UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM

~~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~~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

~~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)~~ (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~~

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

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 ☐~~

Yes

☒

☐

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~~

☒

☐

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,~~1, 2021, the registrant had ~~52,195,778~~

50,918,788

shares of common stock, par value $0.01, outstanding.

CrossFirst Bankshares, Inc.

Form 10-Q for the Quarter Ended September 30, ~~2020~~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~~			9
~~Notes to Consolidated Financial Statements (unaudited)~~

~~Note 1: Nature of Operations and Summary of Significant Accounting Policies~~			10
~~Note 2: Earnings~~ ~~Per Share~~			14
~~Note 3: Securities~~			15
~~Note 4: Loans and Allowance for Loan Losses (“ALLL~~”)			18

~~Note 5: Derivatives and Hedging~~			27
~~Note 6: Goodwill and Other Intangible Assets~~			28
~~Note 7: Time Deposits and Borrowings~~			29
~~Note 8: Change in Accumulated Other Comprehensive Income (“AOCI”)~~			29
~~Note 9: Regulatory Matters~~			29

~~Note 10: Stock-Based Compensation~~			30
~~Note 11: Income Tax~~			32
~~Note 12: Disclosures about Fair Value of Financial Instruments~~			33
~~Note 13: Commitments and Credit Risk~~			36
~~Note 14: Legal and Regulatory Proceedings~~			36
~~Note 15: Subsequent Events~~			36
~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~			37



~~Third Quarter 2020 Highlights~~			37

~~Results of Operations~~			40

~~Net Interest Income~~			40

~~Non-Interest Income~~			43
~~Non-Interest Expense~~			44
~~Income Taxes~~			45
~~Analysis of Financial Condition~~			45

~~Securities Portfolio~~			45
~~Loan Portfolio~~			45
~~Provision and Allowance for Loan Losses (‘‘ALLL’’)~~			45
~~Nonperforming Assets and Other Asset Quality Metrics~~			48
~~Deposits and Other Borrowings~~			49
~~Liquidity~~			50
~~Contractual Obligations~~			50
~~Capital Resources and Off-Balance Sheet Arrangements~~			50
~~Critical Accounting Policies~~			50

~~Item 3. Quantitative and Qualitative Disclosures about Market Risk~~			51
~~Item 4. Controls and Procedures~~			52

~~Part II. Other Information~~
~~Item 1. Legal Proceedings~~			52
~~Item 1A. Risk Factors~~			53




~~Item 6. Exhibits~~			54

~~Signatures~~

Item 1. Financial Statements

Forward-Looking Information

Consolidated Balance Sheets - Unaudited

Consolidated Statements of Income - Unaudited

Consolidated Statements of Comprehensive Income - Unaudited

Consolidated Statements of Stockholders’
Equity - Unaudited

Consolidated Statements of Cash Flows - Unaudited

Notes to Consolidated Financial Statements (unaudited)

Note 1: Nature of Operations and Summary of Significant AccountingPolicies

Note 2: Earnings Per Share

Note 3: Securities

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

Note 5: Derivatives and Hedging

Note 6: Time Deposits and Borrowings

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

Note 8: Regulatory Matters

Note 9: Stock-Based Compensation

Note 10: Income Tax

Note 11: Disclosures about Fair Value of Financial Instruments

Note 12: Commitments and Credit Risk

Note 13: Legal and Regulatory Proceedings

Note 14: Subsequent Events

Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations

Third Quarter 2021 Highlights

Results of Operations

Analysis of Financial Condition

Securities Portfolio

Loan Portfolio

Provision and Allowance for Loan Losses (‘‘ALLL’’)

Nonperforming Assets and OtherAsset Quality Metrics

Deposits and Other Borrowings

Liquidity

Contractual Obligations

Capital Resources and Off-Balance Sheet Arrangements

Critical Accounting Policies and Estimates

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Item 4. Controls and Procedures

Part II. Other Information

Item 1. Legal Proceedings

Item 1A. Risk Factors

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Item 6. Exhibit Index

Signature

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,~~

“may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” ~~“intend,~~

“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.

See Notes to Consolidated Financial Statements (unaudited)

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CROSSFIRST BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS

September 30, 2020 December 31, 2019
(Unaudited)
(Dollars in thousands)
Assets
Cash and cash equivalents $ 223,636 $ 187,320
Available-for-sale securities - taxable 214,735 298,208
Available-for-sale securities - tax-exempt 437,411 443,426
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
Premises and equipment, net 70,599 70,210
Restricted equity securities 20,923 17,278
Interest receivable 19,003 15,716
Foreclosed assets held for sale 2,349 3,619
Deferred tax asset 15,864 13,782
Goodwill and other intangible assets, net 227 7,694
Bank-owned life insurance 67,063 65,689
Other 32,112 12,943
Total assets $ 5,505,696 $ 4,931,233
Liabilities and stockholders’ equity
Deposits
Noninterest-bearing $ 754,172 $ 521,826
Savings, NOW and money market 2,597,691 2,162,187
Time 1,140,686 1,239,746
Total deposits 4,492,549 3,923,759
Federal funds purchased and repurchase agreements 13,531 14,921
Federal Home Loan Bank advances 336,100 358,743
Other borrowings 952 921
Interest payable and other liabilities 44,681 31,245
Total liabilities 4,887,813 4,329,589
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:
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
Additional paid-in capital 522,226 519,870
Retained earnings 69,355 64,803
Accumulated other comprehensive income 25,781 16,451
Total stockholders’ equity 617,883 601,644
Total liabilities and stockholders’ equity $ 5,505,696 $ 4,931,233
September 30, 2021

(Dollars in thousands)

Cash and cash equivalents

Available-for-sale securities - taxable

Available-for-sale securities - tax-exempt

Loans, net of allowance for loan losses of $

2021 and December 31, 2020, respectively

Premises and equipment, net

Restricted equity securities

Foreclosed assets held for sale

Bank-owned life insurance

Interest payable and other liabilities

Stockholders’ equity

Accumulated other comprehensive income

Total stockholders’ equity

Total liabilities and stockholders’

equity

Table of Contents

See Notes to Consolidated Financial Statements (unaudited)

(Dollars in thousands except per share data)

Loans, including fees

Total interest income

Provision for Loan Losses

Net Interest Income after Provision for Loan Losses

Swap fees and credit valuation adjustments, net

ATM and credit card interchange income

Deposit insurance premiums

Total non-interest expense

Net Income Before Taxes

Table of Contents

See Notes to Consolidated Financial Statements (unaudited)

Unrealized gain (loss) on available-for-sale securities, net of

Reclassification adjustment for realized gains included in income

Table of Contents

See Notes to Consolidated Financial Statements (unaudited)

Issuance of shares from equity-based awards

Change in unrealized depreciation of available-

~~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)

Common Stock

Additional

Paid-in

Capital

Retained

Earnings

Accumulated Other

Comprehensive

Income

Treasury Stock

Total

Amount

(Dollars in thousands)

Balance at December 31, 2019

51,969,203

520

519,870

64,803

16,451

601,644

Net income

4,507

Change in unrealized appreciation on

available-for-sale securities

9,330

Issuance of shares from equity-based awards

226,575

(869)

(868)

Employee receivables from sale of stock

Stock-based compensation

3,223

Balance at September 30, 2020

52,195,778

521

522,226

69,355

25,781

617,883

Common Stock

Additional

Paid-in Capital

Retained

Earnings

Accumulated Other

Comprehensive

Income

Treasury Stock

Total

Amount

(Dollars in thousands)

Balance at December 31, 2020

51,679,516

523

522,911

77,652

29,403

(6,061)

624,428

Net income

48,612

Change in unrealized depreciation of available-

for-sale securities

(9,497)

Issuance of shares from equity-based awards

287,375

(608)

(605)

Open market common share repurchases

(964,193)

(13,939)

Employee receivables from sale of stock

Stock-based compensation

3,373

Balance September 30, 2021

51,002,698

526

525,676

126,299

19,906

(20,000)

652,407

Table of Contents

See Notes to Consolidated Financial Statements (unaudited)

CROSSFIRST BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

Nine Months Ended
September 30,
2020 2019
(Dollars in thousands)
Operating Activities
Net income $ 4,507 $ 29,173
Items not requiring (providing) cash
Depreciation and amortization 3,888 4,015
Provision for loan losses 45,825 10,550
Accretion of discounts and amortization of premiums on securities 4,632 4,098
Equity based compensation 3,223 3,606
Foreclosed asset impairment 1,270 0
Deferred income taxes (5,098) 2,088
Net realized gains on available-for-sale debt securities (1,725) (467)
Goodwill impairment 7,397 0
Changes in
Interest receivable (3,287) (1,817)
Other assets (2,845) (9,837)
Other liabilities (4,599) 13,261
Net cash provided by operating activities 53,188 54,670
Investing Activities
Net change in loans (652,251) (576,897)
Purchases of available-for-sale securities (35,326) (157,492)
Proceeds from maturities of available-for-sale securities 102,529 48,658
Proceeds from sale of available-for-sale securities 31,810 63,515
Purchase of premises and equipment (4,849) (649)
Proceeds from the sale of fixed assets 121 3,324
Purchase of restricted equity securities, net (2,839) (732)
Net cash used in investing activities (560,805) (620,273)
Financing Activities
Net increase in demand deposits, savings, NOW and money market accounts 667,849 237,934
Net increase (decrease) in time deposits (99,060) 212,077
Net decrease in repurchase agreements and federal funds purchased (1,390) (50,596)
Net increase in federal funds sold 0 25,000
Proceeds from Federal Home Loan Bank advances 138,000 45,000
Repayment of Federal Home Loan Bank advances (160,643) (50,181)
Retirement of preferred stock 0 (30,000)
Issuance of common shares, net of issuance cost 0 88,782
Acquisition of common stock for tax withholding obligations (869) (245)
Net decrease in employee receivables 46 117
Dividends paid on preferred stock 0 (700)
Net cash provided by financing activities 543,933 477,188
Increase (Decrease) in Cash and Cash Equivalents 36,316 (88,415)
Cash and Cash Equivalents, Beginning of Period 187,320 216,541
Cash and Cash Equivalents, End of Period $ 223,636 $ 128,126
Supplemental Cash Flows Information
Interest paid $ 37,238 $ 54,998
Income taxes paid 7,335 1,030
Foreclosed assets in settlement of loans $ 0 $ 2,471
Nine Months Ended

September 30,

2021

2020

(Dollars in thousands)

Operating Activities

Net income

48,612

4,507

Items not requiring (providing) cash

Depreciation and amortization

3,993

3,888

Provision for loan losses

1,000

45,825

Accretion of discounts and amortization of premiums on securities

3,876

4,632

Equity based compensation

3,373

3,223

Foreclosed asset impairment

630

1,270

Deferred income taxes

2,233

(5,098)

Net increase in bank owned life insurance

(3,088)

(1,373)

Net recognized gains (losses) on equity securities

6,243

(53)

Net realized gains on available-for-sale securities

(1,043)

(1,725)

Goodwill impairment

7,397

Changes in

Interest receivable

1,308

(3,287)

Other assets

(1,753)

(1,472)

Other liabilities

(541)

(4,546)

Net cash provided by operating activities

64,843

53,188

Investing Activities

Net change in loans

196,637

(652,251)

Purchases of available-for-sale securities

(168,705)

(35,326)

Proceeds from maturities of available-for-sale securities

83,546

102,529

Proceeds from sale of available-for-sale securities

15,923

31,810

Proceeds from the sale of foreclosed assets

628

Purchase of premises and equipment

(671)

(4,849)

Proceeds from the sale of premises and equipment and related insurance claims

547

121

Purchase of restricted equity securities

(2,839)

Proceeds from sale of restricted equity securities

3,143

Proceeds from death benefit on bank owned life insurance

3,483

Net cash provided by (used in) investing activities

134,531

(560,805)

Financing Activities

Net increase in demand deposits, savings, NOW and money market accounts

84,218

667,849

Net decrease in time deposits

(342,361)

(99,060)

Net decrease in fed funds purchased and repurchase agreements

(2,306)

(1,390)

Proceeds from Federal Home Loan Bank advances

138,000

Repayment of Federal Home Loan Bank advances

(16,500)

(160,643)

Issuance of common shares, net of issuance cost

Proceeds from employee stock purchase plan

172

Repurchase of common stock

(13,939)

Acquisition of common stock for tax withholding obligations

(784)

(869)

Net decrease in employee receivables

Net cash provided by (used in) financing activities

(291,462)

543,933

Increase (Decrease) in Cash and Cash Equivalents

(92,088)

36,316

Cash and Cash Equivalents, Beginning of Period

408,810

187,320

Cash and Cash Equivalents, End of Period

316,722

223,636

Supplemental Cash Flows Information

Interest paid

19,402

37,238

Income taxes paid

8,370

7,335

~~See~~

Table of Contents

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

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.

The Bank is primarily engaged in providing a full range of banking and financial services to individual and corporate customers

through its branches in: (i) Leawood, Kansas; (ii) Wichita, Kansas; (iii) Kansas City, Missouri; (iv) Oklahoma City, Oklahoma; (v)

Tulsa, Oklahoma; (vi) Dallas, Texas; (vii) Frisco, Texas; and (viii) Phoenix,

Arizona.

Basis of Presentation

The Company’s accounting and reporting policies conform to accounting principles generally accepted in the United States

(“GAAP”). The consolidated financial statements include the accounts of the Company, the Bank, CFI, CFBSA

I, LLC and ~~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~~ $

253

million of cash and cash equivalents at the Federal Reserve Bank of Kansas City as of September 30, ~~2020.~~

2021. The reserve required at September 30, ~~2020~~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 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~~would otherwise be categorized as 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~~ from March 1, 2020,

through December 31, ~~2019.~~ 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

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

COVID-19 that would otherwise be categorized as TDRs through January 1, 2022.

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~~

Prior to the quarter ended June 30, 2020, loans risk rated substandard or lower were considered impaired and evaluated 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.


~~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 the quarter ended ~~June 30, 2020,~~March 31, 2021, the Company ~~separated~~consolidated the ~~“Foreclosed~~“Goodwill and other intangible assets,

net” ~~from the “other non-interest expense” category~~into

“other assets” within the Consolidated ~~Statements of Income.~~Balance Sheets. The ~~separation~~consolidation was due to ~~an increase in foreclosed asset expenses during 2020.~~the immateriality of the remaining intangible

assets. The change had no impact on net ~~income or total stockholders’ equity.~~income.

~~Beginning with~~For the quarter ended ~~June~~September 30, ~~2020,~~2021, 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 broke out “unrealized gains (losses), net on equity securities”

that ~~were~~ was

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”)”“other non-interest income”.

As a result, changes 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~~Income in the prior

periods were made ~~due~~to conform to the ~~immateriality of~~current period presentation. The changes provided additional detail

about the ~~“Other” line item.~~Company’s

operations. The ~~change~~changes 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)


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

Recent Accounting Pronouncements

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

anticipates to adopt in the

~~Standard~~

~~Date of Adoption~~

~~Description~~

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

~~ASU 2020-04:~~future:

~~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.~~

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.


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

The Company

~~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.

expects to

implement this

standard on

January 1, 2022.

Requires an entity to

utilize a new

impairment model

known as the current

expected credit loss

("CECL") model to

estimate its lifetime

expected credit loss

and record an

allowance that, when

deducted from

amortized cost basis

of the financial asset,

presents the net

amount expected to

be collected on the

financial asset.

The Company ~~provided updates~~established a committee to formulate and oversee the

implementation process including selection, implementation and testing of

third-party software.

The Company began parallel processing with the existing allowance for loan

losses model during the first quarter of 2019 recalibrating inputs as

necessary. The Company is formulating changes to policies, procedures,

disclosures and internal controls that will be necessary to transition to the

new standard. A

third-party completed validation of the completeness,

accuracy and reasonableness of the model in the fourth quarter of 2021.

The Company plans to use a loss-rate ("cohort") method to estimate the

expected allowance for credit losses ("ACL") for all loan pools. Upon

adoption in 2022, a cumulative-effect adjustment for the change in the

ACL

will be recognized in retained earnings. Based on our forecasted economic

conditions and portfolio balances at September 30, 2021, the adoption of the

standard could result in an overall cumulative-effect adjustment of up to a

5% change in the ACL, as compared to our current reserve levels.

These

results include the adoption of a forecast based on several economic

assumptions, including unemployment rates and management judgments.

Adoption will not materially impact reporting for debt securities as the

Company does not currently own held-to-maturity debt securities within the

scope of ASU 2016-13.

The actual impact could be significantly affected by the composition,

characteristics, and quality of the underlying loan portfolio and economic

assumptions at the time of adoption.

The Company does not expect the adoption to have a significant impact on

capital or capital ratios and will continue to evaluate the impact the adoption

of ASU 2016-13 will have on the Company's consolidated financial

statements.

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.

Requires lessees and lessors

to recognize lease assets and

lease liabilities on the balance

sheet and disclose key

information about leasing

arrangements.

The update requires lessees

and lessors to recognize and

measure leases at the

beginning of the earliest

period presented using a

modified retrospective

approach with the option to

elect certain practical

expedients. The update will

also increase disclosures

around leases, including

qualitative and specific

quantitative measures.

The Company expects to apply the update as of the beginning of

the period of adoption and the Company does not plan to restate

comparative periods. The Company expects to elect certain

optional practical expedients.

The Company gathered all potential lease and embedded lease

agreements and is evaluating the applicability and impact to the

financial statements.

The Company’s current operating leases relate primarily to four

branch locations. Based on the current leases, the Company

anticipates recognizing a lease liability and related right-to-use

asset on its balance sheet, with an immaterial impact to its income

statement compared to the ~~following ASUs that have not been adopted. A complete list~~current lease accounting model.

However, the ultimate impact of ~~recent, applicable accounting pronouncements was provided in~~ the ~~Company’s 2019 Form 10-K:~~standard will depend on the

~~Standard~~

~~Anticipated Date of Adoption~~

~~Description~~

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

~~ASU 2016-13~~Company's lease portfolio as of the adoption date.

~~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.

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 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 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.

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.

Note 2:Earnings Per Share

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

Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
(Dollars in thousands except per share data)
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 $ 8,006 $ 10,384 $ 4,507 $ 28,998
Weighted average common shares 52,136,286 48,351,553 52,104,372 46,239,021
Earnings per share $ 0.15 $ 0.22 $ 0.09 $ 0.63
Dilutive Earnings Per Share
Net income available to common stockholders $ 8,006 $ 10,384 $ 4,507 $ 28,998
Weighted average common shares 52,136,286 48,351,553 52,104,372 46,239,021
Effect of dilutive shares 423,840 812,996 463,219 842,706
Weighted average dilutive common shares 52,560,126 49,164,549 52,567,591 47,081,727
Diluted earnings per share $ 0.15 $ 0.21 $ 0.09 $ 0.61
Stock-based awards not included because to do so would be antidilutive 1,214,433 541,556 1,053,393 507,167

Three Months Ended

Nine Months Ended

September 30,

2021

2020

2021

2020

(Dollars in thousands except per share data)

Earnings per Share

Net income available to common stockholders

21,000

8,006

48,612

4,507

Weighted average common shares

50,990,113

52,136,286

51,368,957

52,104,372

Earnings per share

0.41

0.15

0.95

0.09

Diluted Earnings per Share

Net income available to common stockholders

21,000

8,006

48,612

4,507

Weighted average common shares

50,990,113

52,136,286

51,368,957

52,104,372

Effect of dilutive shares

615,608

423,840

699,257

463,219

Weighted average dilutive common shares

51,605,721

52,560,126

52,068,214

52,567,591

Diluted earnings per share

0.41

0.15

0.93

0.09

Stock-based awards not included because to do so would be

antidilutive

587,200

1,214,433

657,887

1,053,393


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

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
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Approximate Fair Value
(Dollars in thousands)
Available-for-sale debt securities
Mortgage-backed - GSE residential $ 122,093 $ 4,690 $ 0 $ 126,783
Collateralized mortgage obligations - GSE residential 71,735 1,271 7 72,999
State and political subdivisions 421,075 28,339 220 449,194
Corporate bonds 860 67 2 925
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 $ 617,985 $ 34,390 $ 229 $ 652,146

December 31, 2019
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Approximate Fair Value
(Dollars in thousands)
Available-for-sale debt securities
Mortgage-backed - GSE residential $ 151,037 $ 1,668 $ 193 $ 152,512
Collateralized mortgage obligations - GSE residential 128,876 625 289 129,212
State and political subdivisions 436,448 19,996 104 456,340
Corporate bonds 1,321 88 0 1,409
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 $ 719,872 $ 22,377 $ 615 $ 741,634

September 30, 2021

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Approximate

Fair Value

(Dollars in thousands)

Available-for-sale securities

Mortgage-backed - GSE residential

132,059

2,326

1,421

132,964

Collateralized mortgage obligations - GSE residential

22,122

498

22,604

State and political subdivisions

523,324

27,922

2,968

548,278

Corporate bonds

4,242

4,260

Total available-for-sale securities

681,747

30,831

4,472

708,106


December 31, 2020 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Approximate Fair Value (Dollars in thousands) Available-for-sale securities Mortgage-backed - GSE residential $ 104,839 $ 4,277 $ 0 $ 109,116 Collateralized mortgage obligations - GSE residential 52,070 984 42 53,012 State and political subdivisions 454,486 33,642 31 488,097 Corporate bonds 4,259 104 0 4,363 Total available-for-sale securities $ 615,654 $ 39,007 $ 73 $ 654,588 Table of Contents Notes to Consolidated Financial Statements (unaudited) 15 ~~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,~~2021, by contractual maturity, are shown

below:

September 30, 2020
Within After One to After Five to After
One Year Five Years Ten Years Ten Years Total
(Dollars in thousands)
Available-for-sale debt securities
Mortgage-backed - GSE residential(1)
Amortized cost $ 0 $ 55 $ 199 $ 121,839 $ 122,093
Estimated fair value $ 0 $ 58 $ 213 $ 126,512 $ 126,783
Weighted average yield(2)
0 % 4.57 % 3.91 % 2.03 % 2.06 %
Collateralized mortgage obligations - GSE residential(1)
Amortized cost $ 0 $ 0 $ 2,496 $ 69,239 $ 71,735
Estimated fair value $ 0 $ 0 $ 2,735 $ 70,264 $ 72,999
Weighted average yield(2)
0 % 0 % 2.77 % 1.10 % 1.16 %
State and political subdivisions
Amortized cost $ 653 $ 7,407 $ 59,992 $ 353,023 $ 421,075
Estimated fair value $ 654 $ 7,573 $ 65,059 $ 375,908 $ 449,194
Weighted average yield(2)
8.02 % 5.44 % 3.52 % 3.08 % 3.19 %
Corporate bonds
Amortized cost $ 0 $ 0 $ 860 $ 0 $ 860
Estimated fair value $ 0 $ 0 $ 925 $ 0 $ 925
Weighted average yield(2)
0 % 0 % 5.57 % 0 % 5.57 %
Total available-for-sale debt securities
Amortized cost $ 653 $ 7,462 $ 63,547 $ 544,101 $ 615,763
Estimated fair value $ 654 $ 7,631 $ 68,932 $ 572,684 $ 649,901
Weighted average yield(2)
8.02 % 5.44 % 3.52 % 2.59 % 2.73 %
(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.

September 30, 2021

Within

After One to

After Five to

After

One Year

Five Years

Ten Years

Total

(Dollars in thousands)

Available-for-sale securities

Mortgage-backed - GSE residential

(1)

Amortized cost

148

131,871

132,059

Estimated fair value

159

132,764

132,964

Weighted average yield

(2)

0.00

4.68

3.96

1.60

Collateralized mortgage obligations -

GSE residential

(1)

Amortized cost

2,438

19,684

22,122

Estimated fair value

2,608

19,996

22,604

Weighted average yield

(2)

0.00

2.77

1.16

1.34

State and political subdivisions

Amortized cost

522

6,115

78,231

438,456

523,324

Estimated fair value

524

6,319

84,402

457,033

548,278

Weighted average yield

(2)

3.25

3.88

3.35

2.76

2.86

Corporate bonds

Amortized cost

355

3,887

4,242

Estimated fair value

360

3,900

4,260

Weighted average yield

(2)

0.00

4.22

4.54

0.00

4.52

Total available-for-sale securities

Amortized cost

522

6,510

84,704

590,011

681,747

Estimated fair value

524

6,720

91,069

609,793

708,106

Weighted average yield

(2)

3.25

3.90

3.39

2.44

2.58

(1)

Actual maturities may differ from contractual maturities because issuers may have the rights to call or prepay obligations with or

without prepayment penalties.


(2) Yields are calculated based on amortized cost. Table of Contents Notes to Consolidated Financial Statements (unaudited) 16 ~~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~~2021 and December 31, ~~2019:~~2020:

September 30, 2020
Less than 12 Months 12 Months or More Total
Fair Value Unrealized Losses Number of Securities Fair Value Unrealized Losses Number of Securities Fair Value Unrealized Losses Number of Securities
(Dollars in thousands)
Available-for-sale debt securities
Mortgage-backed - GSE residential $ 0 $ 0 0 $ 0 $ 0 0 $ 0 $ 0 0
Collateralized mortgage obligations - GSE residential 3,178 7 1 0 0 0 3,178 7 1
State and political subdivisions 14,998 220 19 26 0 1 15,024 220 20
Corporate bonds 457 2 1 0 0 0 457 2 1
Total temporarily impaired debt securities $ 18,633 $ 229 21 $ 26 $ 0 1 $ 18,659 $ 229 22

September 30, 2021

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

12 Months or More

Total

Fair Value

Unrealized

Losses

Number of

Securities

Fair Value

Unrealized

Losses

Number of

Securities

Fair Value

Unrealized

Losses

Number of

Securities

(Dollars in thousands)

Available-for-sale

securities

Mortgage-backed -

GSE residential

70,590

1,421

70,590

1,421

Collateralized

mortgage obligations

- GSE residential

1,561

161

1,722

State and political

subdivisions

99,890

2,964

1,101

100,991

2,968

Corporate bonds

3,433

Total temporarily

impaired securities

175,474

4,467

1,262

176,736

4,472

December 31, 2020

Less than 12 Months

12 Months or More

Total

Fair Value

Unrealized

Losses

Number of

Securities

Fair Value

Unrealized

Losses

Number of

Securities

Fair Value

Unrealized

Losses

Number of

Securities

(Dollars in thousands)

Available-for-sale

securities

Mortgage-backed -

GSE residential

Collateralized

mortgage obligations

- GSE residential

9,933

State and political

subdivisions

8,525

8,550

Corporate bonds

Total temporarily

impaired securities

18,458

18,483

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~~

The following tables show the gross gains and losses on securities that matured or were sold:

For the ~~sale~~Three Months Ended

For the Nine Months Ended

September 30, 2021

Gross

Realized

Gains

Gross

Realized

Losses

Net

Realized

Gain

Gross

Realized

Gains

Gross

Realized

Losses

Net

Realized

Gain

(Dollars in thousands)

Available-for-sale securities

1,125

1,046

1,151

108

1,043

Table of ~~debt~~Contents

Notes to Consolidated Financial Statements (unaudited)

For the Three Months Ended

For the Nine Months Ended

September 30, 2020

Gross

Realized

Gains

Gross

Realized

Losses

Net

Realized

Gain

Gross

Realized

Gains

(1)

Gross

Realized

Losses

Net

Realized

Gain

(Dollars in thousands)

Available-for-sale securities ~~are recorded on the trade date and are determined using the specific identification method. Gross~~

1,025

1,012

1,785

1,725

(1)

The gross gains ~~of $2 million and $506 thousand and gross losses of $60 thousand and $39 thousand resulting from sales of available-for-sale securities were realized~~ for the nine-months ended September 30, 2020, ~~and 2019, respectively. The gross gains as of September 30, 2020,~~ included ~~$75~~ $

thousand related to a previously disclosed OTTI

municipal security that was settled in 2020.

Equity Securities

Equity securities consist of a $

million investment in a Community Reinvestment

Act (“CRA”) mutual fund, a $

308

thousand

private equity investment and a $

million privately-held security acquired in the fourth quarter of 2020 as part of a debt restructuring.

Equity securities are included in “other assets” on the Consolidated Balance Sheets.

The privately-held security was acquired in partial satisfaction of debts previously contracted at an initial value of $

million.

The Company elected a measurement alternative that allows the security to remain at cost until an impairment is identified

or an

observable price change for an identical or similar investment of the same issuer occurs. Impairment is recorded when there is evidence

that the expected fair value of the investment has declined to below the recorded cost. During the third quarter of 2021, qualitative

impairment factors required the Company to update the equity’s fair market value and the Company recorded a $

million unrealized

loss on the equity security due to a reduction in its fair market value.

17The following is a summary of the unrealized and realized gains and losses recognized in net income on equity securities:


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

Three Months Ended

Nine Months Ended

September 30,

2021

2020

2021

2020

(Dollars in thousands)

Net gains (losses) recognized during the reporting period on equity securities

(6,210)

(6,243)

Less: net gains recognized during the reporting period on equity securities sold

during the reporting period

Unrealized gain (losses) recognized during the reporting period on equity

securities still held at the reporting date

(6,210)

(6,243)

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Note 4:

Loans and Allowance for Loan Losses (“ALLL”)

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

September 30, 2020 December 31, 2019
(Dollars in thousands)
Commercial $ 1,291,572 $ 1,356,817
Energy 384,181 408,573
Commercial real estate 1,195,631 1,024,041
Construction and land development 587,617 628,418
Residential real estate 618,082 398,695
Paycheck Protection Program (“PPP”) 369,260 0
Consumer 46,771 45,163
Gross loans 4,493,114 3,861,707
Less: Allowance for loan losses 76,035 56,896
Less: Net deferred loan fees and costs 15,305 9,463
Net loans $ 4,401,774 $ 3,795,348

September 30, 2021

December 31, 2020

(Dollars in thousands)

Commercial

1,305,536

1,338,757

Energy

296,365

345,233

Commercial real estate

1,266,694

1,179,534

Construction and land development

585,134

563,144

Residential and multifamily real estate

620,877

680,932

Paycheck Protection Program (“PPP”)

109,465

292,230

Consumer

62,113

55,270

Gross loans

4,246,184

4,455,100

Less: Allowance for loan losses

64,152

75,295

Less: Net deferred loan fees and costs

13,067

13,203

Net loans

4,168,965

4,366,602

Allowance for Loan Losses

The ALLL is established

as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against

the allowance when

management believes the loan balance is not collectible. Subsequent recoveries, if any, are credited to the allowance.

The ALLL is evaluated

on a regular basis by management and is based upon management’s periodic review of its ability to collect the loans ~~in light of~~considering historical

experience,

the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying

collateral and prevailing economic

conditions. This evaluation is inherently subjective as it requires estimates that are susceptible

to significant revision as more information becomes available.

The ALLL consists

of allocated and general components. The allocated component relates to loans that are classified as

impaired. For those loans that are classified as

impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying

value of that

loan. The general component covers all loans on accrual and is based on historical charge-off experience and expected loss

given default derived from the Company’s internal risk

rating process and loan categories. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences

on credit quality that are

not fully reflected in the historical loss or risk rating data.

The Company evaluates the loan risk grading system definitions, portfolio segment definitions and

ALLL methodology on an ongoing basis. 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 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


~~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)
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

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)

Three Months Ended September 30, 2021

Allowance for loan losses

Beginning balance

28,433

17,849

19,181

3,885

5,826

319

75,493

Provision

(3,666)

(4,798)

(236)

(694)

(561)

(45)

(10,000)

Charge-offs

(1,071)

(503)

(1)

(1,575)

Recoveries

225

234

Ending balance

23,921

12,548

18,945

3,191

5,270

277

64,152


~~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

Commercial

Energy

Commercial

Real Estate

Construction and

Land

Development

Residential and

Multifamily

Real Estate

PPP

Consumer

Total

(Dollars in thousands)

Three Months Ended September 30, 2020

Allowance for loan losses

Beginning balance

26,543

17,372

16,899

5,019

4,868

484

71,185

Provision

7,439

2,168

908

(530)

882

10,875

Charge-offs

(5,781)

(256)

(6,037)

Recoveries

Ending balance

28,203

19,540

17,807

4,489

5,494

502

76,035

Commercial

Energy

Commercial

Real Estate

Construction and

Land

Development

Residential and

Multifamily

Real Estate

PPP

Consumer

Total

(Dollars in thousands)

Nine Months Ended September 30, 2021

Allowance for loan losses

Beginning balance

24,693

18,341

22,354

3,612

5,842

453

75,295

Provision

10,881

(5,290)

(3,409)

(421)

(577)

(184)

1,000

Charge-offs

(11,903)

(503)

(1)

(12,407)

Recoveries

250

264

Ending balance

23,921

12,548

18,945

3,191

5,270

277

64,152


Table of Contents Notes to Consolidated Financial Statements (unaudited) 20 Commercial Energy Commercial Real Estate Construction and Land Development Residential and Multifamily 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 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 and Multifamily Real Estate PPP Consumer Total (Dollars in thousands) September 30, 2021 Period end allowance for loan losses allocated to: Individually evaluated for impairment $ 1,760 $ 2,624 $ 2,872 $ 0 $ 0 $ 0 $ 0 $ 7,256 Collectively evaluated for impairment $ 22,161 $ 9,924 $ 16,073 $ 3,191 $ 5,270 $ 0 $ 277 $ 56,896 Ending balance $ 23,921 $ 12,548 $ 18,945 $ 3,191 $ 5,270 $ 0 $ 277 $ 64,152 Allocated to loans: Individually evaluated for impairment $ 24,455 $ 25,503 $ 35,319 $ 0 $ 8,942 $ 0 $ 236 $ 94,455 Collectively evaluated for impairment $ 1,281,081 $ 270,862 $ 1,231,375 $ 585,134 $ 611,935 $ 109,465 $ 61,877 $ 4,151,729 Ending balance $ 1,305,536 $ 296,365 $ 1,266,694 $ 585,134 $ 620,877 $ 109,465 $ 62,113 $ 4,246,184 Table of Contents Notes to Consolidated Financial Statements (unaudited) 21 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)~~

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:

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

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.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

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 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 ~~program requires all loan terms to be the same for everyone. The~~ loans


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

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.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

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
(Dollars in thousands)
September 30, 2020
Commercial $ 1,106,338 $ 71,746 $ 75,714 $ 34,528 $ 3,246 $ 0 $ 1,291,572
Energy 186,881 58,726 117,389 17,435 3,750 0 384,181
Commercial real estate 1,114,802 41,030 26,624 12,377 798 0 1,195,631
Construction and land development 581,160 5,299 1,158 0 0 0 587,617
Residential real estate 610,909 527 3,467 3,179 0 0 618,082
PPP 369,260 0 0 0 0 0 369,260
Consumer 46,525 0 0 246 0 0 46,771
$ 4,015,875 $ 177,328 $ 224,352 $ 67,765 $ 7,794 $ 0 $ 4,493,114

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)

September 30, 2021

Commercial

1,230,682

47,492

20,907

6,455

1,305,536

Energy

133,551

116,495

20,887

22,348

3,084

296,365

Commercial real estate

1,119,569

109,639

27,221

10,265

1,266,694

Construction and land development

585,134

Residential and multifamily real estate

607,588

546

6,984

5,759

620,877

PPP

109,465

Consumer

61,826

236

62,113

3,847,815

274,223

75,999

45,063

3,084

4,246,184

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

1,338,757

Energy

145,598

90,134

83,574

22,177

3,750

345,233

Commercial real estate

1,035,056

67,710

57,680

19,088

1,179,534

Construction and land development

561,871

125

1,148

563,144

Residential and multifamily real estate

672,327

305

5,199

3,101

680,932

PPP

292,230

Consumer

55,026

244

55,270

3,944,627

224,416

211,008

70,734

4,315

4,455,100


Table of Contents Notes to Consolidated Financial Statements (unaudited) 24 ~~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~~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
(Dollars in thousands)
September 30, 2020
Commercial $ 12,274 $ 28,487 $ 6,641 $ 47,402 $ 1,244,170 $ 1,291,572 $ 1,141
Energy 0 1,540 3,055 4,595 379,586 384,181 0
Commercial real estate 1,459 0 4,475 5,934 1,189,697 1,195,631 0
Construction and land development 0 0 0 0 587,617 587,617 0
Residential real estate 1,591 0 6,124 7,715 610,367 618,082 3,183
PPP 0 0 0 0 369,260 369,260 0
Consumer 0 0 0 0 46,771 46,771 0
$ 15,324 $ 30,027 $ 20,295 $ 65,646 $ 4,427,468 $ 4,493,114 $ 4,324

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)
December 31, 2019
Commercial $ 1,091 $ 276 $ 30,911 $ 32,278 $ 1,324,539 $ 1,356,817 $ 37
Energy 2,340 0 4,593 6,933 401,640 408,573 53
Commercial real estate 316 0 4,589 4,905 1,019,136 1,024,041 4,501
Construction and land development 196 0 0 196 628,222 628,418 0
Residential real estate 2,347 0 1,919 4,266 394,429 398,695 0
PPP 0 0 0 0 0 0 0
Consumer 2 254 0 256 44,907 45,163 0
$ 6,292 $ 530 $ 42,012 $ 48,834 $ 3,812,873 $ 3,861,707 $ 4,591

30-59 Days Past

Due

60-89 Days Past

Due

90 Days or

Total Past Due

Current

Total Loans

Receivable

Loans >= 90 Days

and Accruing

(Dollars in thousands)

September 30, 2021

Commercial

1,716

12,700

1,167

15,583

1,289,953

1,305,536

300

Energy

738

6,500

6,144

13,382

282,983

296,365

Commercial real estate

398

15,328

15,726

1,250,968

1,266,694

Construction and land development

585,134

Residential and multifamily real estate

191

1,844

2,035

618,842

620,877

PPP

109,465

Consumer

62,084

62,113

3,072

34,528

9,155

46,755

4,199,429

4,246,184

342

30-59 Days Past

Due

60-89 Days Past

Due

90 Days or

Total Past Due

Current

Total Loans

Receivable

Loans >= 90 Days

and Accruing

(Dollars in thousands)

December 31, 2020

Commercial

8,497

264

11,236

19,997

1,318,760

1,338,757

Energy

7,173

338,060

345,233

372

Commercial real estate

7,677

4,825

12,565

1,166,969

1,179,534

Construction and land development

563,144

Residential and multifamily real estate

1,577

3,520

5,097

675,835

680,932

652

PPP

292,230

Consumer

55,270

10,137

7,941

26,754

44,832

4,410,268

4,455,100

1,024


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

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

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

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~~2021 and December 31, ~~2019:~~2020:

Unpaid
Recorded Balance Principal Balance Specific Allowance
(Dollars in thousands)
September 30, 2020
Loans without a specific valuation
Commercial $ 29,439 $ 35,220 $ —
Energy 0 0 —
Commercial real estate 4,628 4,628 —
Construction and land development 0 0 —
Residential real estate 6,406 6,662 —
PPP 0 0 —
Consumer 246 246 —
Loans with a specific valuation
Commercial 9,150 20,538 2,432
Energy 21,318 26,597 2,540
Commercial real estate 12,407 13,206 1,525
Construction and land development 0 0 0
Residential real estate 0 0 0
PPP 0 0 0
Consumer 0 0 0
Total
Commercial 38,589 55,758 2,432
Energy 21,318 26,597 2,540
Commercial real estate 17,035 17,834 1,525
Construction and land development 0 0 0
Residential real estate 6,406 6,662 0
PPP 0 0 0
Consumer 246 246 0
$ 83,594 $ 107,097 $ 6,497

Recorded Balance

Unpaid Principal Balance

Specific Allowance

(Dollars in thousands)

September 30, 2021

Loans without a specific valuation

Commercial

22,570

22,651

Energy

809

1,809

Commercial real estate

9,398

10,982

Construction and land development

Residential and multifamily real estate

8,942

9,198

PPP

Consumer

236

Loans with a specific valuation

Commercial

1,885

14,069

1,760

Energy

24,694

32,289

2,624

Commercial real estate

25,921

2,872

Construction and land development

Residential and multifamily real estate

PPP

Consumer

Total

Commercial

24,455

36,720

1,760

Energy

25,503

34,098

2,624

Commercial real estate

35,319

36,903

2,872

Construction and land development

Residential and multifamily real estate

8,942

9,198

PPP

Consumer

236

94,455

117,155

7,256


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

Unpaid
Recorded Balance Principal Balance Specific Allowance
(Dollars in thousands)
December 31, 2019
Loans without a specific valuation
Commercial $ 35,846 $ 35,846 $ —
Energy 2,864 2,864 —
Commercial real estate 9,464 9,464 —
Construction and land development 0 0 —
Residential real estate 2,139 2,139 —
PPP 0 0 —
Consumer 0 0 —
Loans with a specific valuation
Commercial 35,030 40,030 19,942
Energy 6,880 9,880 1,949
Commercial real estate 1,028 1,028 210
Construction and land development 0 0 0
Residential real estate 249 249 197
PPP 0 0 0
Consumer 0 0 0
Total
Commercial 70,876 75,876 19,942
Energy 9,744 12,744 1,949
Commercial real estate 10,492 10,492 210
Construction and land development 0 0 0
Residential real estate 2,388 2,388 197
PPP 0 0 0
Consumer 0 0 0
$ 93,500 $ 101,500 $ 22,298

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Recorded Balance

Unpaid Principal Balance

Specific Allowance

(Dollars in thousands)

December 31, 2020

Loans without a specific valuation

Commercial

36,111

50,245

Energy

3,864

6,677

Commercial real estate

10,079

11,663

Construction and land development

Residential and multifamily real estate

6,329

6,585

PPP

Consumer

244

Loans with a specific valuation

Commercial

8,567

1,115

Energy

22,181

27,460

3,370

Commercial real estate

34,239

5,048

Construction and land development

Residential and multifamily real estate

PPP

Consumer

Total

Commercial

44,678

58,812

1,115

Energy

26,045

34,137

3,370

Commercial real estate

44,318

45,902

5,048

Construction and land development

Residential and multifamily real estate

6,329

6,585

PPP

Consumer

244

121,614

145,680

9,533

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

The table below shows interest income recognized during the ~~three~~three- and ~~nine month~~nine-month periods ended September 30, ~~2020~~2021 and ~~2019~~2020 for impaired loans,

including all restructured

and formerly restructured loans, held at the end of each period:

Three Months Ended

Nine Months Ended

September 30,

2021

2020

2021

2020

(Dollars in thousands)

Commercial

307

930

841

Energy

257

Commercial real estate

291

868

346

Construction and land development

Residential and multifamily real estate

108

PPP

Consumer

Total interest income recognized

615

108

1,894

1,552

The table below shows the three- and nine-month average balance of impaired loans for the periods ended September

30, 2021 and 2020 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
September 30, September 30,
2020 2019 2020 2019
(Dollars in thousands)
Commercial $ 12 $ 386 $ 841 $ 862
Energy 2 98 257 324
Commercial real estate 58 200 346 613
Construction and land development 0 0 0 0
Residential real estate 36 8 108 17
PPP 0 0 0 0
Consumer 0 0 0 0
Total interest income recognized $ 108 $ 692 $ 1,552 $ 1,816

Three Months Ended

Nine Months Ended

September 30,

2021

2020

2021

2020

(Dollars in thousands)

Commercial

26,724

45,482

28,675

49,538

Energy

26,298

21,396

26,863

23,220

Commercial real estate

35,488

17,937

35,856

18,132

Construction and land development

Residential and multifamily real estate

6,021

6,419

5,505

6,304

PPP

Consumer

238

248

240

253

Total average impaired loans

94,769

91,482

97,139

97,447


~~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, 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
September 30, September 30,
2020 2019 2020 2019
(Dollars in thousands)
Commercial $ 45,482 $ 54,410 $ 49,538 $ 49,265
Energy 21,396 13,623 23,220 15,091
Commercial real estate 17,937 16,690 18,132 16,528
Construction and land development 0 0 0 0
Residential real estate 6,419 2,538 6,304 2,354
PPP 0 0 0 0
Consumer 248 0 253 0
Total average impaired loans $ 91,482 $ 87,261 $ 97,447 $ 83,238

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.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

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~~2021 and

December 31, ~~2019:~~2020:

September 30, 2020 December 31, 2019
(Dollars in thousands)
Commercial $ 37,774 $ 32,130
Energy 21,185 4,540
Commercial real estate 13,176 1,063
Construction and land development 0 0
Residential real estate 3,179 1,942
PPP 0 0
Consumer 246 0
Total non-accrual loans $ 75,560 $ 39,675

September 30, 2021

December 31, 2020

(Dollars in thousands)

Commercial

6,455

26,691

Energy

25,432

25,927

Commercial real estate

10,265

19,088

Construction and land development

Residential and multifamily real estate

5,759

3,101

PPP

Consumer

236

244

Total non-accrual loans

48,147

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~~three- and nine-month periods ended September 30, 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.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)


~~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~~three- and ~~nine months~~nine-month

periods ended

September 30, ~~2020~~2021 and ~~2019,~~2020, including the post-modification outstanding balance and the type of concession made:

Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2020 2019 2020 2019
(Dollars in thousands)
Commercial
- Interest rate reduction $ 0 $ 0 $ 3,171 $ 0
- Reduction of monthly payment 0 0 0 994
- Extension of maturity date 0 0 0 30,005
Energy
- Extension of maturity date 0 0 2,340 0
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 $ 0 $ 0 $ 5,576 $ 34,766

Three Months Ended

Nine Months Ended

September 30,

2021

2020

2021

2020

(Dollars in thousands)

Commercial

- Interest rate reduction

1,000

3,171

Energy

- Extension of maturity date

2,340

Residential and multifamily real estate

- Interest rate reduction

3,750

- Payment deferral

Total troubled debt restructurings

4,750

5,576

The balance of restructured loans, excluding loans restructured as a result of the COVID-19 pandemic, is provided below as of September

30, ~~2020~~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~~2021 and December

31, ~~2019~~2020 is provided below:

September 30, 2020 December 31, 2019
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)
Commercial 6 $ 7,895 $ 3,762 7 $ 31,770 $ 831
Energy 3 3,373 2,713 2 2,864 0
Commercial real estate 3 4,683 0 3 4,909 0
Construction and land development 0 0 0 0 0 0
Residential real estate 2 3,247 45 0 0 0
PPP 0 0 0 0 0 0
Consumer 0 0 0 0 0 0
Total troubled debt restructured loans 14 $ 19,198 $ 6,520 12 $ 39,543 $ 831
(1) Default is considered to mean 90 days or more past due as to interest or principal.

September 30, 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)

(Dollars in thousands)

Commercial

19,395

4,899

22,759

2,776

Energy

10,401

7,825

11,053

2,713

Commercial real estate

25,762

26,038

Construction and land development

Residential and multifamily real estate

6,933

3,245

PPP

Consumer

Total troubled debt restructured loans

62,491

12,813

63,095

5,489

(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 million~~ ~~and $18~~

million as of both September 30, ~~2020~~2021 and December 31, ~~2019, respectively.~~2020.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

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 and losses are included in “other assets” on the Statements of Cash Flows.~~


~~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~~2021 and December 31, ~~2019,~~2020, 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

September 30, 2021

December 31, 2020

Product

Number of Instruments

Notional Amount

Number of Instruments

Notional Amount

(Dollars in thousands)

Back-to-back swaps

573,304

515,567

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~~2021 and December 31, ~~2019:~~2020:

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

Asset Derivatives

Liability Derivatives

Balance Sheet

September 30,

December 31,

Balance Sheet

September 30,

December 31,

Location

2021

2020

Location

2021

2020

(Dollars in thousands)

Derivatives not designated as hedging instruments

Interest rate products

Other assets

15,424

24,094

Other liabilities

15,628

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 represent 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:~~Time Deposits and Borrowings

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

September 30, 2020
Within One Year One to Two Years Two to Three Years Three to Four Years Four to Five Years After Five Years Total
(Dollars in thousands)
Time deposits $ 948,251 $ 115,197 $ 52,074 $ 24,669 $ 495 $ 0 $ 1,140,686
Fed funds purchased & repurchase agreements 13,531 — — — — — 13,531
FHLB borrowings 59,500 21,500 35,000 0 5,100 215,000 336,100
Trust preferred securities(1)
0 0 0 0 0 952 952
$ 1,021,282 $ 136,697 $ 87,074 $ 24,669 $ 5,595 $ 215,952 $ 1,491,269

September 30, 2021

Within One

Year

One to Two

Years

Two to

Three Years

Three to

Four Years

Four to Five

Years

After Five

Years

Total

(Dollars in thousands)

Time deposits

586,365

83,090

27,086

187

4,393

701,121

FHLB borrowings

21,500

35,000

5,100

215,000

276,600

Trust preferred securities

(1)

997

607,865

118,090

27,086

5,287

4,393

215,997

978,718

(1)

The contract value of the trust preferred securities is ~~$2.6~~ $

2.6

million and is currently being accreted to the maturity date of 2035.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

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~~three- and ~~nine months~~nine-

month periods ended September 30, ~~2020~~2021 and ~~2019,~~2020, were as follows:

Three Months Ended Nine Months Ended
September 30, September 30, Affected Line Item in the
2020 2019 2020 2019 Statements of Operations
(Dollars in thousands)
Unrealized gains on available-for-sale securities $ 1,012 $ 34 $ 1,725 $ 467 Gain on sale of available-for-sale debt securities
Less: tax effect 248 9 422 115 Income tax expense
Net reclassified amount $ 764 $ 25 $ 1,303 $ 352

Three Months Ended

Nine Months Ended

September 30,

Affected Line Item in the

2021

2020

2021

2020

Statements of Income

(Dollars in thousands)

Unrealized gains on available-for-sale

securities

1,046

1,012

1,043

1,725

Gain on sale of available-for-sale

securities

Less: tax benefit effect

256

248

255

422

Income tax benefit

Net reclassified amount

790

764

788

1,303

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,~~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.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)


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

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

in the following table:

Actual

Actual Minimum Capital Required - Basel III Fully Phased-In Required to be Considered Well Capitalized
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
September 30, 2020
Total Capital to Risk-Weighted Assets
Consolidated $ 652,827 13.2 % $ 518,259 10.5 % N/A N/A
Bank 601,491 12.2 518,063 10.5 $ 493,393 10.0 %
Tier I Capital to Risk-Weighted Assets
Consolidated 590,952 12.0 419,543 8.5 N/A N/A
Bank 539,639 10.9 419,384 8.5 394,714 8.0
Common Equity Tier 1 to Risk-Weighted Assets
Consolidated 590,000 12.0 345,506 7.0 N/A N/A
Bank 539,639 10.9 345,375 7.0 320,706 6.5
Tier I Capital to Average Assets
Consolidated 590,952 10.8 217,932 4.0 N/A N/A
Bank $ 539,639 9.9 % $ 217,994 4.0 % $ 272,492 5.0 %
December 31, 2019
Total Capital to Risk-Weighted Assets
Consolidated $ 633,228 13.4 % $ 495,095 10.5 % N/A N/A
Bank 581,600 12.3 494,954 10.5 $ 471,385 10.0 %
Tier I Capital to Risk-Weighted Assets
Consolidated 576,332 12.2 400,791 8.5 N/A N/A
Bank 524,704 11.1 400,677 8.5 377,108 8.0
Common Equity Tier 1 to Risk-Weighted Assets
Consolidated 575,411 12.2 330,063 7.0 N/A N/A
Bank 524,704 11.1 329,970 7.0 306,400 6.5
Tier I Capital to Average Assets
Consolidated 576,332 12.1 191,099 4.0 N/A N/A
Bank $ 524,704 11.0 % $ 191,170 4.0 % $ 238,963 5.0 %
Minimum Capital

Required - Basel III

Required to be Considered

Well Capitalized

Amount

Ratio

Amount

Ratio

Amount

Ratio

(Dollars in thousands)

September 30, 2021

Total Capital to Risk-Weighted Assets

Consolidated

694,816

13.9

525,431

10.5

N/A

Bank

663,787

13.3

525,157

10.5

500,150

10.0

Tier I Capital to Risk-Weighted Assets

Consolidated

632,244

12.6

425,349

8.5

N/A

Bank

601,248

12.0

425,127

8.5

400,120

8.0

Common Equity Tier 1 to Risk-Weighted

Assets

Consolidated

631,247

12.6

350,287

7.0

N/A

Bank

601,248

12.0

350,105

7.0

325,097

6.5

Tier I Capital to Average

Assets

Consolidated

632,244

11.8

214,865

4.0

N/A

Bank

601,248

11.2

214,943

4.0

268,679

5.0

December 31, 2020

Total Capital to Risk-Weighted Assets

Consolidated

656,806

13.1

527,486

10.5

N/A

Bank

611,533

12.2

527,217

10.5

502,111

10.0

Tier I Capital to Risk-Weighted Assets

Consolidated

593,865

11.8

427,012

8.5

N/A

Bank

548,615

10.9

426,794

8.5

401,689

8.0

Common Equity Tier 1 to Risk-Weighted

Assets

Consolidated

592,902

11.8

351,657

7.0

N/A

Bank

548,615

10.9

351,478

7.0

326,372

6.5

Tier I Capital to Average

Assets

Consolidated

593,865

10.8

219,550

4.0

N/A

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~~

1,774,321

shares as of September 30, ~~2020.~~2021.


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

The table below summarizes the stock-based compensation for the ~~three~~three- and ~~nine-months~~nine-month periods ended September 30, 2021 and

2020:

Three Months Ended

Nine Months Ended

September 30,

2021

2020

2021

2020

(Dollars in thousands)

Stock appreciation rights

150

250

584

744

Performance-based stock awards

337

175

Restricted stock units and ~~2019:~~awards

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
895

~~Performance Based~~857

2,394

2,283

Employee stock purchase plan

Total stock-based compensation

1,149

1,207

3,373

3,223

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

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%~~

150

% of target.

During the ~~nine months~~nine-month period ended September 30, ~~2020,~~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
Number of Shares Weighted-Average Grant Date Fair Value
Unvested, January 1, 2020 192,248 $9.88
Granted 41,283 13.55
Vested 0 0.00
Forfeited 0 0.00
Unvested, September 30, 2020 233,531 $10.53

Performance-Based Awards

Number of Shares

Weighted-Average

Grant Date Fair Value

Unvested, January 1, 2021

231,631

10.51

Granted

63,631

12.89

Incremental performance shares

2,424

10.00

Vested

(77,426)

11.31

Forfeited

Unvested, September 30, 2021

220,260

10.90

Unrecognized stock-based compensation related to the performance awards issued through September 30, ~~2020~~2021 was ~~$531~~ $

678

thousand and is expected to be recognized over ~~2.1~~

2.4

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.~~year

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

Restricted Stock Units and Awards
Number of Shares Weighted-Average Grant Date Fair Value
Unvested, January 1, 2020 340,780 $15.35
Granted 293,297 11.84
Vested (106,146) 12.58
Forfeited (15,086) 14.54
Unvested, September 30, 2020 512,845 $13.38

Restricted Stock Units and Awards

Number of Shares

Weighted-Average

Grant Date Fair Value

Unvested, January 1, 2021

369,217

12.61

Granted

281,197

13.27

Vested

(247,690)

11.91

Forfeited

(22,646)

13.65

Unvested, September 30, 2021

380,078

13.50

Unrecognized stock-based compensation related to the RSUs and RSAs issued through September 30, ~~2020~~2021 was $4 $

million and is

expected to be recognized over ~~1.7~~

1.9

years.

Notes to Consolidated Financial Statements (unaudited)


~~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
September 30, September 30,
2020 2019 2020 2019
(Dollars in thousands)
Computed at the statutory rate (21%) $ 1,996 $ 2,725 $ 1,141 $ 7,241
Increase (decrease) resulting from
Tax-exempt income (766) (722) (2,335) (2,147)
Nondeductible expenses 21 71 119 208
State tax credit 0 0 0 (1,361)
State income taxes 320 566 501 1,526
Equity based compensation (15) (5) 24 (66)
Goodwill impairment 0 0 1,553 0
Other adjustments (58) (43) (75) (93)
Actual tax expense $ 1,498 $ 2,592 $ 928 $ 5,308

Three Months Ended

Nine Months Ended

September 30,

2021

2020

2021

2020

(Dollars in thousands)

Computed at the statutory rate (21%)

5,598

1,996

12,693

1,141

Increase (decrease) resulting from

Tax-exempt income

(828)

(766)

(2,830)

(2,335)

Nondeductible expenses

145

119

State income taxes

912

320

2,090

501

Equity based compensation

(40)

(15)

(157)

Goodwill impairment

1,553

Other adjustments

(37)

(58)

(110)

(75)

Actual tax expense

5,660

1,498

11,831

928

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
(Dollars in thousands)
Deferred tax assets
Allowance for loan losses $ 18,613 $ 13,928
Lease incentive 322 294
Impairment of available-for-sale securities 0 493
Valuation allowance on real estate 269 0
Loan fees 3,747 2,317
Net operating loss carryover 344 339
Accrued expenses 1,485 2,131
Deferred compensation 2,776 2,444
State tax credit 2,519 3,287
Other 60 81
Total deferred tax asset 30,135 25,314
Deferred tax liability
Fair market value adjustments - trust preferred securities (341) (348)
Net unrealized gain on securities available-for-sale (8,357) (5,339)
FHLB stock basis (1,194) (996)
Premises and equipment (3,150) (3,620)
Other (1,229) (1,229)
Total deferred tax liability (14,271) (11,532)
Net deferred tax asset $ 15,864 $ 13,782

~~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.

September 30, 2021

December 31, 2020

(Dollars in thousands)

Deferred tax assets

Allowance for loan losses

15,441

18,124

Lease incentive

522

564

Unrecognized loss on equity investment

1,483

Loan fees

3,145

3,178

Accrued expenses

2,022

2,128

Deferred compensation

2,244

2,474

State tax credit

1,536

2,621

Other

614

946

Total deferred tax asset

27,007

30,035

Deferred tax liability

Net unrealized gain on securities available-for-sale

(6,453)

(9,531)

FHLB stock basis

(969)

(1,209)

Premises and equipment

(2,739)

(2,881)

Other

(1,187)

(1,601)

Total deferred tax liability

(11,348)

(15,222)

Net deferred tax asset

15,659

14,813


~~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~~

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~~

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

~~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~~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

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

September 30, 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

45,244

Equity security

4,989

Foreclosed assets held-for-sale

1,148


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

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.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other

factors and events in the environment that may affect the fair value.

Appraisals of the collateral underlying collateral-dependent loans

are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary by the Office of the Chief

Credit Officer.

Appraisals are reviewed for accuracy and consistency by 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~~Equity securities

The Company’s equity investments without readily determinable fair values are held at cost and are adjusted for observable

transactions during the reporting period or if the security is determined to be impaired. The estimated fair value of the equity security

was determined based on the marketability of the investment. The equity investment is classified as Level 3 due to the

infrequency of

the observable prices.

Foreclosed Assets Held-for-Sale

The 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~~2021 and December 31, ~~2019:~~2020:

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%

~~December 31, 2019~~

~~Fair Value~~

~~Valuation Techniques~~

~~Unobservable Inputs~~

Range
(Weighted Average)

~~(Dollars in thousands)~~

~~Collateral-dependent impaired loans~~

~~20,889~~

~~Market comparable properties~~

~~Marketability discount~~

~~10% - 15%~~

~~(12%)~~

September 30, 2021

Fair Value

Valuation Techniques

Unobservable

Inputs

Range

(Weighted Average)

(Dollars in thousands)

Market comparable

properties

Marketability

discount

100

Collateral-dependent impaired loans

45,244

(

Market comparable

transactions

Marketability

discount

Equity security

4,989

(

Market comparable

properties

Marketability

discount

Foreclosed assets held-for-sale

1,148

(


December 31, 2020 Fair Value Valuation Techniques Unobservable Inputs Range (Weighted Average) (Dollars in thousands) $ Market comparable properties Marketability discount 1 % - 98 % Collateral-dependent impaired loans 55,454 ( 24 )% $ Market comparable properties Marketability discount 7 % - 10 % Foreclosed assets held-for-sale 2,347 ( 9 )% Table of Contents Notes to Consolidated Financial Statements (unaudited) 37 ~~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~~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
Carrying Fair Value Measurements
Amount Level 1 Level 2 Level 3 Total
(Dollars in thousands)
Financial Assets
Cash and cash equivalents $ 187,320 $ 187,320 $ 0 $ 0 $ 187,320
Available-for-sale securities 741,634 0 741,634 0 741,634
Loans, net of allowance for loan losses 3,795,348 0 0 3,810,818 3,810,818
Restricted equity securities 17,278 0 0 17,278 17,278
Interest receivable 15,716 0 15,716 0 15,716
Derivative assets 9,838 0 9,838 0 9,838
$ 4,767,134 $ 187,320 $ 767,188 $ 3,828,096 $ 4,782,604
Financial Liabilities
Deposits $ 3,923,759 $ 521,826 $ 0 $ 3,407,012 $ 3,928,838
Federal funds purchased and repurchase agreements 14,921 0 14,921 0 14,921
Federal Home Loan Bank advances 358,743 0 357,859 0 357,859
Other borrowings 921 0 2,147 0 2,147
Interest payable 4,584 0 4,584 0 4,584
Derivative liabilities 9,907 0 9,907 0 9,907
$ 4,312,835 $ 521,826 $ 389,418 $ 3,407,012 $ 4,318,256

September 30, 2021

Carrying

Fair Value Measurements

Amount

Level 1

Level 2

Level 3

Total

(Dollars in thousands)

Financial Assets

Cash and cash equivalents

316,722

Available-for-sale securities

708,106

Loans, net of allowance for loan losses

4,168,965

4,154,406

Restricted equity securities

12,885

Interest receivable

15,928

Equity securities

7,521

2,224

5,297

7,521

Derivative assets

15,424

5,245,551

316,722

741,682

4,172,588

5,230,992

Financial Liabilities

Deposits

4,436,597

960,999

3,504,449

4,465,448

Federal Home Loan Bank advances

276,600

285,876

Other borrowings

997

2,326

Interest payable

1,463

Derivative liabilities

15,628

4,731,285

960,999

305,293

3,504,449

4,770,741

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

Available-for-sale securities

654,588

Loans, net of allowance for loan losses

4,366,602

4,351,970

Restricted equity securities

15,543

Interest receivable

17,236

Equity securities

13,436

2,247

11,189

13,436

Derivative assets

24,094

5,500,309

408,810

698,165

4,378,702

5,485,677

Financial Liabilities

Deposits

4,694,740

718,459

4,015,792

4,734,251

Federal funds purchased and repurchase agreements

2,306

Federal Home Loan Bank advances

293,100

309,020

Other borrowings

963

2,024

Interest payable

2,163

Derivative liabilities

24,454

5,017,726

718,459

339,967

4,015,792

5,074,218


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

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Note ~~13:~~12:

Commitments and Credit Risk

Commitments

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

September 30, 2020 December 31, 2019
(Dollars in thousands)
Commitments to originate loans $ 188,347 $ 134,652
Standby letters of credit 42,204 39,035
Lines of credit 1,362,440 1,351,873
Future lease commitments 0 20,935
Total $ 1,592,991 $ 1,546,495

September 30, 2021

December 31, 2020

(Dollars in thousands)

Commitments to originate loans

238,863

99,596

Standby letters of credit

50,669

48,607

Lines of credit

1,423,363

1,423,038

Total

1,712,895

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

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:~~14:

Subsequent Events

On October ~~20, 2020,~~18, 2021, 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.

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,~~ February 26, 2021 (the

“2020 ~~(the “2019~~ Form 10-K”). Results of operations for the ~~three~~three- and ~~nine month~~nine-month periods ended September 30, ~~2020~~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"~~“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~~forward-

looking statements ~~as a result~~because of ~~a number of~~several 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~~

“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~~wholly owned consolidated bank subsidiary.

Third Quarter ~~2020~~2021 Highlights

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

•●

$~~5.5~~5.4 billion of assets ~~an increase~~at period end with 162% net income growth compared to the third quarter of ~~12% from December 31, 2019;~~2020;

•●

Return on Average

Assets of 1.54% and a Return on Equity of 12.92%;

●

Efficiency ratio of ~~53%~~59.06% for the third quarter of ~~2020 as we optimized staffing levels, invested~~2021, impacted by a $6.2 million unrealized loss on an equity security;

●

Net Interest Margin (Fully Tax-Equivalent) of 3.20% compared to 3.12% in ~~technology and controlled discretionary spending;~~

•~~$64 million of loan growth from~~ the previous ~~quarter and $854 million or 23% over the last twelve months;~~quarter;

•~~$188 million of~~●

Noninterest-bearing deposit growth of 27% from ~~the previous quarter~~September 30, 2020 and ~~$834 million or 23%~~ ~~over the last twelve months;~~accounted for 22% of total deposits at September

•~~Opened our second full-service bank in the Dallas metropolitan area~~30, 2021; 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 $12.79 at September 30, 2021 compared to $11.84 at September 30, ~~2020 compared to $11.59 at September 30, 2019;~~

•~~Announced a $20 million common stock buyback program.~~2020.

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~~because of the COVID-19 pandemic. ~~As of September 30, 2020, team members continued~~In

April

2021, substantially all employees returned to on-premises work inand the ~~office as needed~~Company is evaluating hybrid working opportunities. In

addition, the Bank’s 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 ~~CARES~~Coronavirus

Aid, Relief, and Economic Security Act (“CARES

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.

Table of Contents

The Consolidated Appropriations

Act of 2021 allocated additional PPP funding. 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 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
As of or for the Three Months Ended

~~Table~~As of ~~Contents~~or for the Nine Months Ended

September 30,

2021

2020

2021

2020

(Dollars in thousands)

PPP Loan

Activity

Outstanding loan balance, beginning

197,084

369,022

292,230

Loan ~~Modifications~~increases

~~The CARES Act allows financial institutions to elect to suspend GAAP principles and regulatory determinations for~~-

238

133,778

369,260

Loan payoffs

(87,619)

(316,543)

Outstanding loan modifications relating to COVID-19 that would otherwise be categorized as TDRs from March 1, 2020 to the earlier of December 31, 2020 or 60 days after the national emergency related to the COVID-19 pandemic ends as long as the loan was not more than 30 days past due as of December 31, 2019. The Company elected to use this guidance.balance, end

Deferred loan interest accrues on loans modified as a result of the COVID-19 pandemic until determined that it is more likely than 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 %
109,465

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
369,260

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. The Company expects 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 may increase our ALLL, (ii) reverse interest income previously$

109,465

369,260

PPP Loan Fee

Activity

Unearned fee balance, beginning

4,708

7,885

4,189

Unearned fees added

5,062

9,946

Earned fees 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 %
(1,709)

(1,127)

(6,252)

38(3,172)

Unearned fee balance, end

2,999

~~Table of Contents~~$

6,774

2,999

6,774

Loan Portfolio and Credit Quality

Credit quality metrics generally improved during the third quarter of 2021 as classified assets decreased $47 million and the ratio

of nonperforming assets to total assets decreased to 0.92% from 1.09% in the previous quarter.

The improvement in credit metrics were

primarily driven by upgrades in COVID-19 impacted segments and the energy portfolio.

The COVID-19 pandemic impacted and may continue to impact our borrowers, ~~resulting~~which may result in additional charge-offs.

However, the Company’s key credit ~~migration~~metrics have generally improved during 2021 and ~~increased provisions. As a result of the COVID-19 pandemic, the Company plans~~are expected 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, resulting in a $14 million or 263% increase in the energy ALLL balance 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~~ improve should

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
overall economy continue its current trajectory.

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~~

The Company provides a mix of variable-rate and fixed-rate commercial loans across various industries. We extend commercial loans on an unsecured and secured basis. There is significant uncertainty regarding 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.

Table of Contents

Performance Measures

As of or For the Quarter Ended

As of or for the Nine Months Ended

September 30,

June 30,

March 31,

December 31,

September 30,

2021

2020

2021

2020

(Dollars in thousands, except per share data)

Return on average assets

(1)

1.54

1.10

0.84

0.58

1.16

0.11

Return on average equity

(1)

12.92

9.86

7.80

5.19

10.24

0.98

Earnings per share

0.41

0.30

0.23

0.16

0.15

0.95

0.09

Diluted earnings per share

0.41

0.30

0.23

0.15

0.93

0.09

Efficiency

(2)

59.06

53.61

50.41

53.35

53.03

54.18

59.44

Ratio of equity to assets

12.08

12.00

10.48

11.03

11.22

12.08

11.22

(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

For the Nine Months Ended

September 30,

June 30,

March 31,

December 31,

September 30,

2021

2020

2021

2020

Yield on securities - tax-equivalent

(1)

2.87

2.93

2.89

2.96

2.93

2.90

3.08

Yield on loans

4.00

3.99

3.94

4.00

3.90

3.98

4.36

Yield on earning assets - tax-equivalent

(1)

3.62

3.57

3.50

3.71

3.66

3.56

4.05

Cost of interest-bearing deposits

0.47

0.50

0.57

0.69

0.80

0.51

1.14

Cost of total deposits

0.38

0.41

0.48

0.58

0.67

0.42

0.96

Cost of FHLB and short-term borrowings

1.82

1.79

1.78

1.50

1.80

1.51

Cost of funds

0.46

0.49

0.56

0.65

0.75

0.50

1.01

Net interest margin - tax-equivalent

(1)

3.20

3.12

3.00

3.12

2.98

3.10

3.13

(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%.

Table of Contents

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
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 $ 257,637 $ 1,290 1.99 % $ 335,045 $ 2,263 2.68 %
Securities - tax-exempt(1)
440,669 3,855 3.48 392,644 3,592 3.63
Federal funds sold — — — 16,315 89 2.16
Interest-bearing deposits in other banks 166,423 47 0.11 171,913 881 2.03
Gross loans, net of unearned income(2)(3)
4,477,211 43,929 3.90 3,540,707 49,327 5.53
Total interest-earning assets(1)
5,341,940 $ 49,121 3.66 % 4,456,624 $ 56,152 5.00 %
Allowance for loan losses (75,970) (43,327)
Other non-interest-earning assets 220,282 197,661
Total assets $ 5,486,252 $ 4,610,958
Interest-bearing liabilities
Transaction deposits $ 460,420 $ 260 0.22 % $ 134,987 $ 386 1.13 %
Savings and money market deposits 1,995,307 2,301 0.46 1,743,575 9,553 2.17
Time deposits 1,174,555 4,737 1.60 1,276,571 8,064 2.51
Total interest-bearing deposits 3,630,282 7,298 0.80 3,155,133 18,003 2.26
FHLB and short-term borrowings 479,475 1,803 1.50 345,794 1,703 1.95
Trust preferred securities, net of fair value adjustments 944 24 10.19 904 37 16.06
Non-interest-bearing deposits 714,337 — — 535,467 — —
Cost of funds 4,825,038 $ 9,125 0.75 % 4,037,298 $ 19,743 1.94 %
Other liabilities 47,304 29,833
Stockholders’ equity 613,910 543,827
Total liabilities and stockholders’ equity $ 5,486,252 $ 4,610,958
Net interest income(1)
$ 39,996 $ 36,409
Net interest spread(1)
2.91 % 3.06 %
Net interest margin(1)
2.98 % 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%.
(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.
(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.
paid:

For the Quarter Ended

September 30, 2021

September 30, 2020

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

194,929

964

1.96

257,637

1,290

1.99

Securities - tax-exempt

(1)

534,917

4,310

3.20

440,669

3,855

3.48

Interest-bearing deposits in other banks

313,188

121

0.15

166,423

0.11

Gross loans, net of unearned income

(2)(3)

4,230,553

42,664

4.00

4,477,211

43,929

3.90

Total interest-earning assets

(1)

5,273,587

48,059

3.62

5,341,940

49,121

3.66

Allowance for loan losses

(75,103)

(75,970)

Other non-interest-earning assets

210,500

220,282

Total assets

5,408,984

5,486,252

Interest-bearing liabilities

Transaction deposits

510,823

259

0.20

460,420

260

0.22

Savings and money market deposits

2,276,436

1,907

0.33

1,995,307

2,301

0.46

Time deposits

752,012

2,045

1.08

1,174,555

4,737

1.60

Total interest-bearing deposits

3,539,271

4,211

0.47

3,630,282

7,298

0.80

FHLB and short-term borrowings

278,154

1,275

1.82

479,475

1,803

1.50

Trust preferred securities, net of fair value adjustments

988

9.63

944

10.19

Non-interest-bearing deposits

909,750

714,337

Cost of funds

4,728,163

5,510

0.46

4,825,038

9,125

0.75

Other liabilities

36,106

47,304

Stockholders’ equity

644,715

613,910

Total liabilities and stockholders’

equity

5,408,984

5,486,252

Net interest income - tax-equivalent

(1)

42,549

39,996

Net interest spread - tax-equivalent

(1)

3.16

2.91

Net interest margin - tax-equivalent

(1)

3.20

2.98

(1)

Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal income taxes. The incremental tax rate used is 21.0%.

(2)

Loans, net of unearned income include non-accrual loans of $48 million and $76 million as of September 30, 2021 and 2020, respectively.

(3)

Loan interest income includes loan fees of $4 million and $3 million for the quarter ended September 30, 2021 and 2020, respectively.

(4)

Actual unrounded values are used to calculate the reported yield or rate. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same amounts.

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.
For the Nine Months Ended

September 30, 2021

September 30, 2020

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

207,691

2,911

1.87

285,363

4,982

2.33

Securities - tax-exempt

(1)

507,986

12,596

3.32

443,506

11,807

3.56

Federal funds sold

1,364

1.73

Interest-bearing deposits in other banks

390,588

359

0.12

170,316

566

0.44

Gross loans, net of unearned income

(2)(3)

4,381,213

130,268

3.98

4,248,520

138,591

4.36

Total interest-earning assets

(1)

5,487,478

146,134

3.56

5,149,069

155,964

4.05

Allowance for loan losses

(76,726)

(64,896)

Other non-interest-earning assets

214,752

218,797

Total assets

5,625,504

5,302,970

Interest-bearing liabilities

Transaction deposits

629,959

936

0.20

404,967

1,391

0.46

Savings and money market deposits

2,360,559

6,402

0.36

1,938,669

11,689

0.81

Time deposits

863,592

7,451

1.15

1,178,632

16,895

1.91

Total interest-bearing deposits

3,854,110

14,789

0.51

3,522,268

29,975

1.14

FHLB and short-term borrowings

285,371

3,841

1.80

456,048

5,145

1.51

Trust preferred securities, net of fair value adjustments

976

9.80

933

11.81

Non-interest-bearing deposits

814,924

668,208

Cost of funds

4,955,381

18,702

0.50

4,647,457

35,202

1.01

Other liabilities

35,385

42,731

Stockholders’ equity

634,738

612,782

Total liabilities and stockholders’

equity

5,625,504

5,302,970

Net interest income - tax-equivalent

(1)

127,432

120,762

Net interest spread - tax-equivalent

(1)

3.06

3.04

Net interest margin - tax-equivalent

(1)

3.10

3.13

(1)

Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal income taxes. The incremental tax rate used is 21.0%.

(2)

Loans, net of unearned income include non-accrual loans of $48 million and $76 million as of September 30, 2021 and 2020, respectively.

(3)

Loan interest income includes loan fees of $13 million and $10 million for the nine months ended September 30, 2021 and 2020, respectively.

(4)

Actual unrounded values are used to calculate the reported yield or rate. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same amounts.

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
September 30, 2020 over 2019 September 30, 2020 over 2019
Average Volume Yield/Rate
Net Change(2)
Average Volume Yield/Rate
Net Change(2)
(Dollars in thousands)
Interest Income
Securities - taxable $ (460) $ (513) $ (973) $ (993) $ (1,472) $ (2,465)
Securities - tax-exempt(1)
418 (155) 263 1,759 (624) 1,135
Federal funds sold (44) (45) (89) (247) (80) (327)
Interest-bearing deposits in other banks (28) (806) (834) 443 (1,984) (1,541)
Gross loans, net of unearned income 11,169 (16,567) (5,398) 32,557 (36,285) (3,728)
Total interest income(1)
11,055 (18,086) (7,031) 33,519 (40,445) (6,926)
Interest Expense
Transaction deposits 373 (499) (126) 1,287 (1,035) 252
Savings and money market deposits 1,198 (8,450) (7,252) 4,632 (20,269) (15,637)
Time deposits (601) (2,726) (3,327) (1,236) (4,825) (6,061)
Total interest-bearing deposits 970 (11,675) (10,705) 4,683 (26,129) (21,446)
FHLB and short-term borrowings 553 (453) 100 1,135 (1,230) (95)
Trust preferred securities, net of fair value adjustments 1 (14) (13) 4 (34) (30)
Total interest expense 1,524 (12,142) (10,618) 5,822 (27,393) (21,571)
Net interest income(1)
$ 9,531 $ (5,944) $ 3,587 $ 27,697 $ (13,052) $ 14,645
(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.
For the Quarter Ended

For the Nine Months Ended

September 30, 2021 over 2020

Average Volume

Yield/Rate

Net Change

(2)

Average Volume

Yield/Rate

Net Change

(2)

(Dollars in thousands)

Interest Income

Securities - taxable

(307)

(19)

(326)

(1,200)

(871)

(2,071)

Securities - tax-exempt

(1)

782

(327)

455

1,627

(838)

789

Federal funds sold

(18)

Interest-bearing deposits in other banks

390

(597)

(207)

Gross loans, net of unearned income

(2,403)

1,138

(1,265)

4,176

(12,499)

(8,323)

Total interest income

(1)

(1,877)

815

(1,062)

4,975

(14,805)

(9,830)

Interest Expense

Transaction deposits

(27)

(1)

555

(1,010)

(455)

Savings and money market deposits

304

(698)

(394)

2,185

(7,472)

(5,287)

Time deposits

(1,414)

(1,278)

(2,692)

(3,795)

(5,649)

(9,444)

Total interest-bearing deposits

(1,084)

(2,003)

(3,087)

(1,055)

(14,131)

(15,186)

FHLB and short-term borrowings

(863)

335

(528)

(2,169)

865

(1,304)

Trust preferred securities, net of fair value adjustments

(1)

(14)

(10)

Total interest expense

(1,946)

(1,669)

(3,615)

(3,220)

(13,280)

(16,500)

Net interest income

(1)

2,484

2,553

8,195

(1,525)

6,670

(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.

Interest income -

Interest income declined for the ~~three~~three- and ~~nine months~~nine-month periods ended September 30, ~~2020~~2021 compared to the same periods in ~~2019. Lower~~2020. For the three-month period

ended September 30, 2021 compared to the same period in 2020, the average loan balance declined $247 million or 6% resulting in lower interest income,

offset by higher yields on

loans, driven by a $907 thousand increase in loan fees that increased the current period loan yield 10 basis points compared to the

same period in 2020. For the nine-month period

ended September 30, 2021, 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. The~~environment. This decline

in asset yields was partially offset by year-over-year

loan ~~growth. We anticipate our fourth quarter yield on earning assets to remain flat or increase slightly when compared to the quarter ended September 30, 2020.~~growth and PPP loan income.

Interest expense

- Interest expense declined for the ~~three~~three- and ~~nine months~~nine-month periods ended September 30, ~~2020~~2021 compared to the same periods in ~~2019.~~ 2020.

The cost of interest-bearing

deposits declined during the current periods due to strategic rate changes in our deposit products driven by the declining interest rate environment. ~~The cost~~For the three- and

nine-month

periods ended September 30, 2021 compared to the same periods in 2020, the average volume for interest-bearing deposits declined primarily because of time

deposit maturities and

current rates on time deposits.

Table of Contents

Average FHLB and other borrowings declined ~~due~~for the three- and nine-month periods ended September 30, 2021 compared to ~~shorter term funding~~the same periods in 2020, ~~compared to 2019 and~~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. We anticipate our fourth quarter~~renew or increase these borrowings. The increase in the cost of ~~funds to remain flat or slightly decline as time deposits~~FHLB borrowings was the result of short-term duration borrowings

with lower

rates that matured in 2020 and ~~other borrowings mature.~~were not renewed.

Net interest income

- Net interest income increased for the ~~three~~three- and ~~nine months~~nine-month periods ended September 30, ~~2020~~2021 compared to the same periods in ~~2019. The increase was~~

2020 driven by ~~growth~~rate and

volume declines 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 the net interest margin by 7 basis points. This nonaccrual loan was restructured in the fourth quarter of 2020 and placed back on accrual. We anticipate~~The Company anticipates net interest margin to ~~improve to around 3.05%~~remain

stable or slightly decline during the fourth quarter of ~~2020 if we can maintain our nonaccrual loans and reduce our cost of funds.~~2021 as time deposits

continue to mature at higher rates, offset by lower yields on earning assets.

Impact of Transition Away from LIBOR

~~Refer~~The Company had more than $1.4 billion in loans tied to ~~Note 1: Nature of Operations and Summary of Significant~~ LIBOR at September 30, 2021. Starting in October 2021, the Company began limiting loans

originated using the

LIBOR index. For current borrowers, the Company is modifying loan document language to account for the transition away from LIBOR as loans

renew or originate. The Company

plans to replace LIBOR-based loans with the Secured Overnight Financing Rate. 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.

Non-Interest Income (Expense)

For the Quarter Ended

For the Nine Months Ended

September 30,

June 30,

March 31,

December 31,

September 30,

2021

2020

2021

2020

(Dollars in thousands)

Total non-interest income (expense)

(1,105)

5,825

4,144

2,949

4,063

8,864

8,792

Non-interest income (expense) to average assets

(1)

(0.08)

0.41

0.29

0.21

0.29

0.21

0.22

(1)

Interim periods annualized.

Table of Contents

~~Non-Interest Income~~46

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

Three Months Ended Nine Months Ended
September 30, September 30,
Change Change
2020 2019 $ % 2020 2019 $ %
(Dollars in thousands)
Service charges and fees on customer accounts $ 792 $ 72 $ 720 1,000 % $ 1,947 $ 441 $ 1,506 341 %
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)
Income from bank-owned life insurance 464 476 (12) (3) 1,373 1,416 (43) (3)
Swap fee income, net 121 1,879 (1,758) (94) 80 2,415 (2,335) (97)
ATM and credit card interchange income 1,482 476 1,006 211 2,863 1,312 1,551 118
Other non-interest income 192 226 (34) (15) 804 695 109 16
Total non-interest income $ 4,063 $ 3,212 $ 851 26 % $ 8,792 $ 6,529 $ 2,263 35 %
For the Quarter Ended

For the Nine Months Ended

September 30,

Change

2021

2020

2021

2020

(Dollars in thousands)

Service charges and fees on customer accounts

1,196

792

404

3,330

1,947

1,383

Realized gains on available-for-sale securities

1,046

1,012

1,043

1,725

(682)

(40)

Unrealized gains (losses), net on equity securities

(6,210)

(6,243)

(6,296)

(11,879)

Income from bank-owned life insurance

427

464

(37)

(8)

3,088

1,373

1,715

125

Swap fees and credit valuation adjustments, net

121

(90)

(74)

156

ATM and credit card interchange income

1,735

1,482

253

5,569

2,863

2,706

Other non-interest income

670

192

478

249

1,921

751

1,170

156

Total non-interest income (loss)

(1,105)

4,063

(5,168)

(127)

8,864

8,792

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

Service ~~Charges~~charges and ~~Fees~~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~~ customer ~~base, including their outstanding balances.~~accounts

- The increase for ~~both~~ the ~~three~~three- and ~~nine month~~nine-month periods ended September 30, 2021 compared to the same

corresponding periods in

2020 was driven by a decline in costs associated with our rebate program, including a reduction in the funded balance and reduction in

rates used. In addition, customer growth and

an increase in transactions improved account analysis fees.

Realized gains on available-for-sale securities

- The increase for the three-month period ended September 30, 2021 compared to the same corresponding

period in 2020 resulted

from the sale of $16 million in tax-exempt securities compared to $13 million of tax-exempt securities sold during the three-month period ended

September 30, 2020. The decline for

the nine-month period ended September 30, 2021 compared to the same corresponding ~~periods~~period in ~~2019 was driven by customer growth that resulted in increased analysis fees and reduction in the costs associated with the rebate program.~~

~~Gain on Sale of Available-for-Sale Securities~~ ~~- The increase in the gain for both the three and nine month periods ended September 30,~~ 2020 was ~~primarily~~ due to ~~the declining rate environment, which increased the value~~an additional $19 million of ~~the Company’s~~tax-exempt securities

sold in ~~2020 compared to the same periods in 2019.~~ 2020.

The ~~2020~~ sales were a strategic decision by management to capitalize on attractive market conditions and improve

credit quality.

~~Impairment~~Unrealized gains (losses), net on equity securities

- During the quarter ended September 30, 2021, the Company recorded a $6 million unrealized loss related to an equity

investment received as part of ~~Premises~~a modified loan agreement. The Company elected to account for this security

at cost minus impairment, unless an orderly transaction for an identical

or similar investment of the same issuer occurred that would result in an updated fair market value. Prior to the quarter ended September 30, 2021, the equity investment’s

key

performance indicators were stable and ~~Equipment Held-for-Sale~~no impairment indicators arose. During the three-month period ended September 30, 2021, significant adverse changes

in market conditions

for the investment resulted in the impairment review. The Company anticipates the equity investment will

be sold during the fourth quarter of 2021.

Income from bank-owned life insurance

- The increase for the nine-month period ended September 30, 2021 was due to the Company ~~sold an administration building~~recognizing $2 million in

tax-free death

benefits from a bank-owned life insurance policy during the second quarter of ~~2019 as our service and support members relocated~~2021 compared to ~~our new corporate headquarters.~~$0 of such proceeds for the nine-month period ended

September 30, 2020.

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~~Swap fees on

new swaps depend on the size and term of the underlying asset. During the three- and nine-month periods ended

September 30, 2021, no new swaps were executed compared to one

and three new swaps for ~~both~~ the ~~three~~three- and ~~nine month~~nine-month periods ended September 30, 2020, ~~compared~~respectively. The low volume of new swaps was due to the same corresponding periods in 2019 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’s

management's loan and pricing

strategy and ~~(iii)~~ lower ~~loan originations, excluding PPP loans, as a result~~long-term interest rates.

Table of ~~the COVID-19 pandemic.~~Contents

ATM and Credit Card Interchange Income

- The increase in ATM and credit card

interchange income for the ~~three~~three- and ~~nine month~~nine-month periods ended September 30, ~~2020~~2021 compared

to the same ~~corresponding~~ periods in ~~2019~~2020 was primarily the result of customers that mobilized their workforce directly impacted by the COVID-19 pandemic.

The Company saw a $229 thousand

increase for the three-month period ended September 30, 2021 compared to the prior three-month period ended June 30, 2021 as COVID-19 cases increased.

The Company

anticipates the credit card activity and related income will ~~decline slightly~~continue to fluctuate in connection with ~~a decline~~changes in COVID-19 ~~cases.~~cases

and the related vaccine rollout.

Other non-interest income

- The increase in other non-interest income for the three- and nine-month periods ended September 30, 2021 compared

to the same periods in 2020 was

related to $305 thousand and $183 thousand in state employment incentives received in the third and second

~~Table~~quarter of ~~Contents~~2021, respectively. We expect to receive the incentives

quarterly going forward for three years, but at significantly lower amounts. The Company also saw a $367 thousand increase

in letter of credit and foreign exchange fees for the nine-

month period ended September 30, 2021 compared to the corresponding period in 2020.

Non-Interest Expense

For the Quarter Ended

For the Nine Months Ended

September 30,

June 30,

March 31,

December 31,

September 30,

2021

2020

2021

2020

(1)

(Dollars in thousands)

Total non-interest expense

24,036

25,813

22,818

23,732

23,011

72,667

76,244

Non-interest expense to average assets

(2)

1.76

1.82

1.60

1.71

1.67

1.73

1.92

(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
September 30, September 30,
Change Change
2020 2019 $ % 2020 2019 $ %
(Dollars in thousands)
Salary and employee benefits $ 14,628 $ 14,256 $ 372 3 % $ 43,022 $ 43,296 (274) (1) %
Occupancy 2,144 2,080 64 3 6,274 6,301 (27) —
Professional fees 1,132 427 705 165 3,098 1,923 1,175 61
Deposit insurance premiums 1,096 302 794 263 3,151 2,020 1,131 56
Data processing 652 649 3 — 2,065 1,868 197 11
Advertising 147 580 (433) (75) 870 1,770 (900) (51)
Software and communication 959 900 59 7 2,772 2,407 365 15
Foreclosed assets, net 20 8 12 150 1,174 33 1,141 3,458
Goodwill impairment — — — — 7,397 — 7,397 —
Other non-interest expense 2,233 1,970 263 13 6,421 6,145 276 4
Total non-interest expense $ 23,011 $ 21,172 $ 1,839 9 % $ 76,244 $ 65,763 $ 10,481 16 %
For the Quarter Ended

For the Nine Months Ended

September 30,

Change

2021

2020

2021

2020

(Dollars in thousands)

Salary and employee benefits

15,399

14,628

771

44,612

43,022

1,590

Occupancy

2,416

2,144

272

7,307

6,274

1,033

Professional fees

618

1,132

(514)

(45)

2,538

3,098

(560)

(18)

Deposit insurance premiums

927

1,096

(169)

(15)

2,995

3,151

(156)

(5)

Data processing

700

652

2,136

2,065

Advertising

596

147

449

305

1,334

870

464

Software and communication

999

959

3,098

2,772

326

Foreclosed assets, net

(35)

(55)

(275)

680

1,174

(494)

(42)

Goodwill impairment

7,397

(7,397)

(100)

Other non-interest expense

2,416

2,233

183

7,967

6,421

1,546

Total non-interest expense

24,036

23,011

1,025

72,667

76,244

(3,577)

(5)

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

Table of Contents

Salary and Employee Benefits

- Salary and employee benefit costs increased for the ~~three months~~three- and nine-month periods ended September 30, ~~2020~~2021 compared to the same ~~period~~periods in ~~2019~~

2020 primarily due to ~~the overall~~an increase in anticipated payouts for performance-based awards that resulted from improved earnings

and asset quality metrics, partially offset by changes in

employee ~~count. Salary~~ headcount. During the nine-month period ended September 30, 2021, the Company recognized $719 thousand in costs due to accelerated vesting

of stock-based awards

and ~~employee benefit~~the annual incentive award of a former employee.

Occupancy

- Occupancy costs ~~decreased slightly~~increased for the ~~nine month~~three- and nine-month periods ended September 30, ~~2020~~2021 compared to the same ~~corresponding period~~periods in ~~2019~~

2020 primarily due to ~~lower incentive compensation expenses. The reduction was partially offset by a slight increase~~ our new locations

in ~~full-time equivalent employees. As a result of~~ the ~~COVID-19 pandemic,~~rapidly growing Frisco, Texas market and Phoenix,

Arizona market and our more prominent location on the ~~Company focused on optimizing staffing levels. As a result, the Company anticipates salary costs will decrease slightly during the remainder of the year.~~Country Club Plaza, in Kansas City, Missouri.

Professional Fees

- Professional fees ~~increased~~declined for ~~both~~ the ~~three~~three- and ~~nine month~~nine-month periods ended September 30, ~~2020~~2021 compared to the same

corresponding periods in ~~2019~~2020 primarily from ~~an increase~~

a reduction 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~~PPP loan originations and ~~nine month periods ended September 30, 2020. The Company’s accounting fees increased in 2020 compared to 2019 due to asset growth and the transition from private to a public company.~~loan

workouts.

Deposit Insurance Premiums

- The FDIC uses a risk-based premium system to calculate quarterly fees. Our costs fluctuate because of changes

in asset growth, changes in asset

quality and changes in capital ratios.

Advertising

- The increase in advertising costs was driven by increased in-person events for the ~~quarterly fee. Our premiums~~three- and nine-month periods

ended September 30, 2021 compared to the same

periods in 2020 because of COVID-19 pandemic restrictions being lifted.

Software and Communication

- Software and communication costs increased for ~~both~~ the ~~three~~three- and ~~nine month~~nine-month periods ended September 30, ~~2020~~2021 compared to the same ~~corresponding~~ periods in ~~2019 as~~

2020 primarily due to our continued strategy to invest in technologies that allow us to cover beginning-to-end loan originations, provide

customers with a ~~result~~suite of ~~strong asset growth, changes~~online tools and

analyze operational trends. In addition to ~~loan mix, and changes in capital ratios, all~~the growing number of ~~which~~technologies implemented, a portion of costs increased because of our ~~quarterly fee.~~growth.

~~Advertising~~Foreclosed Assets, net

- ~~The decline in advertising costs for~~During the ~~three and nine month periods~~three-month period ended September 30, 2021, the Company sold a commercial use facility foreclosed upon in 2020 ~~primarily resulted from~~and raw land acquired

2019. The facility was previously written down by $630 thousand during the ~~COVID-19 pandemic. In addition,~~three-month period ended

June 30, 2021. The value of industrial facilities and raw land foreclosed upon

in 2019 was reduced by $1 million during the ~~year-to-date decline resulted from the Company’s completion of its rebranding campaign that increased the 2019 expense by approximately $184 thousand.~~

~~Foreclosed Assets, Net~~ ~~- The increase in foreclosed assets, net for the three and nine month periods~~nine-month period 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,~~in 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~~impairment.

Other Non-interest Expense

- Other non-interest expense increased for the ~~total value of goodwill previously reported during the quarter~~three- and nine-month periods ended ~~June~~September 30, ~~2020. See “Note 6: Goodwill and Core Deposit Intangible” within the Unaudited Notes~~2021 compared to the ~~Financial Statements for more information.~~same periods

in 2020

primarily due to a $43 thousand and $1 million increase in commercial card costs, respectively, 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.

Income Taxes

For the Quarter Ended

For the Nine Months Ended

September 30,

June 30,

March 31,

December 31,

September 30,

2021

2020

2021

2020

(Dollars in thousands)

Income tax expense

5,660

3,263

2,908

1,785

1,498

11,831

928

Income before income taxes

26,660

18,840

14,943

9,879

9,504

60,443

5,435

Effective tax rate

Table of Contents

~~Income Taxes~~49

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 and tax-exempt municipal ~~securities and tax credit bonds;~~securities; state tax credits; and permanent tax differences from goodwill impairment

and equity-based compensation. During

the three-month period ended September 30, 2021, the Company’s effective tax rate was impacted by improved net income before taxes of $8 million

or 42% while tax-exempt

income declined $2 million or 31%. During the three-month period ended June 30, 2021, the Company benefited from

$2 million in bank owned life insurance settlement benefits

that reduced income taxes by $387 thousand and reduced the effective tax rate by approximately 2%. We

anticipate the Company’s effective tax rate to remain within the 19% to

21% range in the near term. 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,~~2021, available-for-sale investments totaled ~~$652~~ $708

million, an ~~$89~~increase of $54 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~~2021, gross loans ~~increased $631~~declined

$209 million or ~~16%~~5% from December 31, ~~2019~~2020 and was driven by the following:

~~PPP~~Commercial

- The ~~Company funded PPP~~$33 million or 2% decline in commercial loans was driven by $12 million of charge-offs taken, an increase in ~~the second quarter~~paydowns and

$28 million of ~~2020 as~~loans sold to a ~~result of the COVID-19 pandemic. At September 30, 2020 PPP loans represented 58% of the net loan growth~~third-

party.

Energy

- Our energy portfolio decreased $49 million or 14% from December 31, ~~2019.~~2020 to September 30, 2021 primarily due to paydowns on outstanding lines of credit.

Commercial Real Estate and Construction and Land Development

- The $109 million or 6% increase was driven by strong originations and customer drawdowns on lines of

credit primarily for commercial projects.

Residential and Multifamily Real Estate

- The $60 million or 9% decline was driven by payoffs of several, larger credit facilities.

PPP

- PPP loans decreased $183 million or 63% from December 31, 2020 to September 30, 2021. PPP

loan activity is detailed in the

“Third 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~~ - The ~~$219 million or 55% increase between December 31, 2019~~following table shows the contractual maturities of our gross loans 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~~sensitivity to interest rate changes:

Table of ~~approximately $113 million with the remaining growth coming from existing loan relationships.~~Contents

~~Commercial Real Estate~~ - The $172 million or 17% increase was driven by activity in our Dallas and Kansas City markets. Approximately 75% of the portfolio is located in Kansas, Missouri, Oklahoma, and Texas. Texas, our largest state concentration, represented approximately 29% of the portfolio as

As of September 30, ~~2020. The portfolio remains well diversified with growth~~2021

Due in ~~the office space, industrial,~~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

60,715

282,092

254,938

604,032

15,924

87,835

1,305,536

Energy

123

79,516

10,232

206,494

296,365

Commercial real estate

100,854

106,795

326,161

404,293

85,820

235,222

7,549

1,266,694

Construction and ~~senior living sectors, among others.~~land

~~Energy~~ - Our energy portfolio declined $24 million or 6% from December 31, 2019 to September 30, 2020. The Company expects the energy portfolio to decline further as part of management’s strategy to lower our oildevelopment

6,944

66,893

35,954

411,689

5,242

27,522

4,163

26,727

585,134

Residential and ~~gas loan concentrations.~~multifamily real

~~Commercial~~ ~~- Declines resulted from increased pay downs and charge-offs.~~estate

23,401

61,161

73,950

112,716

100,496

8,667

240,464

620,877

PPP

11,643

97,822

109,465

Consumer

19,546

11,116

2,623

5,478

20,997

2,353

62,113

Gross loans

223,226

607,573

801,680

1,744,702

207,482

380,243

4,185

277,093

4,246,184

Provision and Allowance for Loan Losses (“ALLL”)

~~There are significant uncertainties regarding~~For the ~~ultimate effects of~~Quarter Ended

For 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~~Nine Months Ended

September 30,

June 30,

March 31,

December 31,

September 30,

2021

2020

2021

2020

(Dollars in thousands)

Provision for loan losses ~~in future periods. To the extent the pandemic continues to cause a recession or decrease economic activity~~

(10,000)

3,500

7,500

10,875

1,000

45,825

Allowance 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.~~losses

64,152

75,493

74,551

75,295

76,035

64,152

76,035

Net charge-offs

1,341

2,558

8,244

11,615

6,025

12,143

26,686

Table of Contents

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,~~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
Amount Percent of Allowance to Total Allowance Amount Percent of Allowance to Total Allowance
(Dollars in thousands)
Commercial $ 28,203 37 % $ 35,864 63 %
Energy 19,540 26 6,565 12
Commercial real estate 17,807 23 8,085 14
Construction and land development 4,489 6 3,516 6
Residential real estate 5,494 7 2,546 4
PPP — — — —
Consumer 502 1 320 1
Gross loans $ 76,035 100 % $ 56,896 100 %
indicated:

September 30, 2021

~~Activity~~December 31, 2020

Amount

Percent of

Allowance to Total

Allowance

Percent of Loan

Type to Total Loans

Amount

Percent of

Allowance to Total

Allowance

Percent of Loan

Type to Total Loans

(Dollars in ~~the allowance for loan losses is presented in the following table:~~thousands)

Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
(Dollars in thousands)
Allowance for loan losses:
Balance at beginning of period $ 71,185 $ 42,852 $ 56,896 $ 37,826
Provision for loan losses 10,875 4,850 45,825 10,550
Charge-offs:
Commercial (5,781) (1,700) (23,946) (2,954)
Energy — (3,000) (2,278) (3,000)
Residential real estate (256) — (445) —
Consumer — (8) (104) (19)
Total charge-offs (6,037) (4,708) (26,773) (5,973)
Recoveries:
Commercial 2 1 75 15
Energy — — — 576
Consumer 10 — 12 1
Total recoveries 12 1 87 592
Net (charge-offs) recoveries (6,025) (4,707) (26,686) (5,381)
Balance at end of period $ 76,035 $ 42,995 $ 76,035 $ 42,995
Commercial

23,921

24,693

Energy

12,548

18,341

Commercial real estate

18,945

22,354

Construction and land development

3,191

3,612

Residential and multifamily real estate

5,270

5,842

PPP

Consumer

277

453

Gross loans

64,152

100

75,295

100

A discussion of the changes in the

ALLL is provided below:

Charge-offs and Recoveries:

During the ~~quarter~~three months ended September 30, 2021, charge-offs primarily related to one commercial loan and one energy

loan. The energy charge-off related to the sale of

collateral from a borrower that filed for bankruptcy in a previous year.

Approximately $2 million remains on the energy loan at September 30, 2021. Recoveries totaled $234

thousand for the three months ended September 30, 2021 primarily from a commercial loan that was previously charged-off in 2020. During the three months ended June 30, 2021,

charge-offs primarily related to a commercial borrower. During the three months ended March 31, 2021, charge-offs primarily related to two commercial borrowers that

were unable

to support their debt obligations.

During the three months ended September 30, 2020, the Company charged-off $6 million related to a commercial loan as part of a

restructuring plan. The majority of the

charge-off was not previously reserved for resulting in an increase to the quarterly provision. For the ~~quarter~~three months ended June 30, 2020, the Company

charged-off one energy loan

that was classified for several ~~years. During~~years and accounted for most net charge-offs. For the ~~quarter~~three months 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.

46The below table provides the ratio of net charge-offs (recoveries) to average loans outstanding based on our loan categories for the periods indicated:

Table of Contents

For the ~~three~~Quarter Ended

For the Nine Months Ended

September 30,

June 30,

March 31,

December 31,

September 30,

2021

2020

2021

2020

Commercial

0.27

0.84

2.47

2.07

1.72

1.23

2.06

Energy

0.64

3.16

0.20

0.74

Commercial real estate

0.53

Construction and ~~nine month~~land development

Residential and multifamily real estate

(0.02)

0.18

0.12

PPP

Consumer

(0.02)

(0.03)

(0.09)

(0.02)

0.27

Total net charge-offs to average loans

0.13

0.23

0.74

1.03

0.54

0.37

0.84

(1)

Interim periods annualized.

Impact of Risk Rating and Loan Balance Changes:

The Company upgraded approximately $109 million and $239 million of loans during the three-month and nine-month periods ended September 30, ~~2019, net charge-offs primarily related to one energy relationship~~2021, respectively,

and

downgraded $73 million and ~~one~~$137 million during the same, respective periods. Risk rating changes resulted in a $2 million and $5 million reduction in

the required reserve for the

three- and nine-month periods ended September 30, 2021, respectively.

Changes in loan balances, including payoffs and originations, reduced the required reserve by $8 million between December 31, 2020 and September 30, 2021.

Changes in the quantitative and qualitative factors on pass rated loans increased the allowance by approximately $600 thousand between

December 31, 2020 and September

30, 2021. The increase was driven by the commercial loan ~~relationship.~~portfolio that had elevated charge-offs over the past five quarters.

The charge-offs impacted the commercial loan historical

~~Substandard, Accruing Loans:~~

~~Prior~~loss factor that resulted in a $2 million increase 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~~required reserve during the nine months ended September 30, ~~2020. The linked quarter change increased the ALLL by approximately $2 million.~~

~~Grade Migration:~~2021.

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.~~The

~~Energy~~-~~The increase in supply realized during the first quarter~~energy, commercial 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~~portfolios were 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.impacted.

Impaired Loans and Other Factors:

Impaired loans declined $27 million between December 31, 2020 and September 30, 2021, driven by $19 million of loans upgraded, including an $8 million loan

upgraded

due to an increase in capital, and a $10 million decline as a result of payments made by several borrowers offset by approximately $9 million of loans impaired during the

nine

months ended September 30, 2021. The remainder of the change related to loan paydowns and charge-offs.

The reduction in impaired loans and related reserve reduced the

ALLL by

$2 million.

For the ~~nine month~~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.

Table of Contents

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

debt securities.

Nonaccrual loans ~~increased $38~~declined $7 million during the quarter ended September 30, ~~2020.~~2021 primarily due to $1.6 million in charge-offs related to nonaccrual loans, $3 million

placed

back on accrual and paydowns on several loans, offset by a few commercial loans placed on nonaccrual.

Nonaccrual loans declined $9 million during the quarter ended June 30, 2021 primarily due to $6 million of loans placed back on accrual status due to payments made or

being in the process of collection. In addition, two commercial loans were able to pay down their outstanding balance that

decreased the nonaccrual total by $5 million. The ~~increase included~~

reductions were offset by a $3 million commercial loan ~~participation restructured~~that matured in the ~~fourth~~first quarter of ~~2020, a~~2021 and for which the borrower was unable to make the required payments.

Nonaccrual loans declined $12 million during the three months ended 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~~three months 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 quarter of~~past year.

During 2020, nonaccrual loans increased primarily from energy loans, impacted by low oil and natural gas prices, that did not meet the criteria to be modified

under the

CARES ~~Act. The $4 million increase in~~Act, several loans ~~past due 90 days or more~~impacted by the COVID-19 pandemic and ~~still accruing primarily related to~~ a ~~residential real estate~~ commercial

loan participation that was restructured in the ~~process of refinancing.~~

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 firstfourth quarter of 2020.

Foreclosed assets held-for-sale declined $570 thousand during the three-month period ended September 30, 2021 due to the sale of land and commercial

real estate. During the

three-month period ended June 30, 2021, the Company had previously recorded a $630 thousand write-down on this commercial property.

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

September 30,

June 30,

March 31,

December 31,

September 30,

2021

2020

(Dollars in thousands)

Nonaccrual loans

48,147

54,652

63,319

75,051

75,560

Loans past due 90 days or more and still accruing

342

1,776

3,183

1,024

4,324

Total nonperforming loans

48,489

56,428

66,502

76,075

79,884

Foreclosed assets held for sale

1,148

1,718

2,347

2,349

Total nonperforming assets

49,637

58,146

68,849

78,422

82,233

ALLL to total loans

1.51

1.78

1.65

1.70

ALLL to nonaccrual loans

133.24

138.14

117.74

100.33

100.63

ALLL to nonperforming loans

132.30

133.79

112.10

98.98

95.18

Nonaccrual loans to total loans

1.13

1.29

1.40

1.69

1.68

Nonperforming loans to total loans

1.15

1.33

1.48

1.71

1.78

Nonperforming assets to total assets

0.92

1.09

1.15

1.39

1.49

Table of Contents

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
(Dollars in thousands)
Loan Past Due Detail
30 - 59 days past due $ 15,324 $ 14,205 $ 12,934 $ 6,292 $ 61,941
60 - 89 days past due 30,027 20,676 6,604 530 2,785
Total 30 - 89 days past due $ 45,351 $ 34,881 $ 19,538 $ 6,822 $ 64,726
Loans 30 - 89 days past due / gross loans 1.01 % 0.79 % 0.49 % 0.18 % 1.78 %
Classified Loans
Substandard - performing $ 224,352 $ 199,595 $ 80,876 $ 47,221 $ 41,546
Substandard - nonperforming 67,765 29,030 19,555 34,192 37,990
Doubtful 7,794 8,504 4,088 5,483 5,637
Loss — — — — —
Total classified loans 299,911 237,129 104,519 86,896 85,173
Foreclosed assets held for sale 2,349 2,502 3,619 3,619 2,471
Total classified assets $ 302,260 $ 239,631 $ 108,138 $ 90,515 $ 87,644
Classified loans / (total capital + ALLL) 43.2 % 34.9 % 15.8 % 13.2 % 13.2 %
Classified assets / (total capital + ALLL) 43.6 % 35.3 % 16.3 % 13.7 % 13.6 %
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.
September 30,

~~During the quarter ended~~June 30,

March 31,

December 31,

September 30,

2021

2020

(Dollars in thousands)

Loan Past Due Detail

30 - 59 days past due

3,072

18,758

10,583

10,137

15,324

60 - 89 days past due

34,528

403

7,941

30,027

Total 30 - 89 days past due

37,600

18,768

10,986

18,078

45,351

Loans 30 - 89 days past due / gross loans

0.89

0.44

0.24

0.41

1.01

Classified Loans

Substandard - performing

75,999

116,078

205,560

211,008

224,352

Substandard - nonperforming

45,063

49,300

57,967

70,734

67,765

Doubtful

3,084

5,352

4,315

7,794

Loss

Total classified loans

124,146

170,730

268,879

286,057

299,911

Foreclosed assets held for sale

1,148

1,718

2,347

2,349

Total classified assets

125,294

172,448

271,226

288,404

302,260

Classified loans / (total capital + ALLL)

17.3

24.0

38.2

40.9

43.2

Classified assets / (total capital + ALLL)

17.5

24.2

38.6

41.2

43.6

The Company’s classified assets as of September 30, ~~2020, past due loans between~~2021 declined $47 million since June 30, ~~to 89 days primarily included a $28 million commercial loan placed on nonaccrual.~~2021. 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~~decline was driven by $25 million

in energy loans ~~impacted by lower~~upgraded and $2

million in energy paydowns because of improved oil prices. In addition, $18 million of commercial and ~~gas prices and a~~ commercial real estate ~~loan.~~loans

were upgraded due to improved market

conditions.

The Company's classified assets as of ~~September~~June 30, ~~2020~~2021 declined $99 million since March 31, 2021. The decline was driven by $18 million in loan payoffs,

$56 million in loans

upgraded, $35 million in pay downs partially offset by $11 million of new or increased ~~$212~~loan balances. The decrease in classified assets

was primarily related to commercial, energy

and commercial real estate loans that improved due to better economic conditions.

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

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 $39by $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 paydowns 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.

Table of Contents

Deposits and Other Borrowings

The following table sets forth the maturity of time deposits as of September 30, 2021:

As of September 30, 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

61,242

76,399

87,670

29,146

254,457

Time deposits below FDIC insurance limit

121,859

107,007

132,187

85,611

446,664

Total

183,101

183,406

219,857

114,757

701,121

At September 30, ~~2020,~~2021, our deposits totaled $4 billion, ~~an increase~~a decrease of ~~$569~~$258 million or ~~14%~~5% from December 31, ~~2019.~~2020. Of this ~~increase, $232~~decrease, $158 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~~money market, NOW

and savings ~~and interest checking deposits due to the declining interest rate environment that resulted in a $99 million decline in time~~ deposits and $342 million were time deposits. Declines were offset by a ~~$436~~$243 million increase in non-interest bearing deposits. The decline in money market, NOW and

savings ~~deposits.~~deposits was driven by required payments from our customers to the Internal Revenue Service and interest rate competition. The decrease in time deposits resulted from

maturities and the low interest rate environment.

Other borrowings include FHLB advances, repurchase agreements ~~fed funds purchased, FHLB advances,~~ and our trust preferred security. At September 30, ~~2020,~~2021, other borrowings totaled ~~$351~~$278 million, a ~~$24~~$19 million

or 6% 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 nine months ended September 30,

2021 due to

increased Company liquidity.

As of September 30, 2021, the Company had approximately $190 million of deposits with one customer relationship. The Company evaluated

the deposit concentration and

determined that a significant reduction to these deposits would not adversely impact the Company as sufficient liquidity ~~from security sales, loan payoffs~~ is accessible

and ~~deposit growth.~~at favorable rates.

As of September 30, 2021, the Company had approximately $2.5 billion of uninsured deposits, which is an estimated amount based on the same methodologies and assumptions

used for the Bank’s regulatory requirements. The Company believes that its current capital ratios and liquidity are sufficient to mitigate the risks of uninsured deposits.

Table of Contents

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~~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
(Dollars in thousands)
Total on-balance sheet liquidity $ 847,706 $ 888,080
Total off-balance sheet liquidity 656,602 524,332
Total liquidity $ 1,504,308 $ 1,412,412
On-balance sheet liquidity as a percent of assets 15 % 18 %
Total liquidity as a percent of assets 27 % 29 %
September 30, 2021

December 31, 2020

(Dollars in thousands)

Total on-balance sheet liquidity

1,027,051

1,046,110

Total off-balance sheet liquidity

715,089

756,325

Total liquidity

1,742,140

1,802,435

On-balance sheet liquidity as a percent of assets

Total liquidity as a percent of assets

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

Subsequent to September 30, 2021, the Company's Board of Directors authorized a stock repurchase program under which the Company

may repurchase up to $30 million of

common stock over time. The actual timing, number and value of shares of common stock repurchased under the stock repurchase

program will be determined by management at its

discretion and will depend on a number of factors, including, but not limited to, the market price of the Company's common stock, general market and economic conditions, and

applicable legal requirements. Stock repurchases under the program may be modified, suspended or terminated by the Company at any time without prior

notice. Under the stock

repurchase program, the Company may repurchase its common stock in the open market, through block trades, in privately negotiated transactions,

pursuant to a trading plan

separately adopted in the future, or by other means, in accordance with federal securities laws and other applicable laws.

Contractual Obligations

In the first quarter of 2021, the Company entered into an agreement with a third-party, venture capital firm. The

Company invested $308 thousand during the nine months

ended September 30, 2021 and will invest up to $3 million into the venture capital fund. The fund was designed to invest in companies that

find solutions for community banks and

help accelerate technology adoption for community banks.

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.~~ 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:

Table of Contents

Regulatory Matters” in the Notes to the Unaudited Consolidated Financial Statements for additional information. Management

believes that as of September 30, ~~2020,~~2021, the Company

and the 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,~~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.

Table of Contents

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.
Hypothetical Change in Interest Rate - Rate Shock

September 30, 2021

September 30, 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

6.4

(8.9)

1.2

(7.2)

+200

3.6

(5.7)

1.0

(3.2)

+100

1.1

(3.0)

0.3

(0.8)

Base

-100

(1)

-200

(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

September 30, 2021

September 30, 2020

Change in Interest Rate

(Basis Points)

Percent change in net interest

income

Percent change in net interest

income

+300

2.5

1.3

+200

1.2

0.8

+100

0.2

0.3

Base

-100

(1)

-200

(1)

The Company decided to exclude the down rate environment from its analysis due to the already low interest rate environment.

Table of Contents

Hypothetical Change in Interest Rate - Rate Ramp
September 30, 2020 September 30, 2019
Change in Interest Rate
(Basis Points) Percent change in net interest income Percent change in net interest income
+300 1.3 % 7.4 %
+200 0.8 5.1
+100 0.3 2.6
Base — —
-100
NA(1)
(2.8)
-200
NA(1)
(6.2) %
(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.
The Company’s position is slightly asset sensitive as of September 30, 2021. During the three-month period ended September 30,

2021, $88 million in PPP loans were paid off and was the main driver of the change in asset sensitivity

to the prior quarter. The

hypothetical change in net interest income as of September 30, ~~2020~~2021 in an up 100 basis point shock is mainly due to ~~approximately 70% of~~floors on variable

rate loans that limit interest income growth as rates start to rise. 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 at a similar speed

as our earning assets ~~repricing~~in an up 100 basis point rate environment. The 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 anticipates the use of cash flow hedges in the near term to manage rate sensitivity.

Approximately 66% of

the Company’s earning assets reprice or ~~maturing~~mature 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~~%. The amount of adjustable loans causes the Company to see an increase in net interest income in a rising rate environment.~~

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.~~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.~~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 quarter of ~~2020~~2021 that has materially

affected, or is reasonably likely to materially affect,

the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the normal course of business, we are named or threatened to be named as a defendant in various lawsuits. Management,

following consultation with legal counsel, does not expect the ultimate disposition of any or a combination of these matters

to have a

material adverse effect on our business, financial condition, results of operations, cash flows or growth prospects. However, given the

nature, scope and complexity of the extensive legal and regulatory landscape applicable to our business (including laws

and regulations

governing consumer protection, fair lending, fair labor, privacy, information security and anti-money laundering and anti-terrorism

laws), we, like all banking organizations, are subject to heightened legal and regulatory compliance and litigation risk.

~~Table of Contents~~

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report and the updated risk factor below, 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 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 operations in future periods.

We may not be able to manage the risks associated with our anticipated growth and expansion through de novo branching.

Our business strategy includes evaluating potential strategic opportunities to grow through de novo branching. We are in the

process of opening a de novo branch in Phoenix, Arizona. De novo branching carries with it certain potential risks, including significant

Table of Contents

startup costs and anticipated initial operating losses; an inability to gain regulatory approval; an inability to secure the services

of qualified

senior management to operate the de novo banking location and successfully integrate and promote our corporate culture; poor market

reception for de novo banking locations established in markets where we do not have a preexisting reputation; challenges posed by local

economic conditions; challenges associated with securing attractive locations at a reasonable cost; and the additional strain on

management resources and internal systems and controls. Failure to adequately manage the risks associated with our anticipated

growth

through de novo branching could have an adverse effect on our business, financial condition and results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES

AND USE OF PROCEEDS

None.

Table of Contents

ITEM 6. EXHIBITS

~~Exhibit Number~~

~~Exhibit Description~~

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 Benjamin R. Clouse, dated July 12, 2021

31.1*

Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the ExchangeAct, 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 ExchangeAct, 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-OxleyAct 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*

~~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).~~

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

†

Indicates a compensatory Plan

Table of Contents

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.

~~CrossFirst Bankshares Inc.~~

~~November 3, 2020~~

~~/s/ David L. O’Toole~~

~~David L. O’Toole~~

~~Chief Financial Officer~~

~~(Principal Financial Officer and Principal Accounting Officer)~~

November 2, 2021

/s/ Benjamin R. Clouse

55Benjamin R. Clouse

Chief Financial Officer

(Principal Financial Officer and Principal Accounting

Officer)


	September 30, 2020		December 31, 2019

	(Unaudited)
	(Dollars in thousands)
Assets



Cash and cash equivalents	$	223,636	$	187,320
Available-for-sale securities - taxable	214,735		298,208
Available-for-sale securities - tax-exempt	437,411		443,426



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
Premises and equipment, net	70,599		70,210
Restricted equity securities	20,923		17,278
Interest receivable	19,003		15,716
Foreclosed assets held for sale	2,349		3,619
Deferred tax asset	15,864		13,782
Goodwill and other intangible assets, net	227		7,694
Bank-owned life insurance	67,063		65,689
Other	32,112		12,943
Total assets	$	5,505,696	$	4,931,233
Liabilities and stockholders’ equity
Deposits
Noninterest-bearing	$	754,172	$	521,826
Savings, NOW and money market	2,597,691		2,162,187
Time	1,140,686		1,239,746
Total deposits	4,492,549		3,923,759
Federal funds purchased and repurchase agreements	13,531		14,921
Federal Home Loan Bank advances	336,100		358,743

Other borrowings	952		921
Interest payable and other liabilities	44,681		31,245
Total liabilities	4,887,813		4,329,589
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:


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
Additional paid-in capital	522,226		519,870
Retained earnings	69,355		64,803

Accumulated other comprehensive income	25,781		16,451
Total stockholders’ equity	617,883		601,644
Total liabilities and stockholders’ equity	$	5,505,696	$	4,931,233



											Accumulated
							Additional				Other
	Preferred Stock			Common Stock			Paid in		Retained		Comprehensive
	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
Net income	—	—		—	—		—		10,384		—		10,384
Change in unrealized appreciation on available-for-sale securities	—	—		—	—		—		—		4,322		4,322
Issuance of shares	—	—		6,600,245	67		87,154		(1)		—		87,220
Issuance of shares from equity-based awards	—	—		1,317	—		(10)		—		—		(10)


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



Balance at September 30, 2019	0	$	0	51,969,203	$	520	$	518,816	$	65,198	$	17,901	$	602,435


	September 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Approximate Fair Value
	(Dollars in thousands)
Available-for-sale debt securities
Mortgage-backed - GSE residential	$	122,093	$	4,690	$	0	$	126,783
Collateralized mortgage obligations - GSE residential	71,735		1,271		7		72,999
State and political subdivisions	421,075		28,339		220		449,194
Corporate bonds	860		67		2		925
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	$	617,985	$	34,390	$	229	$	652,146



	Pass		Special Mention		Substandard Performing		Substandard Nonperforming		Doubtful		Loss		Total
	(Dollars in thousands)
September 30, 2020
Commercial	$	1,106,338	$	71,746	$	75,714	$	34,528	$	3,246	$	0	$	1,291,572
Energy	186,881		58,726		117,389		17,435		3,750		0		384,181
Commercial real estate	1,114,802		41,030		26,624		12,377		798		0		1,195,631
Construction and land development	581,160		5,299		1,158		0		0		0		587,617
Residential real estate	610,909		527		3,467		3,179		0		0		618,082
PPP	369,260		0		0		0		0		0		369,260


Consumer	46,525		0		0		246		0		0		46,771
	$	4,015,875	$	177,328	$	224,352	$	67,765	$	7,794	$	0	$	4,493,114


	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)
September 30, 2020
Commercial	$	12,274	$	28,487	$	6,641	$	47,402	$	1,244,170	$	1,291,572	$	1,141
Energy	0		1,540		3,055		4,595		379,586		384,181		0
Commercial real estate	1,459		0		4,475		5,934		1,189,697		1,195,631		0
Construction and land development	0		0		0		0		587,617		587,617		0
Residential real estate	1,591		0		6,124		7,715		610,367		618,082		3,183
PPP	0		0		0		0		369,260		369,260		0


Consumer	0		0		0		0		46,771		46,771		0
	$	15,324	$	30,027	$	20,295	$	65,646	$	4,427,468	$	4,493,114	$	4,324


			Unpaid
	Recorded Balance		Principal Balance		Specific Allowance
	(Dollars in thousands)
September 30, 2020
Loans without a specific valuation
Commercial	$	29,439	$	35,220	$	—
Energy	0		0		—
Commercial real estate	4,628		4,628		—
Construction and land development	0		0		—
Residential real estate	6,406		6,662		—
PPP	0		0		—


Consumer	246		246		—
Loans with a specific valuation
Commercial	9,150		20,538		2,432
Energy	21,318		26,597		2,540
Commercial real estate	12,407		13,206		1,525
Construction and land development	0		0		0
Residential real estate	0		0		0
PPP	0		0		0


Consumer	0		0		0


Total
Commercial	38,589		55,758		2,432
Energy	21,318		26,597		2,540
Commercial real estate	17,035		17,834		1,525
Construction and land development	0		0		0
Residential real estate	6,406		6,662		0
PPP	0		0		0


Consumer	246		246		0
	$	83,594	$	107,097	$	6,497



	September 30, 2020					December 31, 2019
	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)
Commercial	6	$	7,895	$	3,762	7	$	31,770	$	831
Energy	3	3,373		2,713		2	2,864		0
Commercial real estate	3	4,683		0		3	4,909		0
Construction and land development	0	0		0		0	0		0
Residential real estate	2	3,247		45		0	0		0
PPP	0	0		0		0	0		0
Consumer	0	0		0		0	0		0
Total troubled debt restructured loans	14	$	19,198	$	6,520	12	$	39,543	$	831
(1) Default is considered to mean 90 days or more past due as to interest or principal.


	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


	September 30, 2020
	Within One Year		One to Two Years		Two to Three Years		Three to Four Years		Four to Five Years		After Five Years		Total
	(Dollars in thousands)
Time deposits	$	948,251	$	115,197	$	52,074	$	24,669	$	495	$	0	$	1,140,686
Fed funds purchased & repurchase agreements	13,531		—		—		—		—		—		13,531
FHLB borrowings	59,500		21,500		35,000		0		5,100		215,000		336,100

Trust preferred securities(1)	0		0		0		0		0		952		952
	$	1,021,282	$	136,697	$	87,074	$	24,669	$	5,595	$	215,952	$	1,491,269


	Actual				Minimum Capital Required - Basel III Fully Phased-In			Required to be Considered Well Capitalized
	Amount		Ratio			Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
September 30, 2020
Total Capital to Risk-Weighted Assets
Consolidated	$	652,827	13.2	%		$	518,259	10.5	%	N/A		N/A
Bank	601,491		12.2			518,063		10.5		$	493,393	10.0	%
Tier I Capital to Risk-Weighted Assets
Consolidated	590,952		12.0			419,543		8.5		N/A		N/A
Bank	539,639		10.9			419,384		8.5		394,714		8.0
Common Equity Tier 1 to Risk-Weighted Assets
Consolidated	590,000		12.0			345,506		7.0		N/A		N/A
Bank	539,639		10.9			345,375		7.0		320,706		6.5
Tier I Capital to Average Assets
Consolidated	590,952		10.8			217,932		4.0		N/A		N/A
Bank	$	539,639	9.9	%		$	217,994	4.0	%	$	272,492	5.0	%
December 31, 2019
Total Capital to Risk-Weighted Assets
Consolidated	$	633,228	13.4	%		$	495,095	10.5	%	N/A		N/A
Bank	581,600		12.3			494,954		10.5		$	471,385	10.0	%
Tier I Capital to Risk-Weighted Assets
Consolidated	576,332		12.2			400,791		8.5		N/A		N/A
Bank	524,704		11.1			400,677		8.5		377,108		8.0
Common Equity Tier 1 to Risk-Weighted Assets
Consolidated	575,411		12.2			330,063		7.0		N/A		N/A
Bank	524,704		11.1			329,970		7.0		306,400		6.5
Tier I Capital to Average Assets
Consolidated	576,332		12.1			191,099		4.0		N/A		N/A
Bank	$	524,704	11.0	%		$	191,170	4.0	%	$	238,963	5.0	%


	Performance Based Stock Awards
	Number of Shares	Weighted-Average Grant Date Fair Value
Unvested, January 1, 2020	192,248	$9.88
Granted	41,283	13.55
Vested	0	0.00
Forfeited	0	0.00
Unvested, September 30, 2020	233,531	$10.53


	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


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

(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.


	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		%


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.