capital to Risk-Weighted Assets																Tier I Capital to Risk-Weighted Assets
Consolidated	Consolidated	576,332		12.2			400,791		8.5			N/A			N/A		Consolidated	593,865		11.8			427,012		8.5		N/A		N/A
Bank	Bank	524,704		11.1			400,677		8.5			377,108			8.0		Bank	548,615		10.9			426,794		8.5		401,689		8.0
Common Equity Tier 1 to Risk-Weighted Assets	Common Equity Tier 1 to Risk-Weighted Assets																Common Equity Tier 1 to Risk-Weighted Assets
Consolidated	Consolidated	575,411		12.2			330,063		7.0			N/A			N/A		Consolidated	592,902		11.8			351,657		7.0		N/A		N/A
Bank	Bank	524,704		11.1			329,970		7.0			306,400			6.5		Bank	548,615		10.9			351,478		7.0		326,372		6.5
Tier I Capital to Average Assets	Tier I Capital to Average Assets																Tier I Capital to Average Assets
Consolidated	Consolidated	576,332		12.1			191,099		4.0			N/A			N/A		Consolidated	593,865		10.8			219,550		4.0		N/A		N/A
Bank	Bank	$	524,704	11.0	%		$	191,170	4.0	%		$	238,963		5.0	%	Bank	$	548,615	10.0	%		$	219,441	4.0	%	$	274,302	5.0	%

Note ~~10:~~9:Stock-Based Compensation

The Company issues stock-based compensation in the form of nonvested restricted stock and stock appreciation rights under the 2018 Omnibus Equity Incentive Plan (“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 ~~suspended effective April 1, 2019 and was subsequently~~ reinstated during the third quarter of 2020. The aggregate number of shares authorized for future issuance under the Omnibus Plan is ~~1,982,634~~1,831,858 shares as of ~~September 30, 2020.~~March 31, 2021.

The table below summarizes the stock-based compensation for the three months ended March 31, 2021 and 2020:

3026


Table of Contents			Notes to Consolidated Financial Statements (unaudited)

~~The table below summarizes the stock-based compensation for the three and nine-months ended September 30, 2020 and 2019:~~


	Three Months Ended
	March 31,
	2021		2020
	(Dollars in thousands)
Stock appreciation rights	$	236	$	256
Performance-based stock awards	(266)		74
Restricted stock units and awards	665		604
Employee stock purchase plan	14		0
Total stock-based compensation	$	649	$	934

Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
(Dollars in thousands)
Stock appreciation rights $ 250 $ 446 $ 744 $ 977
Performance-based stock awards 79 159 175 409
Restricted stock units and awards 857 719 2,283 2,184
Employee stock purchase plan 21 0 21 36
Total stock-based compensation $ 1,207 $ 1,324 $ 3,223 $ 3,606

~~Performance Based~~Performance-Based Stock Awards (“PBSAs”)

The Company awards PBSAs to key officers of the Company. The performance-based shares typically cliff-vest at the end of three years based on attainment of certain performance metrics developed by the Compensation Committee. The ultimate number of shares issuable under each performance award is the product of the award target and the award payout percentage given the level of achievement. The award payout percentages by level of achievement range between 0% of target and 150% of target.

During the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, the Company granted ~~41,283~~63,631 PBSAs. The performance metrics include three year cumulative, ~~net income~~adjusted earnings per share and ~~return on average assets.~~relative total shareholder return.

The following table summarizes the status of and changes in the performance-based awards:


		Performance Based Stock Awards			Performance Based Stock Awards
		Number of Shares	Weighted-Average Grant Date Fair Value		Number of Shares	Weighted-Average Grant Date Fair Value
Unvested, January 1, 2020		192,248	$9.88
Unvested, January 1, 2021				Unvested, January 1, 2021	231,631	$10.51
Granted	Granted	41,283	13.55	Granted	63,631	12.89
Vested	Vested	0	0.00	Vested	0	0.00
Forfeited	Forfeited	0	0.00	Forfeited	0	0.00
Unvested, September 30, 2020		233,531	$10.53
Unvested, March 31, 2021				Unvested, March 31, 2021	295,262	$11.02

Unrecognized stock-based compensation related to the performance awards issued through ~~September 30, 2020~~March 31, 2021 was ~~$531~~$968 thousand and is expected to be recognized over ~~2.1~~2.7 years.

Restricted Stock Units (“RSUs”) and Restricted Stock Awards (“RSAs”)

The Company issues RSUs and RSAs to provide ~~additional~~ incentives to key officers, employees, and nonemployee directors. Awards are typically granted annually as determined by the Compensation Committee. The ~~service based~~service-based RSUs typically ~~cliff-vest at the end of three years for awards issued prior to 2019 and~~ vest in equal amounts over three ~~years for all other RSUs.~~years. The ~~service based~~service-based RSAs typically cliff-vest after one year.

The following table summarizes the status of and changes in the RSUs and RSAs:


		Restricted Stock Units and Awards			Restricted Stock Units and Awards
		Number of Shares	Weighted-Average Grant Date Fair Value		Number of Shares	Weighted-Average Grant Date Fair Value
Unvested, January 1, 2020		340,780	$15.35
Unvested, January 1, 2021				Unvested, January 1, 2021	369,217	$12.61
Granted	Granted	293,297	11.84	Granted	194,211	12.87
Vested	Vested	(106,146)	12.58	Vested	(109,770)	14.28
Forfeited	Forfeited	(15,086)	14.54	Forfeited	0	0.00
Unvested, September 30, 2020		512,845	$13.38
Unvested, March 31, 2021				Unvested, March 31, 2021	453,658	$12.32

Unrecognized stock-based compensation related to the RSUs and RSAs issued through ~~September 30, 2020~~March 31, 2021 was $4 million and is expected to be recognized over ~~1.7~~2.3 years.

3127


Table of Contents			Notes to Consolidated Financial Statements (unaudited)

Note ~~11:~~10:Income Tax

An income tax expense reconciliation at the statutory rate to the Company’s actual income tax expense is shown below:


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2020		2019		2020		2019			2021		2020
		(Dollars in thousands)									(Dollars in thousands)
Computed at the statutory rate (21%)	Computed at the statutory rate (21%)	$	1,996	$	2,725	$	1,141	$	7,241	Computed at the statutory rate (21%)	$	3,138	$	872
Increase (decrease) resulting from	Increase (decrease) resulting from									Increase (decrease) resulting from
Tax-exempt income	Tax-exempt income	(766)		(722)		(2,335)		(2,147)		Tax-exempt income	(790)		(790)
Nondeductible expenses	Nondeductible expenses	21		71		119		208		Nondeductible expenses	50		64
State tax credit		0		0		0		(1,361)

State income taxes	State income taxes	320		566		501		1,526		State income taxes	496		142
Equity based compensation	Equity based compensation	(15)		(5)		24		(66)		Equity based compensation	14		26
Goodwill impairment		0		0		1,553		0

Other adjustments	Other adjustments	(58)		(43)		(75)		(93)		Other adjustments	0		(21)
Actual tax expense	Actual tax expense	$	1,498	$	2,592	$	928	$	5,308	Actual tax expense	$	2,908	$	293

The tax effects of temporary differences related to deferred taxes shown on the ~~consolidated~~Consolidated Balance Sheets are presented below:


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
		(Dollars in thousands)					(Dollars in thousands)
Deferred tax assets	Deferred tax assets					Deferred tax assets

Allowance for loan losses	Allowance for loan losses	$	18,613	$	13,928	Allowance for loan losses	$	17,944	$	18,124
Lease incentive	Lease incentive	322		294		Lease incentive	550		564
Impairment of available-for-sale securities		0		493
Valuation allowance on real estate		269		0

Loan fees	Loan fees	3,747		2,317		Loan fees	3,453		3,178
Net operating loss carryover		344		339

Accrued expenses	Accrued expenses	1,485		2,131		Accrued expenses	874		2,128
Deferred compensation	Deferred compensation	2,776		2,444		Deferred compensation	2,197		2,474

State tax credit	State tax credit	2,519		3,287		State tax credit	2,447		2,621
Other	Other	60		81		Other	452		946
Total deferred tax asset	Total deferred tax asset	30,135		25,314		Total deferred tax asset	27,917		30,035
Deferred tax liability	Deferred tax liability					Deferred tax liability
Fair market value adjustments - trust preferred securities		(341)		(348)

Net unrealized gain on securities available-for-sale	Net unrealized gain on securities available-for-sale	(8,357)		(5,339)		Net unrealized gain on securities available-for-sale	(7,308)		(9,531)
FHLB stock basis	FHLB stock basis	(1,194)		(996)		FHLB stock basis	(1,248)		(1,209)
Premises and equipment	Premises and equipment	(3,150)		(3,620)		Premises and equipment	(2,703)		(2,881)
Other	Other	(1,229)		(1,229)		Other	(1,446)		(1,601)
Total deferred tax liability	Total deferred tax liability	(14,271)		(11,532)		Total deferred tax liability	(12,705)		(15,222)
Net deferred tax asset	Net deferred tax asset	$	15,864	$	13,782	Net deferred tax asset	$	15,212	$	14,813

~~CARES Act~~

The CARES Act, enacted on March 27, 2020 in the U.S., includes measures to assist companies, including temporary changes to income and non-income-based tax laws. As a result of the CARES Act, the Company would be able to carry back a portion of a net operating loss if incurred during 2020 to offset income from the prior year.


~~Table of Contents~~			~~Notes to Consolidated Financial Statements (unaudited)~~

Note ~~12:~~11:Disclosures about Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:

Level 1 Quoted prices in active markets for identical assets or liabilities.

Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 Unobservable inputs supported by little or no market activity and significant to the fair value of the assets or liabilities.


Table of Contents			Notes to Consolidated Financial Statements (unaudited)

Recurring Measurements

The following list presents the assets and liabilities recognized in the accompanying ~~consolidated~~Consolidated Balance Sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

Fair Value Description

Valuation Hierarchy Level

Where Fair Value Balance Can Be Found

Available-for-Sale Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows.

Level 2

Note 3: Securities

Derivatives

Fair value of the interest rate swaps is obtained from independent pricing services based on quoted market prices for similar derivative contracts.

Level 2

Note 5: Derivatives and Hedging

Nonrecurring Measurements

The following tables present assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

September 30, 2020
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 $ 36,378 $ 0 $ 0 $ 36,378
Foreclosed assets held-for-sale $ 2,349 $ 0 $ 0 $ 2,349


			March 31, 2021
			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(Dollars in thousands)
Collateral-dependent impaired loans	$	46,940	$	0	$	0	$	46,940

December 31, 2019
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 $ 20,889 $ 0 $ 0 $ 20,889


~~Table of Contents~~			~~Notes to Consolidated Financial Statements (unaudited)~~


			December 31, 2020
			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	$	55,454	$	0	$	0	$	55,454

Foreclosed assets held-for-sale	$	2,347	$	0	$	0	$	2,347

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying ~~consolidated~~Consolidated Balance Sheets.

Collateral-dependent Impaired Loans, Net of ALLL

The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.

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.


Table of Contents			Notes to Consolidated Financial Statements (unaudited)

Appraisals are reviewed for accuracy and consistency by the Office of the Chief Credit Officer. 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 ~~estimated~~ fair value of foreclosed ~~assets held-for-sale~~assets-held-for-sale is based on the appraised fair value of the collateral, less estimated cost to sell and are classified within Level 3 of the fair value hierarchy. 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.sell.

Unobservable (Level 3) Inputs

The following tables present quantitative information about unobservable inputs used in nonrecurring Level 3 fair value measurements at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~

September 30, 2020
Fair Value Valuation Techniques Unobservable Inputs Range
(Weighted Average)
(Dollars in thousands)
Collateral-dependent impaired loans $ 36,378 Market comparable properties Marketability discount
10% - 15%
(12%)
Foreclosed assets held-for-sale $ 2,349 Market comparable properties Marketability discount 10%

2020:

~~December~~March 31, ~~2019~~2021

Fair Value

Valuation Techniques

Unobservable Inputs

Range
(Weighted Average)

(Dollars in thousands)

Collateral-dependent impaired loans

~~20,889~~46,940

Market comparable properties

Marketability discount

10% - ~~15%~~98%

~~(12%~~(27%)

December 31, 2020

Fair Value

Valuation Techniques

Unobservable Inputs

Range
(Weighted Average)

(Dollars in thousands)

Collateral-dependent impaired loans

55,454

Market comparable properties

Marketability discount

1% - 98%

(24%)

Foreclosed assets held-for-sale

2,347

Market comparable properties

Marketability discount

7% - 10%

(9%)

3430


Table of Contents			Notes to Consolidated Financial Statements (unaudited)

The following tables present the estimated fair values of the Company’s financial instruments at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

September 30, 2020
Carrying Fair Value Measurements
Amount Level 1 Level 2 Level 3 Total
(Dollars in thousands)
Financial Assets
Cash and cash equivalents $ 223,636 $ 223,636 $ 0 $ 0 $ 223,636
Available-for-sale securities 652,146 0 652,146 0 652,146
Loans, net of allowance for loan losses 4,401,774 0 0 4,386,027 4,386,027
Restricted equity securities 20,923 0 0 20,923 20,923
Interest receivable 19,003 0 19,003 0 19,003
Derivative assets 27,873 0 27,873 0 27,873
$ 5,345,355 $ 223,636 $ 699,022 $ 4,406,950 $ 5,329,608
Financial Liabilities
Deposits $ 4,492,549 $ 754,172 $ 0 $ 3,784,666 $ 4,538,838
Federal funds purchased and repurchase agreements 13,531 0 13,531 0 13,531
Federal Home Loan Bank advances 336,100 0 353,309 0 353,309
Other borrowings 952 0 1,897 0 1,897
Interest payable 2,550 0 2,550 0 2,550
Derivative liabilities 27,949 0 27,949 0 27,949
$ 4,873,631 $ 754,172 $ 399,236 $ 3,784,666 $ 4,938,074


		December 31, 2019											March 31, 2021
		Carrying		Fair Value Measurements									Carrying		Fair Value Measurements
		Amount		Level 1		Level 2		Level 3		Total			Amount		Level 1		Level 2		Level 3		Total
		(Dollars in thousands)											(Dollars in thousands)
Financial Assets	Financial Assets											Financial Assets
Cash and cash equivalents	Cash and cash equivalents	$	187,320	$	187,320	$	0	$	0	$	187,320	Cash and cash equivalents	$	630,787	$	630,787	$	0	$	0	$	630,787
Available-for-sale securities	Available-for-sale securities	741,634		0		741,634		0		741,634		Available-for-sale securities	685,454		0		685,454		0		685,454
Loans, net of allowance for loan losses	Loans, net of allowance for loan losses	3,795,348		0		0		3,810,818		3,810,818		Loans, net of allowance for loan losses	4,434,049		0		0		4,419,714		4,419,714
Restricted equity securities	Restricted equity securities	17,278		0		0		17,278		17,278		Restricted equity securities	14,080		0		0		14,080		14,080
Interest receivable	Interest receivable	15,716		0		15,716		0		15,716		Interest receivable	17,987		0		17,987		0		17,987
Equity securities												Equity securities	13,405		0		2,216		11,189		13,405
Derivative assets	Derivative assets	9,838		0		9,838		0		9,838		Derivative assets	15,561		0		15,561		0		15,561
		$	4,767,134	$	187,320	$	767,188	$	3,828,096	$	4,782,604		$	5,811,323	$	630,787	$	721,218	$	4,444,983	$	5,796,988
Financial Liabilities	Financial Liabilities											Financial Liabilities
Deposits	Deposits	$	3,923,759	$	521,826	$	0	$	3,407,012	$	3,928,838	Deposits	$	5,051,570	$	794,559	$	0	$	4,289,169	$	5,083,728
Federal funds purchased and repurchase agreements	Federal funds purchased and repurchase agreements	14,921		0		14,921		0		14,921		Federal funds purchased and repurchase agreements	3,294		0		3,294		0		3,294
Federal Home Loan Bank advances	Federal Home Loan Bank advances	358,743		0		357,859		0		357,859		Federal Home Loan Bank advances	283,100		0		292,667		0		292,667
Other borrowings	Other borrowings	921		0		2,147		0		2,147		Other borrowings	974		0		2,235		0		2,235
Interest payable	Interest payable	4,584		0		4,584		0		4,584		Interest payable	1,911		0		1,911		0		1,911
Derivative liabilities	Derivative liabilities	9,907		0		9,907		0		9,907		Derivative liabilities	15,766		0		15,766		0		15,766
		$	4,312,835	$	521,826	$	389,418	$	3,407,012	$	4,318,256		$	5,356,615	$	794,559	$	315,873	$	4,289,169	$	5,399,601

3531


Table of Contents			Notes to Consolidated Financial Statements (unaudited)


	December 31, 2020
	Carrying		Fair Value Measurements
	Amount		Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Financial Assets
Cash and cash equivalents	$	408,810	$	408,810	$	0	$	0	$	408,810
Available-for-sale securities	654,588		0		654,588		0		654,588
Loans, net of allowance for loan losses	4,366,602		0		0		4,351,970		4,351,970
Restricted equity securities	15,543		0		0		15,543		15,543
Interest receivable	17,236		0		17,236		0		17,236
Equity securities	13,436		0		2,247		11,189		13,436
Derivative assets	24,094		0		24,094		0		24,094
	$	5,500,309	$	408,810	$	698,165	$	4,378,702	$	5,485,677
Financial Liabilities
Deposits	$	4,694,740	$	718,459	$	0	$	4,015,792	$	4,734,251
Federal funds purchased and repurchase agreements	2,306		0		2,306		0		2,306
Federal Home Loan Bank advances	293,100		0		309,020		0		309,020
Other borrowings	963		0		2,024		0		2,024
Interest payable	2,163		0		2,163		0		2,163
Derivative liabilities	24,454		0		24,454		0		24,454
	$	5,017,726	$	718,459	$	339,967	$	4,015,792	$	5,074,218

Note ~~13:~~12:Commitments and Credit Risk

Commitments

The Company had the following commitments at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
		(Dollars in thousands)					(Dollars in thousands)
Commitments to originate loans	Commitments to originate loans	$	188,347	$	134,652	Commitments to originate loans	$	112,738	$	99,596
Standby letters of credit	Standby letters of credit	42,204		39,035		Standby letters of credit	41,256		48,607
Lines of credit	Lines of credit	1,362,440		1,351,873		Lines of credit	1,401,710		1,423,038
Future lease commitments		0		20,935

Total	Total	$	1,592,991	$	1,546,495	Total	$	1,555,704	$	1,571,241

Note ~~14:~~13:Legal and Regulatory Proceedings

General Litigation

The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations and cash flows of the Company.

~~Note 15:Subsequent Events~~

On October 20, 2020, the Company announced that its Board of Directors adopted a new stock repurchase program. Under the repurchase program, the Company may repurchase Company common stock with up to $20 million in value.

3632

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes and with the statistical information and financial data appearing in this report as well as in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019~~2020 filed with the Securities and Exchange Commission (“SEC”) on ~~March 10, 2020~~February 26, 2021 (the ~~“2019~~“2020 Form 10-K”). Results of operations for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2020~~March 31, 2021 are not necessarily indicative of results to be attained for any other period. Certain statements in this report contain forward-looking statements regarding our future plans, objectives, beliefs, expectations, representations and projections. See "Forward-Looking Information" which is incorporated herein by reference. Actual results could differ materially from the anticipated results and other expectations expressed in our forward-looking statements as a result of a number of factors, including but not limited to those discussed in Item 1A – "Risk Factors" in the ~~2019~~2020 Form ~~10-K, as supplemented by Item 1A – "Risk Factors" in this report.~~10-K.

Unless we state otherwise or the context otherwise requires, references in the below section to “we,” “our,” “us,” “ourselves,” “our company,” 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.

~~Third~~First Quarter ~~2020~~2021 Highlights

During the ~~third~~first quarter ended ~~September 30, 2020,~~March 31, 2021, we accomplished the following:

•$~~5.5~~6 billion of assets, an increase of ~~12%~~$339 million or 6% from December 31, ~~2019;~~2020 driven by deposit growth;

•Efficiency ratio of ~~53%~~50.4% for the ~~third~~first quarter of ~~2020 as we optimized staffing levels, invested in technology and controlled discretionary spending;~~2020;

•$6468 million of loan growth from the previous quarter and ~~$854~~$512 million or ~~23%~~13% over the last twelve ~~months;~~months driven by PPP loan funding;

•$~~188~~357 million of deposit growth from the previous quarter and ~~$834 million~~$1 billion or ~~23%~~27% over the last twelve months;

•~~Opened our second full-service bank in the Dallas metropolitan area and moved the Kansas City team into its new location on the Country Club Plaza, in the heart of Kansas City;~~

•Book value per share of ~~$11.84~~$12.17 at ~~September 30, 2020~~March 31, 2021 compared to ~~$11.59~~$11.75 at ~~September 30, 2019;~~March 31, 2020;

•~~Announced~~Hired Jana Merfen as our chief technology officer. Jana brings 16 years of financial services industry experience with a ~~$20 million common stock buyback program.~~focus on evaluating investments in and benefits from technology. She will oversee customer-facing technology to better serve and respond to customer needs.

Update on the COVID-19 Global Pandemic (“COVID-19”) Impact

The COVID-19 pandemic has caused, and ~~is expected to~~may continue to cause, economic uncertainty and a disruption to the financial markets, the duration and extent of which is not currently known. A discussion of the impact of the COVID-19 pandemic on the Company and its operations and measures undertaken by the Company in response thereto is provided below.

Bank Operations

The Company implemented its business continuity procedures in March 2020 as a result of the COVID-19 pandemic. ~~As of September 30, 2020, team members continued~~In April 2021, substantially all employees returned to on-premise work inand the ~~office as needed~~Company is evaluating hybrid working opportunities. In addition, the bank lobbies were re-opened to ~~limit exposure risk to our employees and customers.~~the public. No material interruptions to our business operations have occurred to date.

Paycheck Protection Program (“PPP”) Lending Facility and Loans

The PPP was established by the Coronavirus Aid, Relief, and Economic Security Act (“CARES ~~Act~~Act”) in March 2020 and authorized forgivable loans to small businesses. The Bank provided PPP loans to support current customers and foster relationships with new customers. The loans earn interest at 1%, include fees between 1% and 5% and typically mature in two years. The loans originated under the PPP received a 0% risk weight under the regulatory capital rules which resulted in increased Common Equity Tier 1, Tier 1, and Tier 2 capital ratios, but the PPP loans are included in the calculation of our Leverage ratio.

The Consolidated Appropriations Act of 2021 allocated an additional $284 billion in PPP funding. On January 11, 2021, the Small Business Administration (“SBA”) reopened PPP funds for first draw borrowers and on January 13, 2021, opened PPP funds for second draw borrowers. The second round of PPP loans have similar terms to the first round of PPP loans mentioned above, but typically mature in five years. The PPP loans were available through May 5, 2021. The SBA will continue to fund outstanding, approved PPP applications.

Table of Contents

The following table summarizes the impact of the PPP loans on our financials:

As of or For the Period Ended September 30, 2020
Outstanding Balance Total Origination Fees Earned Fees Unearned Fees
(Dollars in thousands)
PPP Loans $ 369,260 $ 9,946 $ 3,172 $ 6,774

~~Table of Contents~~



	As of or for the Period Ended March 31,
	2021		2020
	(Dollars in thousands)
PPP Loan Activity
Outstanding loan balance, beginning	$	292,230	$	—
Loan originations	110,962		—
Loan payoffs	(66,837)		—
Outstanding loan balance, end	$	336,355	$	—

PPP Loan Fee Activity
Unearned fee balance, beginning	$	4,189	$	—
Unearned fees added	4,105		—
Earned fees recognized	(2,415)		—
Unearned fee balance, end	$	5,879	$	—

Loan Modifications

The CARES Act ~~allows~~allowed financial institutions to elect to suspend GAAP principles and regulatory determinations for loan modifications relating to the COVID-19 pandemic that would otherwise ~~be categorized~~require evaluation as ~~TDRs from March 1,~~troubled debt restructurings (“TDR”). On December 27, 2020, the Consolidated Appropriations Act of 2021 was signed into law, which extended the period during which the Company may elect not to ~~the earlier of December 31, 2020 or 60 days after the national emergency related~~consider whether loan modifications relating to the COVID-19 pandemic ~~ends as long as the loan was not more than 30 days past due as of December 31, 2019.~~are TDRs through January 2, 2022. The Company elected to ~~use this~~apply the guidance.

~~Deferred loan interest accrues on~~As of March 31, 2021, the Company had approximately $96 million of loans modified ~~as a result of the COVID-19 pandemic until determined that it is more likely than~~and not that we will be unable to collect the accrued interest balance. After the deferral period, the modified loan terms require all accrued interest to be paid or capitalized and amortized over the original loan term. The Company may provide an additional deferral period to customers on an as needed basis. Information regarding all loan modifications outstanding at September 30, 2020 is provided below:

Total Loan Modifications by Category Impacted by the COVID-19 Pandemic as of September 30, 2020
Number of Loans Value of Loans Percent of Gross Loans in Category
(Dollars in thousands)
Commercial 51 $ 73,894 6 %
Energy 4 34,683 9
Commercial real estate 31 176,096 15
Construction and land development 2 14,899 3
Residential real estate 5 18,128 3
Total Loan Modifications 93 $ 317,700 7 %

Total Loan Modifications by Type of Modification Impacted by the COVID-19 Pandemic as of September 30, 2020
Number of Loans Value of Loans
(Dollars in thousands)
Payment deferral 17 $ 97,692
Interest-only payments 45 135,765
Other (multiple modifications, change in rate and/or payment) 31 84,243
Total Loan Modifications 93 $ 317,700

During the third quarter of 2020, the Company assessed and approved a second round of modifications. These modifications were based on a customer’s business condition, evaluation of near and long term recovery potential and level of support from the owners and guarantors.considered TDRs. The Company expects most of these modified loans to recover from the pandemic, but uncertainty regarding the short-term and long-term effects of the COVID-19 pandemic remain that may require the Company to (i) downgrade modified loans ~~that~~which may increase our ~~ALLL,~~Allowance for Loan Losses (“ALLL”), (ii) reverse interest income previously recognized but not received, and (iii) charge-off modified loans. ~~Information regarding loans that received a second modification as of September 30, 2020 is provided below:~~

Second Loan Modifications by Category Impacted by the COVID-19 Pandemic as of September 30, 2020
Number of Loans Value of Loans Percent of Gross Loans in Category
(Dollars in thousands)
Recreation (subcategory) 4 13,940
Restaurants (subcategory) 5 9,233
Other (subcategory) 7 5,875
Total Commercial 16 $ 29,048 2 %
Hotel and Lodging (subcategory) 5 53,928
Medical and Senior Living (subcategory) 1 18,612
Owner Occupied (subcategory) 4 11,862
Total Commercial Real Estate 10 $ 84,402 7 %
Total Energy 2 $ 1,859 — %
Total Residential Real Estate 1 $ 17,220 3 %
Total Second Loan Modifications 29 $ 132,529 3 %

~~Table of Contents~~

Loan Portfolio and Credit Quality

The COVID-19 pandemic ~~impacted~~continues to impact our borrowers ~~resulting~~and the Company’s credit metrics remain elevated. However, the Company’s key credit metrics improved during the first quarter of 2021. The Company remains cautiously optimistic that the economic outlook will continue to improve, which could continue to improve the Company’s credit metrics.

Forty four percent of classified loans were within our energy portfolio at March 31, 2021. A portion of energy loans will receive updated borrowing base redeterminations in ~~credit~~the next two quarters. The Company anticipates that higher, stabilized energy prices will improve the borrowers’ first quarter results and related collateral that may lead to significant, positive grade migration in the second and ~~increased provisions. As a result~~third quarter of ~~the COVID-19 pandemic,~~2021.

Investment in Technology

In April 2021, the Company plans to moderate loan growth to focus on current customers, implement floors on loans and monitor unfunded credit lines. Listed below are categories in our loan portfolio that have been or may be significantly impacted by the COVID-19 pandemic, resulting in increased monitoring.

~~Energy Loans~~

Energy loans were comprised of 64% predominately oil backed loans and 36% predominately natural gas backed loans. Our customer base has significant experience in the energy sector and the Company has an experienced group of energy lenders and credit officers that are proactively monitoring the portfolio. 70% of the energy portfolio has been downgraded since December 31, 2019, resultingbecame a limited partner in a ~~$14~~$150 million ~~or 263% increase in the energy ALLL balance~~venture capital investment fund designed to help accelerate technology adoption at ~~September 30, 2020. We plan to support our current customers and decrease our overall energy exposure.~~

~~Real Estate Loans~~

Our real estate loans are comprised of construction and development loans, 1-4 family loans and commercial real estate loans. There is significant uncertainty regarding the impact of the COVID-19 pandemic on our real estate loan portfolio, but we continue to monitor the following industries:

Real Estate Industries with Increased Monitoring as of September 30, 2020
Industry Outstanding Balance Percent of Gross Loans
(Dollars in thousands)
Retail $ 187,140 4.2 %
Hotel and Lodging 170,953 3.8
Medical and Senior Living 183,890 4.1

These industries were identified due to travel restrictions, cancellation of events and large gatherings, reduction in demand for senior living housing and furlough of workers and an increase in unemployment numbers. The Bank has worked with business owners in these industries by deferring loan payments and funding the PPP loans.

~~Commercial Loans~~

community banks. The Company ~~provides~~committed to a ~~mix~~total investment of ~~variable-rate~~$3 million. The investment fund will help community banks find solutions that make them more competitive and ~~fixed-rate commercial loans across various industries. We extend commercial loans on an unsecured~~cost-efficient by identifying and ~~secured basis. There is significant uncertainty regarding~~investing in companies that solve problems the ~~impact the COVID-19 pandemic will have on our commercial loan portfolio as well, but we identified the following industries that received an increase in monitoring:~~

Commercial Industries with Increased Monitoring as of September 30, 2020
Industry Outstanding Balance Percent of Gross Loans
(Dollars in thousands)
Recreation $ 86,086 1.9 %
Restaurants 63,270 1.4
Aircraft and Aviation $ 64,248 1.4 %

These industries were identified based on travel, entertainment, and restaurant restrictions. Cancellation of events and large gatherings, business closures and furlough of workers and an increase in unemployment numbers have also impacted these industries.

community banks face.

3934

Table of Contents

Performance Measures


	As of or For the Quarter Ended
	March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020			March 31, 2020
	(Dollars in thousands, except per share data)
Return on average assets(1)	0.84		%	0.58		%	0.58		%	(0.54)		%	0.31		%
Return on average equity(1)	7.80		%	5.19		%	5.19		%	(4.84)		%	2.53		%
Earnings (loss) per share	$	0.23		$	0.16		$	0.15		$	(0.14)		$	0.07
Diluted earnings (loss) per share	$	0.23		$	0.15		$	0.15		$	(0.14)		$	0.07
Efficiency(2)	50.41		%	53.35		%	53.03		%	70.81		%	55.10		%
Equity to assets	10.48		%	11.03		%	11.22		%	11.13		%	12.08		%
(1) Interim periods annualized
(2) We calculate efficiency ratio as noninterest expense divided by the sum of net interest income and noninterest income.

Results of Operations

Net Interest Income

Net interest income is presented on a tax-equivalent basis below. A tax-equivalent basis makes all income taxable at the same rate. For example, $100 of tax-exempt income would be presented as $126.58, an amount that, if taxed at the statutory federal income tax rate of 21% would yield $100. We believe a tax-equivalent basis provides for improved comparability between the various earning assets.


	For the Quarter Ended
	March 31, 2021		December 31, 2020		September 30, 2020		June 30, 2020		March 31, 2020
Yield on securities - tax equivalent(1)	2.89	%	2.96	%	2.93	%	3.07	%	3.21	%
Yield on loans	3.94		4.00		3.90		4.28		4.98
Yield on earning assets - tax equivalent(1)	3.50		3.71		3.66		3.96		4.57
Cost of interest-bearing deposits	0.57		0.69		0.80		0.95		1.69
Cost of total deposits	0.48		0.58		0.67		0.79		1.46
Cost of FHLB and short-term borrowings	1.79		1.78		1.50		1.35		1.72
Cost of funds	0.56		0.65		0.75		0.85		1.49
Net interest margin - tax equivalent(1)	3.00	%	3.12	%	2.98	%	3.19	%	3.24	%
(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%.

The following tables present, for the periods indicated, average balance sheet information, interest income, interest expense and the corresponding average yield and rates paid:


		Three Months Ended													Three Months Ended
		September 30,													March 31,
		2020						2019							2021						2020
		Average Balance		Interest Income / Expense		Average Yield / Rate(4)		Average Balance		Interest Income / Expense		Average Yield / Rate(4)			Average Balance		Interest Income / Expense		Average Yield / Rate(4)		Average Balance		Interest Income / Expense		Average Yield / Rate(4)
		(Dollars in thousands)													(Dollars in thousands)
Interest-earning assets:	Interest-earning assets:													Interest-earning assets:
Securities - taxable	Securities - taxable	$	257,637	$	1,290	1.99	%	$	335,045	$	2,263	2.68	%	Securities - taxable	$	217,231	$	916	1.71	%	$	308,671	$	2,066	2.69	%
Securities - tax-exempt(1)	Securities - tax-exempt(1)	440,669		3,855		3.48		392,644		3,592		3.63		Securities - tax-exempt(1)	479,953		4,055		3.43		451,443		4,007		3.57
Federal funds sold	Federal funds sold	—		—		—		16,315		89		2.16		Federal funds sold	—		—		—		4,136		18		1.74
Interest-bearing deposits in other banks	Interest-bearing deposits in other banks	166,423		47		0.11		171,913		881		2.03		Interest-bearing deposits in other banks	452,305		128		0.11		158,044		473		1.20
Gross loans, net of unearned income(2)(3)	Gross loans, net of unearned income(2)(3)	4,477,211		43,929		3.90		3,540,707		49,327		5.53		Gross loans, net of unearned income(2)(3)	4,506,843		43,758		3.94		3,905,005		48,339		4.98
Total interest-earning assets(1)	Total interest-earning assets(1)	5,341,940		$	49,121	3.66	%	4,456,624		$	56,152	5.00	%	Total interest-earning assets(1)	5,656,332		$	48,857	3.50	%	4,827,299		$	54,903	4.57	%
Allowance for loan losses	Allowance for loan losses	(75,970)						(43,327)						Allowance for loan losses	(78,371)						(57,627)
Other non-interest-earning assets	Other non-interest-earning assets	220,282						197,661						Other non-interest-earning assets	220,206						205,859
Total assets	Total assets	$	5,486,252					$	4,610,958					Total assets	$	5,798,167					$	4,975,531
Interest-bearing liabilities	Interest-bearing liabilities													Interest-bearing liabilities
Transaction deposits	Transaction deposits	$	460,420	$	260	0.22	%	$	134,987	$	386	1.13	%	Transaction deposits	$	716,763	$	364	0.21	%	$	341,497	$	865	1.02	%
Savings and money market deposits	Savings and money market deposits	1,995,307		2,301		0.46		1,743,575		9,553		2.17		Savings and money market deposits	2,421,765		2,388		0.40		1,886,785		6,735		1.44
Time deposits	Time deposits	1,174,555		4,737		1.60		1,276,571		8,064		2.51		Time deposits	972,006		2,976		1.24		1,165,800		6,672		2.30
Total interest-bearing deposits	Total interest-bearing deposits	3,630,282		7,298		0.80		3,155,133		18,003		2.26		Total interest-bearing deposits	4,110,534		5,728		0.57		3,394,082		14,272		1.69
FHLB and short-term borrowings	FHLB and short-term borrowings	479,475		1,803		1.50		345,794		1,703		1.95		FHLB and short-term borrowings	290,187		1,284		1.79		391,143		1,673		1.72
Trust preferred securities, net of fair value adjustments	Trust preferred securities, net of fair value adjustments	944		24		10.19		904		37		16.06		Trust preferred securities, net of fair value adjustments	965		24		9.96		923		35		14.69
Non-interest-bearing deposits	Non-interest-bearing deposits	714,337		—		—		535,467		—		—		Non-interest-bearing deposits	731,472		—		—		540,318		—		—
Cost of funds	Cost of funds	4,825,038		$	9,125	0.75	%	4,037,298		$	19,743	1.94	%	Cost of funds	5,133,158		$	7,036	0.56	%	4,326,466		$	15,980	1.49	%
Other liabilities	Other liabilities	47,304						29,833						Other liabilities	39,134						36,106
Stockholders’ equity	Stockholders’ equity	613,910						543,827						Stockholders’ equity	625,875						612,959
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	5,486,252					$	4,610,958					Total liabilities and stockholders’ equity	$	5,798,167					$	4,975,531
Net interest income(1)	Net interest income(1)			$	39,996					$	36,409			Net interest income(1)			$	41,821					$	38,923
Net interest spread(1)	Net interest spread(1)					2.91	%					3.06	%	Net interest spread(1)					2.94	%					3.08	%
Net interest margin(1)	Net interest margin(1)					2.98	%					3.24	%	Net interest margin(1)					3.00	%					3.24	%

(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%.	(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%.													(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 includes non-accrual loans of $76 million and $44 million as of September 30, 2020 and 2019, respectively.
(3) Loan interest income includes loan fees of $3 million and $2 million for the three months ended September 30, 2020 and 2019, respectively.
(2) Loans, net of unearned income includes non-accrual loans of $63 million and $26 million as of March 31, 2021 and 2020, respectively.														(2) Loans, net of unearned income includes non-accrual loans of $63 million and $26 million as of March 31, 2021 and 2020, respectively.
(3) Loan interest income includes loan fees of $4 million and $2 million for the three months ended March 31, 2021 and 2020, respectively.														(3) Loan interest income includes loan fees of $4 million and $2 million for the three months ended March 31, 2021 and 2020, respectively.
(4) Actual unrounded values are used to calculate the reported yield or rate disclosed. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same amounts.	(4) Actual unrounded values are used to calculate the reported yield or rate disclosed. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same amounts.													(4) Actual unrounded values are used to calculate the reported yield or rate disclosed. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same amounts.

~~Table of Contents~~

Nine Months Ended
September 30,
2020 2019
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 $ 285,363 $ 4,982 2.33 % $ 334,272 $ 7,447 2.98 %
Securities - tax-exempt(1)
443,506 11,807 3.56 378,651 10,672 3.77
Federal funds sold 1,364 18 1.73 18,714 345 2.46
Interest-bearing deposits in other banks 170,316 566 0.44 135,030 2,107 2.09
Gross loans, net of unearned income(2)(3)
4,248,520 138,591 4.36 3,373,118 142,319 5.64
Total interest-earning assets(1)
5,149,069 $ 155,964 4.05 % 4,239,785 $ 162,890 5.14 %
Allowance for loan losses (64,896) (41,329)
Other non-interest-earning assets 218,797 196,900
Total assets $ 5,302,970 $ 4,395,356
Interest-bearing liabilities
Transaction deposits $ 404,967 $ 1,391 0.46 % $ 127,785 $ 1,139 1.19 %
Savings and money market deposits 1,938,669 11,689 0.81 1,616,558 27,326 2.26
Time deposits 1,178,632 16,895 1.91 1,249,219 22,956 2.46
Total interest-bearing deposits 3,522,268 29,975 1.14 2,993,562 51,421 2.30
FHLB and short-term borrowings 456,048 5,145 1.51 366,708 5,240 1.91
Trust preferred securities, net of fair value adjustments 933 82 11.81 895 112 16.74
Non-interest-bearing deposits 668,208 — — 508,888 — —
Cost of funds 4,647,457 $ 35,202 1.01 % 3,870,053 $ 56,773 1.96 %
Other liabilities 42,731 22,762
Stockholders’ equity 612,782 502,541
Total liabilities and stockholders’ equity $ 5,302,970 $ 4,395,356
Net interest income(1)
$ 120,762 $ 106,117
Net interest spread(1)
3.04 % 3.18 %
Net interest margin(1)
3.13 % 3.35 %
(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 includes non-accrual loans of $76 million and $44 million as of September 30, 2020 and 2019, respectively.
(3) Loan interest income includes loan fees of $10 million and $7 million for the nine-months ended September 30, 2020 and 2019, respectively.
(4) Actual unrounded values are used to calculate the reported yield or rate disclosed. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same amounts.

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Table of Contents

Changes in interest income and interest expense result from changes in average balances (volume) of interest earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table sets forth the effects of changing rates and volumes on our net interest income during the periods shown. Information is provided with respect to: (i) changes in volume (change in volume times old rate); (ii) changes in rates (change in rate times old volume); and (iii) changes in rate/volume (change in rate times the change in volume).


		Three Months Ended						Nine Months Ended									Three Months Ended
		September 30, 2020 over 2019						September 30, 2020 over 2019									March 31, 2021 over 2020
		Average Volume		Yield/Rate		Net Change(2)		Average Volume		Yield/Rate		Net Change(2)					Average Volume		Yield/Rate		Net Change(2)
		(Dollars in thousands)													(Dollars in thousands)
Interest Income	Interest Income															Interest Income
Securities - taxable	Securities - taxable	$	(460)	$	(513)	$	(973)	$	(993)	$	(1,472)	$	(2,465)			Securities - taxable	$	(511)	$	(639)	$	(1,150)
Securities - tax-exempt(1)	Securities - tax-exempt(1)	418		(155)		263		1,759		(624)		1,135				Securities - tax-exempt(1)	246		(198)		48
Federal funds sold	Federal funds sold	(44)		(45)		(89)		(247)		(80)		(327)				Federal funds sold	(18)		—		(18)
Interest-bearing deposits in other banks	Interest-bearing deposits in other banks	(28)		(806)		(834)		443		(1,984)		(1,541)				Interest-bearing deposits in other banks	344		(689)		(345)
Gross loans, net of unearned income	Gross loans, net of unearned income	11,169		(16,567)		(5,398)		32,557		(36,285)		(3,728)				Gross loans, net of unearned income	6,781		(11,362)		(4,581)
Total interest income(1)	Total interest income(1)	11,055		(18,086)		(7,031)		33,519		(40,445)		(6,926)				Total interest income(1)	6,842		(12,888)		(6,046)
Interest Expense	Interest Expense															Interest Expense
Transaction deposits	Transaction deposits	373		(499)		(126)		1,287		(1,035)		252				Transaction deposits	510		(1,011)		(501)
Savings and money market deposits	Savings and money market deposits	1,198		(8,450)		(7,252)		4,632		(20,269)		(15,637)				Savings and money market deposits	1,520		(5,867)		(4,347)
Time deposits	Time deposits	(601)		(2,726)		(3,327)		(1,236)		(4,825)		(6,061)				Time deposits	(973)		(2,723)		(3,696)
Total interest-bearing deposits	Total interest-bearing deposits	970		(11,675)		(10,705)		4,683		(26,129)		(21,446)				Total interest-bearing deposits	1,057		(9,601)		(8,544)
FHLB and short-term borrowings	FHLB and short-term borrowings	553		(453)		100		1,135		(1,230)		(95)				FHLB and short-term borrowings	(444)		55		(389)
Trust preferred securities, net of fair value adjustments	Trust preferred securities, net of fair value adjustments	1		(14)		(13)		4		(34)		(30)				Trust preferred securities, net of fair value adjustments	1		(12)		(11)
Total interest expense	Total interest expense	1,524		(12,142)		(10,618)		5,822		(27,393)		(21,571)				Total interest expense	614		(9,558)		(8,944)
Net interest income(1)	Net interest income(1)	$	9,531	$	(5,944)	$	3,587	$	27,697	$	(13,052)	$	14,645			Net interest income(1)	$	6,228	$	(3,330)	$	2,898

(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%.	(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%.													(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) The change in interest not due solely to volume or rate has been allocated in proportion to the respective absolute dollar amounts of the change in volume or rate.	(2) The change in interest not due solely to volume or rate has been allocated in proportion to the respective absolute dollar amounts of the change in volume or rate.													(2) The change in interest not due solely to volume or rate has been allocated in proportion to the respective absolute dollar amounts of the change in volume or rate.

Interest income - Interest income declined for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 compared to the same ~~periods~~period in ~~2019.~~2020. Lower yields on earning assets were ~~the result of~~driven by a ~~lower~~decline in the interest rate ~~environment, PPP loan funding during the second quarter of 2020, and changes in nonaccrual loans.~~environment. The decline in asset yields was partially offset by year-over-year loan ~~growth.~~growth and PPP loan income. We anticipate PPP loan fees to positively impact our ~~fourth quarter~~ yield ~~on earning assets to remain flat or increase slightly when compared to~~going forward in 2021 as loans are forgiven and we accelerate the ~~quarter ended September 30, 2020.~~recognition of the unearned loan fees.

Interest expense - Interest expense declined for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 compared to the same ~~periods~~period in ~~2019.~~2020. The cost of interest-bearing deposits ~~declined~~continued to decline due to strategic rate changes in our deposit products driven by the declining interest rate environment. The decline in rates was offset by an increase in average volume due to increased liquidity in the market. The cost of FHLB and other borrowings ~~declined due to shorter term funding in 2020~~remained relatively flat compared to ~~2019 and~~2020 as the ~~declining rate environment. The rates on interest-bearing liabilities were offset by an~~Company’s increase in ~~average volume~~cash offset the need to ~~support our asset growth.~~renew or increase these borrowings. We currently anticipate our ~~fourth quarter~~ cost of funds to ~~remain flat or~~decline slightly ~~decline~~throughout 2021 as ~~time~~we continue to reduce rates on deposits and ~~other borrowings mature.~~longer term borrowings.

Net interest income - Net interest income increased slightly for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 compared to the same ~~periods~~period in ~~2019. The increase was~~2020 driven by growth in average earning assets, offset by compression in net interest margin as earning assets repriced quicker than interest-bearing liabilities. ~~During the quarter, a nonaccrual loan impacted~~We currently expect the net interest margin to remain flat in 2021 as earning assets continue to reprice, offset by ~~7 basis points. This nonaccrual loan was restructured~~maturities in borrowed funds that have higher interest rates. Our expected margin may continue to be impacted by the ~~fourth quarter of 2020~~COVID-19 pandemic, placing loans on non-accrual status, including loans with deferred payments, and ~~placed back on accrual. We anticipate net interest margin to improve to around 3.05% during the fourth quarter of 2020 if we can maintain our nonaccrual loans and reduce our cost of funds.~~changes in competition.

Impact of Transition Away from LIBOR

~~Refer~~The Company had more than $1.5 billion in loans tied to ~~Note 1: Nature of Operations and Summary of Significant~~LIBOR at March 31, 2021. The Company is replacing/adding loan document language to account for the transition away from LIBOR as loans renew or originate. The Company adopted Accounting ~~Policies under the Recent Accounting Pronouncements within the Unaudited Notes to the Consolidated Financial Statements for information regarding the impact~~Standards Update (“ASU”) 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” in 2020. The ASU allows the Company to recognize the modification related to LIBOR ~~transition on~~as a continuation of the ~~Company.~~old contract, rather than a cancellation of the old contract resulting in a write off of unamortized fees and creation of a new contract.

4236

Table of Contents

Non-Interest Income


	For the Quarter Ended
	March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020			March 31, 2020
	(Dollars in thousands)
Total non-interest income	$	4,144		$	2,949		$	4,063		$	2,634		$	2,087
Non-interest income to average assets(1)	0.29		%	0.21		%	0.29		%	0.19		%	0.17		%
(1) Interim periods annualized.

The components of non-interest income were as follows for the periods shown:


		Three Months Ended								Nine Months Ended									Three Months Ended
		September 30,								September 30,									March 31,
						Change								Change									Change
		2020		2019		$		%		2020		2019		$		%			2021		2020		$		%
		(Dollars in thousands)																	(Dollars in thousands)
Service charges and fees on customer accounts	Service charges and fees on customer accounts	$	792	$	72	$	720	1,000	%	$	1,947	$	441	$	1,506	341	%	Service charges and fees on customer accounts	$	957	$	508	$	449	88	%
Gain on sale of available-for-sale debt securities		1,012		34		978		2,876		1,725		467		1,258		269
Impairment of premises and equipment held-for-sale		—		—		—		—		—		(424)		424		(100)
Gain on sale of loans		—		49		(49)		(100)		—		207		(207)		(100)
Realized gains on available-for-sale securities																		Realized gains on available-for-sale securities	10		393		(383)		(97)

Income from bank-owned life insurance	Income from bank-owned life insurance	464		476		(12)		(3)		1,373		1,416		(43)		(3)		Income from bank-owned life insurance	416		456		(40)		(9)
Swap fee income, net		121		1,879		(1,758)		(94)		80		2,415		(2,335)		(97)
Swap fees and credit valuation adjustments, net																		Swap fees and credit valuation adjustments, net	155		(9)		164		1,822
ATM and credit card interchange income	ATM and credit card interchange income	1,482		476		1,006		211		2,863		1,312		1,551		118		ATM and credit card interchange income	2,328		485		1,843		380
Other non-interest income	Other non-interest income	192		226		(34)		(15)		804		695		109		16		Other non-interest income	278		254		24		9
Total non-interest income	Total non-interest income	$	4,063	$	3,212	$	851	26	%	$	8,792	$	6,529	$	2,263	35	%	Total non-interest income	$	4,144	$	2,087	$	2,057	99	%

The changes in non-interest income were driven by the following:

Service Charges and Fees on Customer Accounts - This category includes ~~a rebate program that attracted additional funding for the Bank and~~ account analysis fees ~~that continue to grow with our~~offset by a customer ~~base, including their outstanding balances.~~rebate program. The increase for ~~both~~ the ~~three and nine month periods~~quarter ended ~~September 30, 2020~~March 31, 2021 compared to the same corresponding ~~periods~~period in ~~2019~~2020 was driven ~~by customer growth that resulted~~by a decline in ~~increased analysis fees~~costs associated with our rebate program, including a reduction in the funded balance and reduction in ~~the costs associated with the rebate program.~~rates used. In addition, customer growth and an increase in outstanding balances improved account analysis fees.

~~Gain~~Realized Gains on ~~Sale of~~ Available-for-Sale Securities - The ~~increase in~~decrease for the ~~gain for both the three and nine month periods~~quarter ended ~~September 30, 2020~~March 31, 2021 was primarily due to the ~~declining rate environment, which increased the~~ value and volume of the Company’s securities sold in 2020 ~~compared to~~in the ~~same periods in 2019.~~declining rate environment. The 2020 sales were a strategic decision by management to capitalize on attractive market conditions and improve credit quality.

~~Impairment of Premises and Equipment Held-for-Sale~~ ~~- The Company sold an administration building during the second quarter of 2019 as our service and support members relocated to our new corporate headquarters.~~

Swap Fee ~~Income,~~and Credit Valuation Adjustments, Net - ~~Swap fee income, net~~This category includes ~~both~~ swap fees from the execution of new swaps and the credit valuation adjustment (“CVA”). ~~The decline in swap fee income for both~~Swap fees on new swaps depend on the ~~three~~size and ~~nine month periods ended September 30, 2020~~term of the underlying asset. During the first quarter of 2021, no new swaps were executed compared to two new swaps for the same ~~corresponding periods~~period in ~~2019~~2020. The low volume of new swaps was driven by: (i) a change in the default methodology during the quarter ended September 30, 2019 that resulted in approximately $800 thousand of additional income during that quarter, (ii) management’sdue to management's loan and pricing ~~strategy and (iii) lower loan originations, excluding PPP loans,~~strategy. Increased rates as of March 31, 2021 played a ~~result of~~significant role in the ~~COVID-19 pandemic.~~year-over-year increase.

ATM and Credit Card Interchange Income - The increase in ATM and credit card interchange income for the ~~three and nine month periods~~quarter ended ~~September 30, 2020~~March 31, 2021 compared to the same ~~corresponding periods~~period in ~~2019~~2020 was primarily the result of customers that mobilized their workforce directly impacted by the COVID-19 pandemic. The Company anticipates the credit card activity and related income will decline ~~slightly~~ in connection with a decline in COVID-19 ~~cases.~~

cases and the related vaccine rollout.

4337

Table of Contents

Non-Interest Expense


	For the Quarter Ended
	March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020(1)			March 31, 2020
	(Dollars in thousands)
Total non-interest expense	$	22,818		$	23,732		$	23,011		$	31,010		$	22,215
Non-interest expense to average assets(2)	1.60		%	1.71		%	1.67		%	2.21		%	1.80		%
(1) Total non-interest expense includes $7 million related to goodwill impairment.
(2) Interim periods annualized.

The components of non-interest expense were as follows for the periods indicated:


		Three Months Ended								Nine Months Ended									Three Months Ended
		September 30,								September 30,									March 31,
						Change								Change									Change
		2020		2019		$		%		2020		2019		$		%			2021		2020		$		%
		(Dollars in thousands)																	(Dollars in thousands)
Salary and employee benefits	Salary and employee benefits	$	14,628	$	14,256	$	372	3	%	$	43,022	$	43,296	(274)		(1)	%	Salary and employee benefits	$	13,553	$	14,390	$	(837)	(6)	%
Occupancy	Occupancy	2,144		2,080		64		3		6,274		6,301		(27)		—		Occupancy	2,494		2,085		409		20
Professional fees	Professional fees	1,132		427		705		165		3,098		1,923		1,175		61		Professional fees	782		671		111		17
Deposit insurance premiums	Deposit insurance premiums	1,096		302		794		263		3,151		2,020		1,131		56		Deposit insurance premiums	1,151		1,016		135		13
Data processing	Data processing	652		649		3		—		2,065		1,868		197		11		Data processing	716		692		24		3
Advertising	Advertising	147		580		(433)		(75)		870		1,770		(900)		(51)		Advertising	303		500		(197)		(39)
Software and communication	Software and communication	959		900		59		7		2,772		2,407		365		15		Software and communication	1,065		876		189		22

Foreclosed assets, net	Foreclosed assets, net	20		8		12		150		1,174		33		1,141		3,458		Foreclosed assets, net	50		10		40		400
Goodwill impairment		—		—		—		—		7,397		—		7,397		—

Other non-interest expense	Other non-interest expense	2,233		1,970		263		13		6,421		6,145		276		4		Other non-interest expense	2,704		1,975		729		37
Total non-interest expense	Total non-interest expense	$	23,011	$	21,172	$	1,839	9	%	$	76,244	$	65,763	$	10,481	16	%	Total non-interest expense	$	22,818	$	22,215	$	603	3	%

The changes in ~~non-interest expenses~~noninterest expense were driven by the following:

Salary and Employee Benefits - Salary and employee benefit costs ~~increased~~decreased for the ~~three months~~quarter ended ~~September 30, 2020~~March 31, 2021 compared to the same period in ~~2019~~2020 primarily due to changes in staffing levels. During the ~~overall~~first quarter of 2020, the Company anticipated loan and deposit growth that required an increase in ~~employee count. Salary~~headcount and ~~employee benefit~~resulted in increased compensation costs. As result of the COVID-19 pandemic, the Company optimized staffing levels during the second half of 2020 and savings began to materialize in 2021.

Occupancy - Occupancy costs ~~decreased slightly~~increased for the ~~nine month periods~~quarter ended ~~September 30,~~March 31, 2021 compared to the same period in 2020 primarily due to our new locations in the rapidly growing Frisco, Texas market and our more prominent location on the Country Club Plaza, in Kansas City, Missouri.

Professional Fees - Professional fees increased for the quarter ended March 31, 2021 compared to the same corresponding period in 2019 primarily due to lower incentive compensation expenses. The reduction was partially offset by a slight increase in full-time equivalent employees. As a result of the COVID-19 pandemic, the Company focused on optimizing staffing levels. As a result, the Company anticipates salary costs will decrease slightly during the remainder of the year.

~~Professional Fees~~ ~~- Professional fees increased for both the three and nine month periods ended September 30,~~ 2020 ~~compared to the same corresponding periods in 2019~~ primarily from an increase in legal fees as a result of PPP loans and loan workouts. In addition, the ~~Company incurred fees related to the CEO transition that increased the expense for the three and nine month periods ended September 30, 2020. The~~ Company’s accounting and third-party consulting fees ~~increased in 2020 compared~~continue to ~~2019~~increase due to asset growth and ~~the transition from private to~~operation as a public company.

Deposit Insurance Premiums - The FDIC uses a risk-based premium system to calculate ~~the~~ quarterly ~~fee.~~fees. Our ~~premiums~~premium costs increased for ~~both~~ the ~~three and nine month periods~~quarter ended ~~September 30, 2020~~March 31, 2021 compared to the same ~~corresponding periods~~period in ~~2019~~2020 as a result of strong asset growth, changes ~~to loan mix,~~in asset quality and changes in capital ~~ratios, all of which increased our quarterly fee.~~ratios.

~~Advertising~~Advertising - The decline in advertising costs ~~for the three and nine month periods ended September 30, 2020 primarily resulted from~~was driven by the COVID-19 ~~pandemic. In addition, the year-to-date decline resulted from the Company’s completion of its rebranding campaign~~pandemic that ~~increased the 2019 expense by approximately $184 thousand.~~reduced in-person events.

~~Foreclosed Assets, Net~~Software and Communication - ~~The increase in foreclosed assets, net~~Software and communication costs increased for the three and nine month periods ended September 30, 2020 compared to the same corresponding periods in 2019 primarily resulted from new appraisals obtained that resulted in a $1 million valuation adjustment during the second quarter of 2020.

~~Goodwill Impairment~~ - The Company performed an interim review for goodwill impairment at June 30, 2020. A quantitative review was performed on the Tulsa market reporting unit, using a combination of income and market based approaches. The capitalization of earnings, an income approach, used a single period of cash flows, adjusted for growth and a capitalization rate. The market approach used price-to-book multiples of peer banks and included a control premium. The reporting unit’s fair value was less than its book value and resulted in a $7 million impairment, representing the total value of goodwill previously reported during the quarter ended ~~June 30, 2020. See “Note 6: Goodwill~~March 31, 2021 primarily due to our continued strategy to invest in technologies that allow us to cover beginning-to-end loan originations, provide customers with a suite of online tools and ~~Core Deposit Intangible” within the Unaudited Notes~~allow us to analyze reporting trends. In addition to the ~~Financial Statements for more information.~~growing number of technologies implemented, a portion of costs increased as a result of our growth.

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Other Non-interest Expense- Other non-interest expense increased for the quarter ended March 31, 2021 compared to the same period in 2020 primarily due to a $623 thousand increase in commercial card costs as a result of our growing customer base and increased use as a result of the COVID-19 pandemic. In addition, insured cash sweep (“ICS”) deposits increased in 2021 from 2020, which drove related fees higher by $125 thousand. These changes were partly offset by the Company continuing to realize benefits in 2021 from reduced travel, entertainment and other discretionary spending as a result of the COVID-19 pandemic.

Income Taxes


	For the Quarter Ended
	March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020			March 31, 2020
	(Dollars in thousands)
Income tax expense (benefit)	$	2,908		$	1,785		$	1,498		$	(863)		$	293
Income (loss) before income taxes	$	14,943		$	9,879		$	9,504		$	(8,219)		$	4,150
Effective tax rate	19		%	18		%	16		%	10		%	7		%

Our income tax expense (benefit) 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, tax-exempt municipal securities and tax credit bonds; state tax credits; and permanent tax differences from goodwill impairment and equity-based compensation. Refer to ~~Note 11:~~“Note 10: Income ~~Tax~~Tax” within the Notes to the Unaudited Financial Statements for more information.

Analysis of Financial Condition

Securities Portfolio

The securities portfolio is maintained to serve as a contingent, on-balance sheet source of liquidity. The objective of the investment portfolio is to optimize earnings, manage credit and interest rate risk, ensure adequate liquidity, and meet pledging and regulatory capital requirements. As of ~~September 30, 2020,~~March 31, 2021, available-for-sale investments totaled ~~$652~~$685 million, an ~~$89~~increase of $31 million ~~decrease~~ from December 31, ~~2019. Our securities portfolio declined due to the sale of securities showing signs of credit stress, faster prepayments and low reinvestment yield options.~~2020. For additional information, see “Note 3: Securities” in the Notes to the Unaudited Consolidated Financial Statements.

Loan Portfolio

Refer to “Note 4: Loans and Allowance for Loan Losses (“ALLL”)” within the ~~Unaudited~~ Notes to the Unaudited Consolidated Financial Statements for additional information regarding the Company’s loan portfolio. As of ~~September 30, 2020~~March 31, 2021, gross loans increased ~~$631~~$68 million or ~~16%~~2% from December 31, ~~2019~~2020 and was driven by the following:

PPP - ~~The Company funded~~ PPP loans ~~in the second quarter of 2020 as a result of the COVID-19 pandemic. At September 30, 2020 PPP loans represented 58% of the net loan growth~~increased $44 million or 15% from December 31, ~~2019.~~2020 to March 31, 2021. PPP loan activity is detailed in the “First Quarter 2021 Highlights ” section within Management’s Discussion and Analysis. The loans are guaranteed by the SBA, earn interest at 1.00%, and include a fee. The PPP loans will decline as the SBA forgives the loans and provides repayment to the Bank.

~~Residential Real Estate~~Construction and Land Development - The ~~$219~~$54 million or 55% increase between December 31, 2019 and September 30, 2020 was from developing relationships with key residential and multifamily real estate developers in our markets. The increase from December 31, 2019 included new loan funding of approximately $113 million with the remaining growth coming from existing loan relationships.

~~Commercial Real Estate~~ ~~- The $172 million or 17%~~10% increase was driven by ~~activity in our Dallas and Kansas City markets. Approximately 75%~~customer drawdowns on lines of the portfolio is located in Kansas, Missouri, Oklahoma, and Texas. Texas, our largest state concentration, represented approximately 29% of the portfolio as of September 30, 2020. The portfolio remains well diversified with growth in the office space, industrial, and senior living sectors, among others.credit primarily for commercial projects.

Energy - Our energy portfolio declined ~~$24~~$2 million ~~or 6%~~ from December 31, ~~2019~~2020 to ~~September 30, 2020.~~March 31, 2021. Customers remain impacted by lower oil and natural gas prices that has strained operating cash flow and ability to pay down their lines of credit. The Company expects the energy portfolio to decline further as part of management’s strategy to lower our oil and gas loan concentrations.

Commercial - ~~Declines resulted from increased~~The $55 million decline in commercial loans was driven by charge-offs taken in the first quarter of 2021, an increase in pay downs and ~~charge-offs.~~$28 million of loans sold to a third-party. The loans sold were written down to the sales price prior to the sale.

Table of Contents

The following table shows the contractual maturities of our gross loans and sensitivity to interest rate changes:


	As of March 31, 2021
	Due in One Year or Less				Due after One Year through Five Years				Due after Five Years 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	$	63,678	$	329,338	$	283,206	$	513,545	$	20,939	$	73,341	$	—	$	—	$	1,284,047
Energy	52		193,485		451		148,911		—		—		—		—		342,899
Commercial real estate	103,513		139,707		346,489		295,986		47,092		251,547		—		7,300		1,191,634
Construction and land development	4,411		75,857		33,557		444,016		—		29,768		6,860		22,731		617,200
Residential and multifamily real estate	20,344		112,806		69,230		143,924		110,117		8,675		176		222,621		687,893
PPP	—		—		336,355		—		—		—		—		—		336,355
Consumer	16,799		11,212		4,767		12,534		—		15,332		—		2,273		62,917
Gross loans	$	208,797	$	862,405	$	1,074,055	$	1,558,916	$	178,148	$	378,663	$	7,036	$	254,925	$	4,522,945

Provision and Allowance for Loan Losses (“ALLL”)

There are significant uncertainties regarding the ultimate effects of the COVID-19 pandemic. Depending upon the extent and duration of the future impact of the COVID-19 pandemic, we may need to make additional increases to our provision for loan losses in future periods. To the extent the pandemic continues to cause a recession or decrease economic activity for an extended time period, we expect our business and operations will be negatively impacted. Customers may seek additional loan modifications or restructuring, or we may experience adverse movement in risk classifications, any of which could potentially result in the need to increase provisions and impact the ALLL.

~~Table of Contents~~


	For the Quarter Ended
	March 31, 2021		December 31, 2020		September 30, 2020		June 30, 2020		March 31, 2020
	(Dollars in thousands)
Provision for loan losses	$	7,500	$	10,875	$	10,875	$	21,000	$	13,950
Allowance for loan losses	74,551		75,295		76,035		71,185		51,458
Net charge-offs	$	8,244	$	11,615	$	6,025	$	1,273	$	19,388

Refer to “Note 4: Loans and Allowance for Loan Losses (“ALLL”)” within the ~~Unaudited~~ Notes to the Unaudited Consolidated Financial Statements for information regarding the Company’s ALLL process. The ALLL at ~~September 30, 2020,~~March 31, 2021 represents our best estimate of the incurred credit losses inherent in the loan portfolio at that date. The allocation in one portfolio segment does not preclude its availability to absorb losses in other segments. The table below presents the allocation of the allowance for loan losses as of the dates indicated:


		September 30, 2020				December 31, 2019					March 31, 2021				December 31, 2020
		Amount		Percent of Allowance to Total Allowance		Amount		Percent of Allowance to Total Allowance			Amount		Percent of Allowance to Total Allowance		Amount		Percent of Allowance to Total Allowance
		(Dollars in thousands)									(Dollars in thousands)
Commercial	Commercial	$	28,203	37	%	$	35,864	63	%	Commercial	$	23,464	32	%	$	24,693	33	%
Energy	Energy	19,540		26		6,565		12		Energy	20,292		27		18,341		24
Commercial real estate	Commercial real estate	17,807		23		8,085		14		Commercial real estate	20,609		28		22,354		29
Construction and land development	Construction and land development	4,489		6		3,516		6		Construction and land development	3,837		5		3,612		5
Residential real estate		5,494		7		2,546		4
Residential and multifamily real estate										Residential and multifamily real estate	6,056		8		5,842		8
PPP	PPP	—		—		—		—		PPP	—		—		—		—
Consumer	Consumer	502		1		320		1		Consumer	293		—		453		1
Gross loans	Gross loans	$	76,035	100	%	$	56,896	100	%	Gross loans	$	74,551	100	%	$	75,295	100	%

Table of Contents

Activity in the allowance for loan losses is presented in the following table:


		Three Months Ended				Nine Months Ended						Three Months Ended
		September 30,				September 30,						March 31,
		2020		2019		2020		2019				2021		2020
		(Dollars in thousands)								(Dollars in thousands)
Allowance for loan losses:	Allowance for loan losses:										Allowance for loan losses:
Balance at beginning of period	Balance at beginning of period	$	71,185	$	42,852	$	56,896	$	37,826		Balance at beginning of period	$	75,295	$	56,896
Provision for loan losses	Provision for loan losses	10,875		4,850		45,825		10,550			Provision for loan losses	7,500		13,950
Charge-offs:	Charge-offs:										Charge-offs:
Commercial	Commercial	(5,781)		(1,700)		(23,946)		(2,954)			Commercial	(8,266)		(18,077)
Energy	Energy	—		(3,000)		(2,278)		(3,000)			Energy	—		(1,279)

Residential real estate		(256)		—		(445)		—
Commercial real estate											Commercial real estate	—		—
Construction and land development											Construction and land development	—		—
Residential and multifamily real estate											Residential and multifamily real estate	—		—

Consumer	Consumer	—		(8)		(104)		(19)			Consumer	—		(104)
Total charge-offs	Total charge-offs	(6,037)		(4,708)		(26,773)		(5,973)			Total charge-offs	(8,266)		(19,460)
Recoveries:	Recoveries:										Recoveries:
Commercial	Commercial	2		1		75		15			Commercial	22		71
Energy	Energy	—		—		—		576			Energy	—		—

Commercial real estate											Commercial real estate	—		—
Construction and land development											Construction and land development	—		—
Residential and multifamily real estate											Residential and multifamily real estate	—		—

Consumer	Consumer	10		—		12		1			Consumer	—		1
Total recoveries	Total recoveries	12		1		87		592			Total recoveries	22		72
Net (charge-offs) recoveries		(6,025)		(4,707)		(26,686)		(5,381)
Net charge-offs											Net charge-offs	(8,244)		(19,388)
Balance at end of period	Balance at end of period	$	76,035	$	42,995	$	76,035	$	42,995		Balance at end of period	$	74,551	$	51,458

A discussion of the changes in the ALLL is provided below:

Charge-offs and Recoveries:

During the ~~quarter~~three-months ended ~~September 30, 2020, the Company charged-off $6 million~~March 31, 2021, charge-offs primarily related to atwo commercial ~~loan as part of a restructuring plan.~~borrowers that were unable to support their debt obligations. The ~~majority of~~$8 million charged-off was greater than the ~~charge-off was not previously~~ reserved ~~for~~balance in the ALLL at December 31, 2020 resulting in ana $5 million increase toin the ~~quarterly provision. For~~provision during the quarter ended ~~June 30, 2020, the Company charged-off one energy loan that was classified for several years. During~~March 31, 2021.

For the quarter ended March 31, 2020, net charge-offs included an $18 million charge-off related to a previously disclosed non-performing, commercial loan. The commercial loan had a specific reserve associated with it as of December 31, 2019, resulting in a limited impact to the first quarter 2020 provision. In addition, the Company charged off $1 million related to one oil exploration and production credit.

~~Table of Contents~~

~~For the three and nine month periods ended September 30, 2019, net charge-offs primarily related to one energy relationship and one commercial loan relationship.~~

~~Substandard, Accruing Loans:~~

Prior to June 30, 2020, loans risk rated substandard or lower were considered impaired and evaluated on an individual basis. Subsequent to June 30, 2020 loans risk rated substandard and on accrual were evaluated collectively. The change in approach provided a better estimate of potential losses inherent in the substandard portfolio. Substandard, accruing loans totaled $200 million at June 30, 2020 and $224 million at September 30, 2020. The linked quarter change increased the ALLL by approximately $2 million.

~~Grade Migration:~~

The Company downgraded approximately $833 million of loans between December 31, 2019 and September 30, 2020, including $731 million in the second quarter of 2020, representing 17% of the June 30, 2020 loan portfolio. Downgrades primarily resulted from the COVID-19 pandemic, lower economic activity, and lower oil and gas prices. Loan categories significantly impacted by downgrades are discussed below.

~~Energy~~-The increase in supply realized during the first quarter and decrease in demand for oil and natural gas created by the COVID-19 pandemic placed considerable pricing volatility and uncertainty in the market during the first quarter of 2020. As a result, a qualitative adjustment was made on the energy portfolio that increased the ALLL by $2 million from December 31, 2019 to March 31, 2020. The Company monitored borrowers’ reactions to the lower oil and gas prices during the second quarter of 2020. As a result, $239 million of energy loans were downgraded, including $85 million downgraded to substandard and accruing in the second quarter of 2020. The downgrades increased the ALLL by approximately $9 million during the second quarter of 2020. The downgrades were partially offset by removing energy’s qualitative factor added in the first quarter of 2020. In the third quarter of 2020, the Company downgraded $75 million of energy loans that increased the ALLL by $2 million.

~~Commercial Real Estate (“CRE”)~~ - The decline in economic activity in the first half of 2020 impacted our CRE borrowers. During the second quarter of 2020, the Company downgraded $300 million of commercial real estate loans, including $240 million downgraded to watch, within our pass rated loan category, and $22 million downgraded to substandard and accruing. The downgrades increased the ALLL by approximately $4 million during the second quarter of 2020. During the third quarter of 2020, the Company downgraded $34 million of CRE loans that had a limited impact on the ALLL. The remaining increase in the ALLL during 2020 was primarily the result of changes in impaired loan reserves and increases in quantitative and qualitative factors on pass-rated loans.

~~Commercial~~ - The decline in economic activity in the first half of 2020 significantly impacted supply and demand for products and services in the commercial portfolio. As a result, $35 million of commercial loans were downgraded in the first quarter of 2020. $170 million of loans were downgraded in the second quarter of 2020, including $41 million of loans listed as substandard and accruing. The downgrades increased the ALLL by approximately $3 million from December 31, 2019 to June 30, 2020. In addition, substandard, accruing loans evaluated on an individual basis at March 31, 2020 that were evaluated collectively at June 30, 2020, increased the ALLL by $3 million. During the third quarter of 2020, $80 million of commercial loans were downgraded that increased the ALLL by $1 million.

~~Impaired Loans and Other Factors:~~

For the nine month period ended September 30, 2020, the impaired loan portfolio increased the ALLL by $2 million after taking out the impact of the charge-offs mentioned above. For the nine months ended September 30, 2020, changes in qualitative and quantitative rates on pass rated loans increased the ALLL by $5 million due to declines in economic activity and the COVID-19 pandemic.

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The below table provides the ratio of net charge-offs (recoveries) during the period to average loans outstanding based on our loan categories:


	For the Quarter Ended(1)
	March 31, 2021		December 31, 2020		September 30, 2020		June 30, 2020		March 31, 2020
Commercial	2.47	%	2.07	%	1.72	%	0.03	%	5.37	%
Energy	—		3.16		—		1.04		1.27
Commercial real estate	—		0.53		—		—		—
Construction and land development	—		—		—		—		—
Residential and multifamily real estate	—		(0.02)		0.18		0.15		—
PPP	—		—		—		—		—
Consumer	—		—		(0.09)		(0.01)		0.93
Total net charge-offs to average loans	0.74	%	1.03	%	0.54	%	0.12	%	2.00	%
(1) Interim periods annualized.

Impact of Risk Rating and Loss Ratio Changes:

Loans risk rated “special mention” and “accruing, substandard” that are not TDRs declined $38 million between December 31, 2020 and March 31, 2021 resulting in a $2 million decrease to the required reserve. The decline was driven by two commercial loans partially charged-off, discussed above, totaling $28 million that were sold in the first quarter of 2021. In addition, several loan upgrades were made due to an improving economy.

The commercial loan portfolio saw increased charge-offs over the past several quarters. The charge-offs impacted the commercial loan historical loss factor that resulted in an $860 thousand increase to the required reserve during the first quarter of 2021.

Impaired Loans and Other Factors:

Impaired loans declined $13 million between December 31, 2020 and March 31, 2021, driven by an $8 million loan upgraded due to an increase in capital that reduced the ALLL by $1 million and a $5 million decline as a result of payments made by several borrowers that reduced the ALLL by $1 million. The reduction in the ALLL was offset by an increase of $2 million as a result of changes in underlying collateral values.

Nonperforming Assets and Other Asset Quality Metrics

Nonperforming assets include: (i) ~~Nonperforming~~nonperforming loans - includes non-accrual loans, loans past due 90 days or more and still accruing interest, and loans modified under troubled debt restructurings (“TDRs”) that are not performing in accordance with their modified terms; (ii) foreclosed assets held for sale; (iii) repossessed assets; and (iv) impaired securities.

Nonaccrual loans ~~increased $38~~declined $12 million during the quarter ended ~~September 30, 2020. The increase included a commercial loan participation restructured in the fourth quarter of 2020, a~~March 31, 2021 primarily due to one commercial real estate loan impacted by the COVID-19 pandemic, and an energy loan impacted by low oil prices. As part of the commercial loan restructured in the fourth quarter of 2020, the Company took an ownership position in the borrower that ~~reduced the overall loan balance. The reduction in the loan~~recapitalized its balance ~~should allow the borrower to pay all principal and interest when due~~sheet and was placed back on ~~accrual status~~accrual. In addition, several commercial borrowers were able to pay down a portion of the outstanding loan balance during the ~~fourth~~ quarter ended March 31, 2021. Nonaccrual energy loans increased slightly between December 31, 2020 and March 31, 2021 as oil and natural gas borrowers struggled from the effects of ~~2020. During~~low oil and gas prices over the ~~second~~past year. We anticipate improving credit metrics over the next quarter ofas the economy rebounds.

During 2020, nonaccrual loans increased primarily from energy loans that did not meet the criteria to be modified under the CARES ~~Act. The $4 million increase in~~Act and several loans ~~past due 90 days or more and still accruing primarily related to a residential real estate loan that was in~~impacted by the ~~process~~COVID-19 pandemic.

Table of ~~refinancing.~~Contents

Our nonperforming assets at September 30, 2020 increased by $35 million, as compared to September 30, 2019 primarily related to the nonaccrual loan changes mentioned above, offset by an $18 million charge-off on a commercial loan that occurred in the first quarter of 2020.

The table below summarizes our nonperforming assets and related ratios as of the dates indicated:

September 30,
2020 June 30,
2020 March 31,
2020 December 31,
2019 September 30,
2019
(Dollars in thousands)
Nonaccrual loans $ 75,560 $ 37,534 $ 26,255 $ 39,675 $ 43,626
Loans past due 90 days or more and still accruing 4,324 220 — 4,591 642
Total nonperforming loans 79,884 37,754 26,255 44,266 44,268
Foreclosed assets held for sale 2,349 2,502 3,619 3,619 2,471
Total nonperforming assets $ 82,233 $ 40,256 $ 29,874 $ 47,885 $ 46,739
Nonaccrual loans to total loans 1.68 % 0.85 % 0.66 % 1.03 % 1.20 %
ALLL to nonaccrual loans 100.63 % 189.66 % 195.99 % 143.41 % 98.55 %
Nonperforming assets to total assets 1.49 % 0.74 % 0.59 % 0.97 % 1.00 %
Nonperforming loans to total loans 1.78 % 0.86 % 0.66 % 1.15 % 1.22 %
ALLL to nonperforming loans 95.18 % 188.55 % 195.99 % 128.54 % 97.12 %

~~Table of Contents~~


	For the Quarter Ended
	March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020			March 31, 2020
	(Dollars in thousands)









Nonaccrual loans	$	63,319		$	75,051		$	75,560		$	37,534		$	26,255









Loans past due 90 days or more and still accruing	3,183			1,024			4,324			220			—










Total nonperforming loans	66,502			76,075			79,884			37,754			26,255
Foreclosed assets held for sale	2,347			2,347			2,349			2,502			3,619


Total nonperforming assets	$	68,849		$	78,422		$	82,233		$	40,256		$	29,874
ALLL to total loans	1.65		%	1.70		%	1.70		%	1.61		%	1.29		%
ALLL to nonaccrual loans	117.74			100.33			100.63			189.66			195.99
ALLL to nonperforming loans	112.10			98.98			95.18			188.55			195.99
Nonaccrual loans to total loans	1.40			1.69			1.68			0.85			0.66
Nonperforming loans to total loans	1.48			1.71			1.78			0.86			0.66
Nonperforming assets to total assets	1.15		%	1.39		%	1.49		%	0.74		%	0.59		%

Other asset quality metrics management reviews include loans past due 30 - 89 days and classified loans. The Company defines classified loans as loans categorized as substandard - performing, substandard - nonperforming, doubtful, or loss. The definitions of substandard, doubtful and loss are provided in “Note 4 - Loans and Allowance for Loan Losses” in the Notes to the Unaudited Consolidated Financial Statements. The following table summarizes our loans past due 30 - 89 days, classified assets and related ratios as of the dates indicated:


		September 30, 2020			June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019				March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020			March 31, 2020
		(Dollars in thousands)																(Dollars in thousands)
Loan Past Due Detail	Loan Past Due Detail																Loan Past Due Detail
30 - 59 days past due	30 - 59 days past due	$	15,324		$	14,205		$	12,934		$	6,292		$	61,941		30 - 59 days past due	$	10,583		$	10,137		$	15,324		$	14,205		$	12,934
60 - 89 days past due	60 - 89 days past due	30,027			20,676			6,604			530			2,785			60 - 89 days past due	403			7,941			30,027			20,676			6,604
Total 30 - 89 days past due	Total 30 - 89 days past due	$	45,351		$	34,881		$	19,538		$	6,822		$	64,726		Total 30 - 89 days past due	$	10,986		$	18,078		$	45,351		$	34,881		$	19,538
Loans 30 - 89 days past due / gross loans	Loans 30 - 89 days past due / gross loans	1.01		%	0.79		%	0.49		%	0.18		%	1.78		%	Loans 30 - 89 days past due / gross loans	0.24		%	0.41		%	1.01		%	0.79		%	0.49		%

Classified Loans	Classified Loans																Classified Loans
Substandard - performing	Substandard - performing	$	224,352		$	199,595		$	80,876		$	47,221		$	41,546		Substandard - performing	$	205,560		$	211,008		$	224,352		$	199,595		$	80,876
Substandard - nonperforming	Substandard - nonperforming	67,765			29,030			19,555			34,192			37,990			Substandard - nonperforming	57,967			70,734			67,765			29,030			19,555
Doubtful	Doubtful	7,794			8,504			4,088			5,483			5,637			Doubtful	5,352			4,315			7,794			8,504			4,088
Loss	Loss	—			—			—			—			—			Loss	—			—			—			—			—
Total classified loans	Total classified loans	299,911			237,129			104,519			86,896			85,173			Total classified loans	268,879			286,057			299,911			237,129			104,519
Foreclosed assets held for sale	Foreclosed assets held for sale	2,349			2,502			3,619			3,619			2,471			Foreclosed assets held for sale	2,347			2,347			2,349			2,502			3,619
Total classified assets	Total classified assets	$	302,260		$	239,631		$	108,138		$	90,515		$	87,644		Total classified assets	$	271,226		$	288,404		$	302,260		$	239,631		$	108,138
Classified loans / (total capital + ALLL)	Classified loans / (total capital + ALLL)	43.2		%	34.9		%	15.8		%	13.2		%	13.2		%	Classified loans / (total capital + ALLL)	38.2		%	40.9		%	43.2		%	34.9		%	15.8		%
Classified assets / (total capital + ALLL)	Classified assets / (total capital + ALLL)	43.6		%	35.3		%	16.3		%	13.7		%	13.6		%	Classified assets / (total capital + ALLL)	38.6		%	41.2		%	43.6		%	35.3		%	16.3		%
ALLL to total loans		1.70		%	1.61		%	1.29		%	1.48		%	1.18		%
Net charge-offs to average loans(1)		0.54		%	0.12		%	2.00		%	0.58		%	0.53		%
(1) interim periods are annualized.

During the quarter ended ~~September 30, 2020,~~March 31, 2021, past due loans between 30 to 89 days declined primarily ~~included a $28 million commercial loan placed on nonaccrual. The remainder is driven by an $8 million commercial loan in the process of renewal. For the first half of 2020, the increase in past~~ due ~~loans was driven by energy loans impacted by lower oil and gas prices and~~to a commercial real estate ~~loan.~~loan that was recapitalized, which allowed the borrower to pay all past due amounts. Loans past due between 30 and 89 days at March 31, 2021 included a $6 million commercial loan and several smaller loans.

The Company's classified assets as of ~~September 30, 2020 increased $212~~March 31, 2021 decreased $17 million ~~or 234%~~ since December 31, ~~2019. Grade migration as discussed above is driving the change.~~

Potential problem loans consist of loans that are performing in accordance with contractual terms, but for which we have concerns about the borrower’s ability to comply with repayment terms and may result in disclosure as an impaired loan next quarter. At September 30, 2020, the Company had approximately $392020. The decline was driven by $30 million of ~~potential problem~~commercial and commercial real estate loans ~~that were either criticized or a performing, substandard loan. The Company monitors these~~upgraded due to improvements in the borrowers’ capital structure and $8 million in pay downs from classified loans, ~~through communication with the borrower(s)~~offset by an increase of approximately $21 million in downgraded loans, primarily from our energy and ~~regular performance reviews. Although these loans are generally identified as potential problem loans, they may never become nonperforming.~~commercial loan portfolio.

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Deposits and Other Borrowings

The following table sets forth the maturity of time deposits as of March 31, 2021:


	As of March 31, 2021
	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	$	111,656	$	103,081	$	63,493	$	44,464	$	322,694
Time deposits below FDIC insurance limit	198,577		141,545		145,496		123,479		609,097
Total	$	310,233	$	244,626	$	208,989	$	167,943	$	931,791

At ~~September 30, 2020,~~March 31, 2021, our deposits totaled $4$5 billion, an increase of ~~$569~~$357 million or ~~14%~~8% from December 31, ~~2019.~~2020. Of this increase, ~~$232~~$76 million were noninterest-bearing deposits ~~driven by proceeds from PPP loans during the second quarter of 2020. In addition, customers transitioned from time deposits to savings~~ and ~~interest checking deposits due to the declining interest rate environment that resulted in a $99~~$392 million ~~decline in time deposits and a $436 million increase in~~were money market, NOW and savings deposits. Deposit increases were driven by a customer relationship that mobilized their workforce directly impacted by the COVID-19 pandemic. The increases were offset by a $112 million decrease in time deposits between December 31, 2020 to March 31, 2021 as a result of maturities and the current interest rate environment.

Other borrowings include repurchase agreements, fed funds purchased, FHLB advances, and our trust preferred security. At ~~September 30, 2020,~~March 31, 2021, other borrowings totaled ~~$351~~$287 million, a ~~$24~~$9 million or 6%3% decrease from December 31, ~~2019.~~2020. The decline was driven by ~~short-term funds maturing~~borrowings that matured and ~~borrowing payoffs~~were not replaced during the quarter due to increased Company liquidity.

As of March 31, 2021, the Company had approximately $3 billion of uninsured deposits, which is an estimated amount based on the same methodologies and assumptions used for the bank’s regulatory requirements. The Company believes that its current capital ratios and liquidity ~~from security sales, loan payoffs~~are sufficient to mitigate the risks of uninsured deposits.

As of March 31, 2021, the Company had approximately $600 million of deposits with one customer relationship. The Company evaluated the deposit concentration and ~~deposit growth.~~determined that a significant reduction to these deposits would not adversely impact the Company as sufficient liquidity is accessible and at favorable rates.

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Liquidity

The Company’s liquidity strategy is to maintain adequate, but not excessive, liquidity to meet the daily cash flow needs of its clients while attempting to achieve adequate earnings for its stockholders. The liquidity position is monitored continuously by the Company’s finance department. Liquidity resources can be derived from two sources: (i) on-balance sheet liquidity resources, which represent funds currently on the balance sheet and (ii) off-balance sheet liquidity resources, which represent funds available from ~~third party~~third-party sources. Our on-balance sheet and off-balance sheet liquidity resources consisted of the following as of the dates indicated:


		September 30, 2020			December 31, 2019				March 31, 2021			December 31, 2020
		(Dollars in thousands)							(Dollars in thousands)

Total on-balance sheet liquidity	Total on-balance sheet liquidity	$	847,706		$	888,080		Total on-balance sheet liquidity	$	1,304,002		$	1,046,110

Total off-balance sheet liquidity	Total off-balance sheet liquidity	656,602			524,332			Total off-balance sheet liquidity	748,177			756,325
Total liquidity	Total liquidity	$	1,504,308		$	1,412,412		Total liquidity	$	2,052,179		$	1,802,435
On-balance sheet liquidity as a percent of assets	On-balance sheet liquidity as a percent of assets	15		%	18		%	On-balance sheet liquidity as a percent of assets	22		%	19		%
Total liquidity as a percent of assets	Total liquidity as a percent of assets	27		%	29		%	Total liquidity as a percent of assets	34		%	32		%

The Company believes that its current liquidity will be sufficient to meet anticipated cash requirements for the next 12 months.

Contractual Obligations

In the first quarter of 2021, the Company entered into an agreement with a third-party, venture capital firm. The Company will invest up to $3 million into the venture capital fund. The fund was designed to invest in companies that solve problems for community banks and help accelerate technology adoption for community banks.

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Refer to “Note 7:6: Time Deposits and Borrowings” within the ~~Unaudited~~ Notes to the Unaudited Consolidated Financial Statements for our significant contractual cash obligations to third parties. In addition, ~~our~~the Company has various lease agreements with approximately $30 million of future minimum lease ~~obligations totaled $31 million~~payments at ~~September 30, 2020 and included our Frisco, Texas and Kansas City, Missouri leases established in 2020.~~ March 31, 2021.

Contractual obligations may be satisfied through our on-balance sheet and off-balance sheet liquidity discussed above.

Capital Resources and Off-Balance Sheet Arrangements

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. The regulatory capital requirements involve quantitative measures of the Company’s assets, liabilities, select off-balance sheet items and equity. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Refer to “Note 8: Regulatory Matters” in the Notes to the Unaudited Consolidated Financial Statements for additional information. Management believes that as of ~~September 30, 2020,~~March 31, 2021, the Company and the ~~Bank~~bank met all capital adequacy requirements to which they are subject. ~~For additional information, see~~ ~~“Note 9: Regulatory Matters” in~~ ~~the Unaudited Notes to Consolidated Financial Statements.~~

The Company aggressively stress-tested its credit and capital during the second quarter of 2020 using Federal Reserve-defined and other more stressful COVID-19 pandemic recessionary scenarios. We modeled an immediate absorption to our capital of 13 quarters of losses utilizing historical loss factors provided by the Federal Reserve for banks between $1 billion and $10 billion. The second quarter common equity tier 1 ratio stress test results showed that the Company is well-capitalized under these pandemic scenarios. The Company’s actual capital levels in future periods are subject to the uncertain impact of the pandemic and related economic conditions.

The Company is subject to off-balance sheet risk in the normal course of business to meet the needs of its clients that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Refer to “Note ~~13:~~12: Commitments and Credit Risk” in the ~~Unaudited~~ Notes to Unaudited Consolidated Financial Statements for a breakout of our off-balance sheet arrangements. As of ~~September 30, 2020,~~March 31, 2021, the Company believes it has sufficient access to liquid assets to support the funding of these commitments.

Critical Accounting Policies and Estimates

The Company identified several accounting policies that are critical to an understanding of our financial condition and results of operations. These policies require difficult, subjective or complex judgments and assumptions that create potential sensitivity of our financial statements to those judgments and assumptions. These policies relate to the allowance for loan and lease losses, investment securities impairment, deferred tax assets, and the fair value of financial instruments. 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 ~~2019~~2020 Form 10-K.

~~During the first quarter of 2020, the Company adopted~~ ~~ASU 2017-04: Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~. The ASU simplified the methodology to calculate goodwill impairment by removing a second step required under the old method to determine if goodwill was impaired. The Company believed the updated methodology significantly reduced the complexity to calculate goodwill impairment during the second quarter of 2020 when goodwill was fully impaired.

~~Table of Contents~~

The CARES Act allows financial institutions to elect not to consider whether loan modifications relating to the COVID-19 pandemic that they make between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the national emergency related to the COVID-19 pandemic ends are TDRs that would require additional disclosures. The relief can be applied to modifications of loans to borrowers that were not more than 30 days past due as of December 31, 2019. The Company elected to apply the guidance during the first quarter of 2020 and for periods thereafter. The review of loans that meet the criteria is overseen by the Office of the Chief Credit Officer.

~~Besides the accounting policy changes mentioned above, there~~There have been no additional changes in the Company’s application of critical accounting policies since December 31, ~~2019.~~2020.

Recent Accounting Pronouncements

Refer to “Note 1: Nature of Operations and Summary of Significant Accounting Policies” included in the ~~unaudited~~ Notes to the Unaudited Consolidated Financial Statements included elsewhere in this Form 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

A primary component of market risk is interest rate volatility. Interest rate risk management is a key element of the Company’s balance sheet management. Interest rate risk is the risk that NIM will erode over time due to changing market conditions. Many factors can cause margins to erode: (i) lower loan demand; (ii) increased competition for funds; (iii) weak pricing policies; (iv) balance sheet mismatches; and (v) changing liquidity demands. The objective is to maximize income while minimizing interest rate risk. The Company manages its sensitivity position using its interest rate risk policy. The management of interest rate risk is a three-step process and involves: (i) measuring the interest rate risk position; (ii) policy constraints; and (iii) strategic review and implementation.

Our exposure to interest rate risk is managed by the Funds Management Committee (“FMC”). The FMC uses a combination of three systems to measure the balance sheet’s interest rate risk position. The three systems in combination are expected to provide a better overall result than a single system alone. The three systems include: (i) gap reports; (ii) earnings simulation; and (iii) economic value of equity. The FMC’s primary tools to change the interest rate risk position are: (i) investment portfolio duration; (ii) deposit and borrowing mix; and (iii) on balance sheet derivatives.

The FMC evaluates interest rate risk using a rate shock method and rate ramp method. In a rate shock analysis, rates change immediately and the change is sustained over the time horizon. In a rate ramp analysis, rate changes occur gradually over time. The following tables summarize the simulated changes in net interest income and fair value of equity over a 12-month horizon using a rate shock and rate ramp method as of the dates indicated:

Hypothetical Change in Interest Rate - Rate Shock
September 30, 2020 September 30, 2019
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 1.2 % (7.2) % 12.0 % (2.6) %
+200 1.0 (3.2) 8.6 (0.4)
+100 0.3 (0.8) 4.7 0.5
Base — % — % — —
-100
NA(1)
NA(1)
(5.0) 0.1
-200
NA(1)
NA(1)
(11.3) % 1.2 %
(1) The Company decided to exclude the down rate environment from its analysis for the period ended September 30, 2020 due to the already low interest rate environment.

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Hypothetical Change in Interest Rate - Rate Shock
	March 31, 2021				March 31, 2020
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	0.7	%	(12.2)	%	8.1	%	(4.5)	%
+200	(0.1)		(7.5)		5.7		(0.7)
+100	(0.6)		(3.6)		2.9		1.2
Base	—	%	—	%	—	%	—	%
-100	NA(1)		NA(1)		NA(1)		NA(1)
-200	NA(1)		NA(1)		NA(1)		NA(1)
(1) The Company decided to exclude the down rate environment from its analysis due to the already low interest rate environment.


Hypothetical Change in Interest Rate - Rate Ramp	Hypothetical Change in Interest Rate - Rate Ramp					Hypothetical Change in Interest Rate - Rate Ramp
		September 30, 2020		September 30, 2019				March 31, 2021		March 31, 2020
Change in Interest Rate (Basis Points)	Change in Interest Rate (Basis Points)	Percent change in net interest income		Percent change in net interest income			Change in Interest Rate (Basis Points)	Percent change in net interest income		Percent change in net interest income
+300	+300	1.3	%	7.4	%		+300	0.3	%	4.8	%
+200	+200	0.8		5.1			+200	(0.2)		3.2
+100	+100	0.3		2.6			+100	(0.4)		1.6
Base	Base	—		—			Base	—		—
-100	-100	NA(1)		(2.8)			-100	NA(1)		NA(1)
-200	-200	NA(1)		(6.2)	%		-200	NA(1)		NA(1)
(1) The Company decided to exclude the down rate environment from its analysis for the period ended September 30, 2020 due to the already low interest rate environment.
(1) The Company decided to exclude the down rate environment from its analysis due to the already low interest rate environment.							(1) The Company decided to exclude the down rate environment from its analysis due to the already low interest rate environment.

The Company’s position is relatively neutral as of March 31, 2021. The hypothetical change in net interest income as of ~~September 30, 2020~~March 31, 2021 in an up 100 and 200 basis point shock is mainly due to ~~approximately 70%~~floors on variable rate loans that limit interest income growth as rates start to rise and the number of fixed-rate PPP loans outstanding. In addition, the Company reduced wholesale deposits and time deposits to lower interest rate sensitivity in the current low rate environment. As a result, our interest-bearing liabilities reprice faster than our earning assets ~~repricing or maturing over the next 12 months. Loans remain the largest portion of our adjustable earning assets, as the mix of adjustable loans or loans maturing~~ in ~~one year or less to total loans was~~ 71%.an up 100 and 200 basis point rate environment. The ~~amount of adjustable loans causes the Company to see~~FMC has several options available, including an increase in fixed-rate deposits and using on balance sheet derivatives, that could reduce the short-term, negative impact of a rising interest rate environment. The Company expects that forgiveness of our PPP loans over the near term may improve net interest income ~~in a rising rate environment.~~if rates were to increase. Approximately 67% of the Company’s earning assets reprice or mature over the new 12 months.

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 ~~September 30, 2020.~~March 31, 2021. 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 ~~September 30, 2020.~~March 31, 2021.

Changes in Internal Control over Financial Reporting

There was no change in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that occurred during the ~~third~~first quarter of ~~2020~~2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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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.

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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 ~~Annual Report on~~2020 Form 10-K, ~~for the year ended December 31, 2019, as updated and supplemented in Part II, "Item 1A. Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020,~~ which could materially affect our business, financial condition or results of operations in future periods. ~~These risks are not~~There were no material changes from the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operationsrisk factors disclosed in ~~future periods.~~the 2020 Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Share Repurchase Program

The following table summarizes our repurchases of our common shares for the three-months ended March 31, 2021:


Calendar Month	Total Number of Shares Repurchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that may yet be Purchased as Part of Publicly Announced Plans or Programs
January 1 - 31	52,855	$	10.84	52,855	$	13,382,774
February 1 - 28	—	$	—	—	$	13,382,774
March 1 - 31	35,642	$	13.38	35,642	$	12,905,314
Total	88,497	$	11.87	88,497

On October 20, 2020, the Company announced that its Board of Directors approved a share repurchase program under which the Company may repurchase up to $20 million of its common stock. Repurchases under the program may be made in 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 particular amount of common stock, and it may be suspended at any time at the Company's discretion. No time limit has been set for completion of the program.

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ITEM 6. EXHIBITS

Exhibit Number

Exhibit Description

3.1

Articles of Incorporation of CrossFirst Bankshares, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 as filed with the SEC on July 18, 2019, File No. 333-232704).

3.2

Amendment to Articles of Incorporation of CrossFirst Bankshares, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 as filed with the SEC on July 18, 2019, File No. 333-232704).

3.3

Bylaws of CrossFirst Bankshares, Inc. (incorporated by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-1 as filed with the SEC on July 18, 2019, File No. 333-232704).

10.1 *

Employment Agreement with Jana D. Merfen Dated January 19, 2021

10.2

Amended and Restated Employment Agreement, dated March 15, 2021, between the Company and David O’Toole, incorporated by reference to Form 8-K filed on March 15, 2021

31.1*

Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*

Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1**

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*

XBRL Instance 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

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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.

~~November 3, 2020~~May 6, 2021

/s/ David L. O’Toole

David L. O’Toole

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

5549


	Goodwill		Core Deposit Intangible		Total Intangible Assets
	(Dollars in thousands)
Balance at December 31, 2019	$	7,397	$	297	$	7,694
Impairment	(7,397)		0		(7,397)
Amortization	—		(70)		(70)
Balance at September 30, 2020	$	0	$	227	$	227


	As of or For the Period Ended September 30, 2020
	Outstanding Balance		Total Origination Fees		Earned Fees		Unearned Fees
	(Dollars in thousands)
PPP Loans	$	369,260	$	9,946	$	3,172	$	6,774


Total Loan Modifications by Category Impacted by the COVID-19 Pandemic as of September 30, 2020
	Number of Loans	Value of Loans		Percent of Gross Loans in Category
	(Dollars in thousands)
Commercial	51	$	73,894	6	%
Energy	4	34,683		9
Commercial real estate	31	176,096		15
Construction and land development	2	14,899		3
Residential real estate	5	18,128		3


Total Loan Modifications	93	$	317,700	7	%


Real Estate Industries with Increased Monitoring as of September 30, 2020
Industry	Outstanding Balance		Percent of Gross Loans
	(Dollars in thousands)
Retail	$	187,140	4.2	%
Hotel and Lodging	170,953		3.8
Medical and Senior Living	183,890		4.1