UNITED STATES
SECURITIES AND EXCHANGE
 
COMMISSION
WASHINGTON, DCD.C. 20549
FORM
10-Q
 
☒
 
QUARTERLY REPORT PURSUANT
 
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended
March 31,September 30, 2022
 
or
☐
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to
 
______
Commission file number
001-39028
 
CROSSFIRST BANKSHARES, INC.
 
(Exact Name of Registrant as Specified in its Charter)
Kansas
26-3212879
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
11440 Tomahawk Creek Parkway
Leawood
,
KS
66211
(Address of principal executive offices)
(Zip Code)
(
913
)
312-6822754-9704
 
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since
 
since last report)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, par value $0.01 per share
CFB
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required
 
to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
 
reports), and
(2) has been subject to such filing requirements for the past 90 days.
 
Yes
 
☒
 
No
 
☐
Indicate by check mark whether the registrant has submitted electronically
 
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or
 
for such shorter period that the registrant
was required to submit such files).
 
Yes
 
☒
 
No
 
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
 
filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
 
“large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☒
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☒
If an emerging growth company, indicate by check mark if the registrant has elected not
 
to use the extended transition period for
complying with any new or revised financial accounting standards provided
 
pursuant to Section 13(a) of the Exchange Act.
 
☐
 
Indicate by check mark whether the registrant is a shell company (as defined
 
in Rule 12b-2 of the Exchange Act). Yes
 
☐
 
No
 
☒
As of May 4,November 7, 2022, the registrant had
49,645,91448,617,780
 
shares of common stock, par value $0.01, outstanding.
 
2
CrossFirst Bankshares, Inc.
Form 10-Q for the Quarter Ended March 31,September 30, 2022
Index
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Forward-Looking Information
4
5
6
7
89
Notes to Condensed Consolidated Financial Statements (unaudited)
910
1415
1415
1819
3437
3639
3739
3739
3840
4042
4043
4447
4447
4447
4549
49
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
4650
4952
4952
5156
5257
5459
5460
5460
5460
5561
5764
6067
6168
6269
6371
6472
Part II. Other Information
6472
6572
6573
6674
6775
 
3
Forward-Looking Information
ThisAll statements contained in this quarterly report may containon Form 10-Q that do not directly
and exclusively relate to historical facts
constitute forward-looking statements that reflect our
current views with respect to, among other things, future
events and our financial performance.statements. These statements are often, but not always, made through
 
through the use of words or phrases such as
“may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,”
 
“continue,” “will,will,” “anticipate,” “seek,” “estimate,” “intend,”
“intend,” “plan,” “strive,plan,” “projection,” “goal,” “target,” “outlook,” “aim,” “would,”
 
“aim,” “would,” “annualized”annualized” and “outlook,” or the negative version
of thosethese words or other
comparable words or phrases of a future or forward-looking nature. For example,
 
nature.our forward-looking statements include statements
regarding our expectations, opportunities or plans for growth; the proposed
 
acquisition of Farmers & Stockmens Bank, the bank
subsidiary of Central Bancorp, Inc. (collectively, Farmers & Stockmens Bank
and Central Bancorp, Inc. are herein referred to as
“Central”); our anticipated expenses, cash requirements and sources of
liquidity; and our capital allocation strategies and plans.
Unless we state otherwise or the context otherwise requires, references
below to “we,” “our,” “us,” and the “Company” refer to
CrossFirst Bankshares, Inc., and its consolidated subsidiaries. References to “CrossFirst
Bank” and the “Bank” refer to CrossFirst Bank,
our wholly owned consolidated bank subsidiary.
These forward-looking statements are not historical facts, and are based
 
on current expectations, estimates and projections about
our industry, management’s beliefs and certain assumptions made
by management,
many of which, by their nature, are inherently
uncertain and beyond our control. Accordingly, the Company cautions you that any such forward-looking
 
statements are not guarantees
of future performance and are subject to risks, assumptions, estimates and uncertainties
 
that are difficult to predict. Although the
Company believes that the expectations reflected in these forward-looking
 
statements are reasonable as of the date made, actual results
may prove to be materially different from the results expressed or
 
implied by the forward-looking statements. Such possible events orstatements due to a number of factors,
factors include:including, without limitation: risks associated with the current outbreak of the novelongoing COVID-19
 
coronavirus, or the COVID-19 pandemic, changesdecline in economic
conditions in the United
States and the Company’s market area, changes in policies by regulatory
agencies, governmental legislation and regulation,
areas, fluctuations in interest rates, business strategy
execution, ability to manage growth and
expansion, new lines of business or new services, products or product
enhancements, phase-out of the London Interbank Offered Rate
(LIBOR) and uncertainty relating to alternative reference rates, fluctuation
of fair value of our investment securities, credit quality and
risk, commercial and residential real estate values, hiring and retention of key
personnel, funding availability, competition with other
entities that offer financial services, changes in liquidity requirements, demand
 
demand for loans in the Company’s market area,areas, changes in accounting
accounting and tax principles, estimates made on income taxes, competition with otherability to keep pace
 
entities that offer financialwith technological change, cybersecurity incidents
or other failures, disruptions or security breaches, fraud committed against
the Company or our clients, failure of our third-party services cybersecurity threats,
providers, reputational risks, intellectual property infringement,
legislative and regulatory changes, risks inherent with proposed
business acquisitions, such as the acquisition and integration of Farmers
& Stockmens Bank, and the failure to achieve projected
synergies; or other external events.
Additional discussion of these and other risk factors as discussedcan be found in the Company’s
our Annual Report on Form 10-K10-
K for the fiscal year ended December
31, 2021, filed
with the Securities and Exchange
Commission (“SEC”) on February
28, 2022, any subsequent quarterly report on Form 10-Q as well asand
in the Company’sour other filings with the SEC.
 
TheExcept as required by law, the Company undertakes
no obligation to update
or revise forward-looking statements to reflect
changed assumptions, the occurrence of unanticipated events or publicly release thechanges
in our business, results of any revision to these forward-lookingoperations or financial condition over
statements, except as required by law.time. Given these risks and uncertainties,
readers are cautioned not to place undue reliance
on such
forward-looking statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Condensed Consolidated Financial Statements (unaudited)
4
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31,September 30, 2022
December 31, 2021
(2)(1)
(Unaudited)
(Dollars in thousands)
Assets
Cash and cash equivalents
$
276,927309,135
$
482,727
Available-for-sale securities - taxable
196,721174,004
192,146
Available-for-sale securities - tax-exempt
526,057482,523
553,823
Loans, net of unearned fees
4,349,5684,677,646
4,256,213
Allowance for credit losses on loans
(1)(2)
55,23155,864
58,375
NetLoans, net of the allowance for credit losses on loans
4,294,3374,621,782
4,197,838
Premises and equipment, net
65,79964,313
66,069
Restricted equity securities
10,5269,277
11,927
Interest receivable
16,93320,553
16,023
Foreclosed assets held for sale
973
1,148
Bank-owned life insurance
67,88668,698
67,498
Other
61,96297,719
32,258
Total assets
$
5,518,1215,848,977
$
5,621,457
Liabilities and stockholders’ equity
Deposits
Noninterest-bearingNon-interest-bearing
$
1,110,2841,113,934
$
1,163,224
Savings, NOW and money market
2,999,3293,123,410
2,895,986
Time
512,067750,171
624,387
Total deposits
4,621,6804,987,515
4,683,597
Federal Home Loan Bank advances
226,600205,349
236,600
Other borrowings
1,0221,048
1,009
Interest payable and other liabilities
45,62074,518
32,678
Total liabilities
4,894,9225,268,430
4,953,884
Stockholders’ equity
Common stock, $
0.01
 
par value:
authorizedAuthorized -
200,000,000
 
shares, issued -
52,926,55553,018,448
 
and
52,590,015
 
shares at
March 31,September 30, 2022 and December 31, 2021, respectively
529530
526
Treasury stock, at cost:
3,198,3024,230,752
 
and
2,139,970
 
shares held at March 31,September 30, 2022 and December 31, 2021,
2021, respectively
(45,109)(59,328)
(28,347)
Additional paid-in capital
527,468529,646
526,806
Retained earnings
161,323194,148
147,099
Accumulated other comprehensive (loss) income (loss)
(21,012)(84,449)
21,489
Total stockholders’ equity
623,199580,547
667,573
Total liabilities and stockholders’ equity
$
5,518,1215,848,977
$
5,621,457
(1)
As of December 31, 2021, this line represents the allowance for loan losses. See further
discussion in
“Note 1: Nature of
Operations and Summary of Significant Accounting Policies”
in the Notes to Condensed Consolidated Financial Statements
(unaudited).
(2)
The year-end Condensed Consolidated Balance Sheet was derived from
 
audited financial statements but does not include all
disclosures required by accounting principles generally accepted in the
 
United States of America.
(2)
See Notes to Condensed Consolidated Financial Statements (unaudited)
5
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
Three Months Ended
March 31,
2022
2021
(Dollars in thousands except per share data)
Interest Income
Loans, including fees
$
42,728
$
43,758
Available-for-sale securities - taxable
1,044
751
Available-for-sale securities - tax-exempt
3,692
3,351
Deposits with financial institutions
152
128
Dividends on bank stocks
144
165
Total interest income
47,760
48,153
Interest Expense
Deposits
3,511
5,728
Fed funds purchased and repurchase agreements
0
1
Federal Home Loan Bank Advances
1,109
1,283
Other borrowings
25
24
Total interest expense
4,645
7,036
Net Interest Income
43,115
41,117
Provision for Credit Losses
(1)
(625)
7,500
Net Interest Income after Provision for Credit Losses
(1)
43,740
33,617
Non-Interest Income
Service charges and fees on customer accounts
1,408
957
Realized gains (losses) on available-for-sale securities
(26)
10
Unrealized losses, net on equity securities
(103)
(39)
Income from bank-owned life insurance
388
416
Swap fees and credit valuation adjustments, net
118
155
ATM and credit card interchange income
2,664
2,328
Other non-interest income
493
317
Total non-interest income
4,942
4,144
Non-Interest Expense
Salaries and employee benefits
17,941
13,553
Occupancy
2,493
2,494
Professional fees
805
782
Deposit insurance premiums
737
1,151
Data processing
812
716
Advertising
692
303
Software and communication
1,270
1,065
Foreclosed assets, net
(53)
50
Other non-interest expense
2,969
2,704
Total non-interest expense
27,666
22,818
Net Income Before Taxes
21,016
14,943
Income tax expense
4,188
2,908
Net Income
$
16,828
$
12,035
Basic Earnings Per Share
$
0.33
$
0.23
Diluted Earnings Per Share
$
0.33
$
0.23
(1)
For the three-months ended MarchDecember 31, 2021, this line represents the provisionallowance for loan and
 
lease losses. See further discussion of this
change in
“Note “Note 1: Nature of
Operations and Summary of Significant Accounting Policies”
in the Notes to Condensed
Consolidated Financial Statements
(unaudited).
 
 
 
 
See Notes to Condensed Consolidated Financial Statements (unaudited)
6
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - UNAUDITED
Three Months Ended
March 31,
2022
2021
(Dollars in thousands)
Net Income
$
16,828
$
12,035
Other Comprehensive Loss
Unrealized loss on available-for-sale securities
(58,956)
(9,070)
Less: income tax benefit
(14,433)
(2,221)
Unrealized loss on available-for-sale securities
(44,523)
(6,849)
Reclassification adjustment for realized gains (losses) included in income
(26)
10
Less: income tax expense (benefit)
(6)
2
Less: reclassification adjustment for realized gain (loss) included
in income, net of income tax
(20)
8
Unrealized gain on cash flow hedges
2,655
0
Less: income tax expense
653
0
Unrealized gain on cash flow hedges, net of income tax
2,002
0
Other comprehensive loss
(42,501)
(6,857)
Comprehensive Income (Loss)
$
(25,673)
$
5,178
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Condensed Consolidated Financial Statements (unaudited)
5
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
(Dollars in thousands except per share data)
Interest Income
Loans, including fees
$
59,211
$
42,664
$
149,266
$
130,268
Available-for-sale securities - taxable
1,119
803
3,250
2,423
Available-for-sale securities - tax-exempt
3,905
3,562
11,442
10,410
Deposits with financial institutions
1,193
121
1,714
359
Dividends on bank stocks
122
161
478
488
Total interest income
65,550
47,311
166,150
143,948
Interest Expense
Deposits
14,909
4,211
23,152
14,789
Fed funds purchased and repurchase agreements
9
-
83
3
Federal Home Loan Bank Advances
898
1,275
3,302
3,838
Other borrowings
39
24
94
72
Total interest expense
15,855
5,510
26,631
18,702
Net Interest Income
49,695
41,801
139,519
125,246
Provision for Credit Losses
(1)
3,334
(10,000)
4,844
1,000
Net Interest Income after Provision for Credit Losses
(1)
46,361
51,801
134,675
124,246
Non-Interest Income
Service charges and fees on customer accounts
1,566
1,196
4,520
3,330
Realized (losses) gains on available-for-sale securities
(4)
1,046
(43)
1,043
Unrealized gains (losses) on equity securities, net
(87)
(6,210)
(261)
(6,243)
Income from bank-owned life insurance
405
427
1,200
3,088
Swap fees and credit valuation adjustments, net
(7)
31
123
156
ATM and credit card interchange income
1,326
1,735
5,513
5,569
Other non-interest income
581
670
1,870
1,921
Total non-interest income
3,780
(1,105)
12,922
8,864
Non-Interest Expense
Salaries and employee benefits
18,252
15,399
53,288
44,612
Occupancy
2,736
2,416
7,851
7,307
Professional fees
580
618
2,453
2,538
Deposit insurance premiums
903
927
2,355
2,995
Data processing
877
700
2,849
2,136
Advertising
796
596
2,247
1,334
Software and communication
1,222
999
3,689
3,098
Foreclosed assets, net
9
(35)
(30)
680
Other non-interest expense
3,076
2,416
10,617
7,967
Total non-interest expense
28,451
24,036
85,319
72,667
Net Income Before Taxes
21,690
26,660
62,278
60,443
Income tax expense
4,410
5,660
12,625
11,831
Net Income
$
17,280
$
21,000
$
49,653
$
48,612
Basic Earnings Per Share
$
0.35
$
0.41
$
1.00
$
0.95
Diluted Earnings Per Share
$
0.35
$
0.41
$
0.99
$
0.93
(1)
For the three-
and nine-months ended September 30, 2021, this line represents the provision for
loan and lease losses. See further
discussion of this change in “Note 1: Nature of Operations and Summary of Significant Accounting Policies”
in the Notes to
Condensed Consolidated Financial Statements (unaudited).
See Notes to Condensed Consolidated Financial Statements (unaudited)
6
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - UNAUDITED
Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
(Dollars in thousands)
Net Income
$
17,280
$
21,000
$
49,653
$
48,612
Other Comprehensive Loss
Unrealized loss on available-for-sale securities
(39,299)
(7,989)
(137,282)
(11,532)
Less: income tax benefit
(9,621)
(1,956)
(33,607)
(2,823)
Unrealized loss on available-for-sale securities
(29,678)
(6,033)
(103,675)
(8,709)
Reclassification adjustment for realized gains (losses) included in
income
(4)
1,046
(43)
1,043
Less: income tax expense (benefit)
(1)
256
(11)
255
Less: reclassification adjustment for realized gain (loss) included
in income, net of income tax
(3)
790
(32)
788
Unrealized loss on cash flow hedges
(7,076)
-
(3,036)
-
Less: income tax expense
(1,731)
-
(741)
-
Unrealized loss on cash flow hedges, net of income tax
(5,345)
-
(2,295)
-
Other comprehensive loss
(35,020)
(6,823)
(105,938)
(9,497)
Comprehensive Income (Loss)
$
(17,740)
$
14,177
$
(56,285)
$
39,115
See Notes to Condensed Consolidated Financial Statements (unaudited)
7
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED
Common Stock
Treasury Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated Other
Comprehensive
Income
Total
Shares
Amount
(Dollars in thousands)
Balance at June 30, 2021
50,958,680
$
525
$
(20,000)
$
524,637
$
105,299
$
26,729
$
637,190
Net income
-
-
-
-
21,000
-
21,000
Other comprehensive loss
-
-
-
-
-
(6,823)
(6,823)
Issuance of shares from equity-based awards
44,018
1
-
(110)
-
-
(109)
Stock-based compensation
-
-
-
1,149
-
-
1,149
Balance at September 30, 2021
51,002,698
$
526
$
(20,000)
$
525,676
$
126,299
$
19,906
$
652,407
Common Stock
Treasury Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated Other
Comprehensive Loss
Total
Shares
Amount
(Dollars in thousands)
Balance at June 30, 2022
49,535,949
$
529
$
(48,501)
$
528,548
$
176,868
$
(49,429)
$
608,015
Net income
-
-
-
-
17,280
-
17,280
Other comprehensive loss
-
-
-
-
-
(35,020)
(35,020)
Issuance of shares from equity-based awards
46,204
1
-
29
-
-
30
Open market common share repurchases
(794,457)
-
(10,827)
-
-
-
(10,827)
Stock-based compensation
-
-
-
1,069
-
-
1,069
Balance September 30, 2022
48,787,696
$
530
$
(59,328)
$
529,646
$
194,148
$
(84,449)
$
580,547
See Notes to Condensed Consolidated Financial Statements (unaudited)
8
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED
Common Stock
Treasury Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated Other
Comprehensive
Income
Total
Shares
Amount
(Dollars in thousands)
Balance at December 31, 2020
51,679,516
$
523
$
(6,061)
$
522,911
$
77,652
$
29,403
$
(6,061)
$
624,428
Net income
-
-
-
12,035-
48,612
-
-48,612
12,035
Change in unrealized depreciation of available-
for-sale securitiesOther comprehensive loss
-
-
-
-
(6,857)
-
(6,857)(9,497)
(9,497)
Issuance of shares from equity-based awards
87,650287,375
3
-
(404)(608)
-
-
-
(404)(605)
Open market common share repurchases
(88,497)(964,193)
-
(13,939)
-
-
-
-
(1,052)
(1,052)(13,939)
Employee receivables from sale of stock
-
-
-
35-
-35
-
35
Stock-based compensation
-
-
649-
3,373
-
-
-
6493,373
Balance at March 31,September 30, 2021
51,678,66951,002,698
$
523526
$
523,156(20,000)
$
89,722525,676
$
22,546126,299
$
(7,113)19,906
$
628,834652,407
Common Stock
Treasury Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated Other
Comprehensive
Income (Loss)
Treasury Stock
Total
Shares
Amount
(Dollars in thousands)
Balance at December 31, 2021
50,450,045
$
526
$
(28,347)
$
526,806
$
147,099
$
21,489
$
(28,347)
$
667,573
Cumulative effect from changes in accounting
principle
(a)(1)
-
-
-
-
(2,610)
-
-
(2,610)
Net income
-
-
-
16,828-
49,653
-
-
16,82849,653
Other comprehensive loss
-
-
-
-
(42,501)
-
(42,501)(105,938)
(105,938)
Issuance of shares from equity-based awards
303,040394,933
34
(620)-
(631)
-
-
-
(617)(627)
Open market common share repurchases
(1,058,332)(2,090,782)
-
(30,981)
-
-
-
-
(16,762)
(16,762)(30,981)
Employee receivables from sale of stock
-
-
-
6-
-6
-
6
Stock-based compensation
-
-
1,1153,304
-
-
-
1,1153,304
Exercise of warrants
33,500
-
167-
-167
-
-
167
Balance at March 31,September 30, 2022
49,728,25348,787,696
$
529530
$
527,468(59,328)
$
161,323529,646
$
(21,012)194,148
$
(45,109)(84,449)
$
623,199580,547
(a)(1)
 
Includes the impact of implementing Accounting Standards Update (“ASU”)
 
2016-13, Financial Instruments - Credit Losses (Accounting Standard Codification
 
(“ASC”) 326):
Measurement of Credit Losses on Financial Instruments.
 
See “Note 1: Nature of Operations and Summary of Significant Accounting
Policies” in
the Notes to Condensed
Consolidated Financial Statements (unaudited) for more information on the
 
Company’s adoption of this guidance
 
and the impact to the Company’s
 
results of operations.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Condensed Consolidated Financial Statements (unaudited)
89
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
ThreeNine Months Ended
March 31,September 30,
2022
2021
(Dollars in thousands)
Operating Activities
Net income
$
16,82849,653
$
12,03548,612
Items not requiring (providing) cash
 
 
Depreciation and amortization
1,2413,716
1,3753,993
Provision for credit losses
(1)
(625)4,844
7,5001,000
Accretion of discounts and amortization of premiums on securities
1,1163,259
1,3103,876
EquityStock based compensation
1,1153,304
6493,373
Foreclosed asset impairment
-
630
Deferred income taxes
3,3581,713
1,8242,233
Net increase in bank owned life insurance
(1,200)
(3,088)
Net unrealized losses on equity securities
261
6,243
Net realized (gains) losses on available-for-sale securities
2643
(10)(1,043)
Changes in
Interest receivable
(910)
(751)
Other assets
14,115
(28,730)
Other liabilities
(21,779)
(4,937)
Net cash provided by (used in) operating activities
14,485
(9,735)
Investing Activities
 
 
Interest receivable
(4,530)
1,308
Other assets
3,802
(1,753)
Other liabilities
(2,989)
(541)
Net cash provided by operating activities
61,876
64,843
Investing Activities
Net change in loans
(94,437)(425,494)
(74,947)196,637
Purchases of available-for-sale securities
(49,138)(82,305)
(74,575)(168,705)
Proceeds from maturities of available-for-sale securities
11,58229,587
33,32983,546
Proceeds from sale of available-for-sale securities
-
15,923
Proceeds from the sale of foreclosed assets
237
0628
Purchase of premises and equipment
(962)(1,878)
(118)(671)
Proceeds from the sale of premises and equipment and related insurance claims
13-
0547
Purchase of restricted equity securities
(6,957)
-
Proceeds from sale of restricted equity securities
1,54410,111
1,6263,143
Proceeds from death benefit on bank owned life insurance
-
3,483
Net cash used inprovided by (used in) investing activities
(131,161)(476,699)
(114,685)134,531
Financing Activities
Net increase in demand deposits, savings, NOW and money market accounts
50,403178,134
468,52184,218
Net decreaseincrease (decrease) in time deposits
(112,320)125,784
(111,691)(342,361)
Net increase (decrease)decrease in fed funds purchased and repurchase agreements
0-
988(2,306)
Proceeds from Federal Home Loan Bank advances
50,000
-
Repayment of Federal Home Loan Bank advances
(10,000)(149,000)
(10,000)(16,500)
Net proceeds of Federal Home Loan Bank line of credit
67,748
-
Issuance of common shares, net of issuance cost
170171
03
Proceeds from employee stock purchase plan
172364
0172
Repurchase of common stock
(16,762)(30,981)
(1,052)(13,939)
Acquisition of common stock for tax withholding obligations
(793)(995)
(404)(784)
Net decrease in employee receivables
6
35
Net cash provided by (used in) financing activities
(89,124)241,231
346,397(291,462)
Increase (Decrease)Decrease in Cash and Cash Equivalents
(205,800)(173,592)
221,977(92,088)
Cash and Cash Equivalents, Beginning of Period
482,727
408,810
Cash and Cash Equivalents, End of Period
$
276,927309,135
$
630,787316,722
Supplemental Cash Flows Information
Interest paid
$
4,78425,648
$
7,28719,402
Income taxes paid
$
010,545
$
1308,370
(1)
 
For the three-monthsnine-months ended March 31,September 30, 2021, this line represents
the Provision
for loan losses.
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
910
Note 1: Nature of Operations and Summary of Significant Accounting Policies
Organization and Nature of Operations
CrossFirst Bankshares, Inc. (the “Company”) is a bank holding company whose principal activities
 
are the ownership and
management of its wholly-owned subsidiary, CrossFirst Bank (the
 
“Bank”). In addition, the Bank has
3three
 
subsidiaries including
CrossFirst Investments, Inc. (“CFI”) that holds investments in marketable
 
securities, CFBSA I, LLC and CFBSA II, LLC.
The Bank is primarily engaged in providing a full range of banking and financial
 
services to individual and corporate customers
through its branches in: (i) Leawood, Kansas; (ii) Wichita, Kansas; (iii) Kansas City, Missouri;
 
(iv) Oklahoma City, Oklahoma; (v)
Tulsa, Oklahoma; (vi) Dallas, Texas; (vii) Frisco, Texas; and (viii) Phoenix, Arizona.
DuringOn June 13, 2022, the firstCompany announced its entry into an agreement under
which the Bank will acquire Farmers & Stockmens
Bank, the bank subsidiary of Central Bancorp, Inc. (collectively, Farmers
& Stockmens Bank and Central Bancorp, Inc. are herein
referred as “Central”), for approximately $
75
million in cash. Central has branches in Colorado and New Mexico. The transaction is
currently expected to close in the fourth quarter of 2022, subject to the Company expanded its restaurant financesatisfaction
 
group. The group will provide established andor waiver of customary closing conditions. Refer to
high-growth restaurant chains customized banking solutions, including
“Note 16: Subsequent Events” for further information about the acquisition.
financing, treasury services, commercial cards, merchant
processing, and international banking services.
Basis of Presentation
The Company’s accounting and reporting policies conform to accounting
 
principles generally accepted in the United States
(“GAAP”). The consolidated financial statements include the accounts of the Company,
 
the Bank, CFI, CFBSA I, LLC and CFBSA II,
LLC. All significant intercompany accounts and transactions have been eliminated in consolidation.
The condensed consolidated interim financial statements are unaudited. Certain
 
Certain information and footnote disclosures presented in
accordance with GAAP have been condensed or omitted and should be read in conjunction with the Company’s
 
consolidated financial
statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December
 
31, 2021 (the “2021
Form 10-K”), filed with the Securities and Exchange Commission (the “SEC”) on
 
February 28, 2022.
 
In the opinion of management, the interim financial statements include all adjustments
 
which are of a normal, recurring nature
necessary for the fair presentation of the financial position, results of operations,
 
and cash flows of the Company and the disclosures
made are adequate to make the interim financial information not
misleading.Company. The consolidated
financial statements have been prepared
in accordance with GAAP for interim financial information and the instructions
to Form 10-Q
adopted
by the SEC.
 
Refer to the “accounting pronouncements implemented” below for
 
changes in the accounting policies
of the Company.
 
No
significant changes to the Company’s accounting policies, other
 
than those mentioned under “accounting pronouncements implemented”
below, have occurred since December 31, 2021, the most recent date
 
audited financial statements were provided within the Company’s 2021
2021
Form 10-K. Operating results for the interim periods disclosed herein
are not necessarily
indicative of the results that may be expected
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
 
Company’s financial condition and results of operations. Actual
results could differ from those estimates. The allowance for credit losses, deferred
 
tax asset, and fair value of financial instruments are
particularly susceptible to significant change.
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
1011
Cash Equivalents
The Company had $
182205
 
million of cash and cash equivalents at the Federal Reserve Bank of Kansas City as of MarchSeptember
 
31, 2022.30,
The reserve required at March 31, 2022 was $
0
.2022.
 
Emerging Growth Company (“EGC”)
The Company is currently an EGC. An EGC may take advantage of reduced reporting requirements and is relieved of
certain
other significant requirements that are otherwise generally applicable
 
to public companies. Among the reductions and reliefs, the
Company elected to extend the transition period for complying with new or revised
 
accounting standards affecting public companies.
This means that the financial statements the Company files or furnishes will not be
 
subject to all new or revised accounting standards
generally applicable to public companies for the transition period for so
 
so long as the Company remains an EGC or until the Company
affirmatively and irrevocably opts out of the extended transition period
 
under the JOBS Act.
Accounting Pronouncements Implemented
ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement
 
of Credit Losses on Financial
Instruments:
Background
 
– ASU 2016-13 and its subsequent amendments provide new guidance on the impairment model for financial assets
measured at amortized cost, including loans held-for-investment and
 
off-balance sheet credit exposures. The Current Expected
Credit Loss (“CECL”) model requires an estimate of expected credit losses, measured
 
over the contractual life of an instrument,
that considers forecasts of future economic conditions in addition to information
 
about past events and current conditions. ASU
2016-13 requires new disclosures, including the use of vintage
 
analysis on the Company’s credit quality indicators.
 
In addition, ASU 2016-13 removes the available-for-sale (“AFS”) securities other-than-temporary-impairment model
that reduced
the cost basis of the investment and is replaced with an impairment model that
 
will recognize an allowance for credit losses on
available-for-sale securities.
 
Implementation
 
– The Company established a CECL committee to formulate and oversee the implementation process including
selection, implementation, and testing of third-party software.
 
The Company used a loss-rate ("cohort") method to estimate the expected allowance
 
for credit losses ("ACL") for all loan pools.
The cohort method identifies and captures the balance of a pool of loans with similar
 
risk characteristics, as of a particular point
in time to form a cohort, then tracks the respective losses generated by that cohort of loans over
 
their remaining lives, or until the
loans are “exhausted” (i.e.;, have reached an acceptable point in time at which
 
a significant majority of all losses are
expected to have been recognized). The cohort method closely aligned
 
with the Company's incurred loss model. This allowed the
Company to take advantages of the efficiencies of processes and procedures already
 
in practice.
The Company began parallel processing with the existing allowance for
 
for loan losses model during the first quarter of 2019
recalibrating inputs as necessary. The Company formulated changes to policies, procedures,
 
disclosures, and internal controls that
were necessary to transition to the new standard. A third-party completed validation of the completeness, accuracy, and
reasonableness of the model in the fourth quarter of 2021. Refer to
 
“Note 4: Loans and Allowance for Credit Losses (“ACL”)”Losses” for
additional information regarding the policies, procedures, and credit
 
quality indicators used by the Company.
Impact of adoption
 
– The Company adopted ASU 2016-13 on January 1, 2022 using the modified retrospective approach. All
disclosures as of and for the three-monthsthree-
and nine-month periods ended March 31,September 30, 2022 are presented in accordance
 
in accordance with ASC 326, Financial
Financial Instruments-Credit Losses. The Company did not recast comparative financial
 
financial periods and has presented those
disclosures under
previously applicable GAAP. Because the Company
chose the cohort method, the model must consider net
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
1112
deferred fees and costs. As a result, the Company transferred the previously disclosed unearned fees into the applicable loan
segments.
The Company used the prospective transition approach for AFS securities for which other-than-temporary-impairment
 
has been
recognized prior to January 1, 2022. As a result, the amortized cost basis remains the same before and after the effective date of
ASU 2016-13.
 
Because the Company chose the cohort method, the model must consider
net deferred fees and costs. As a result, the Company
transferred the previously disclosed unearned fees into the applicable loan
segments.
The following table illustrates the impact of adopting ASU 2016-13 and details how outstanding loan balances have been
reclassified because of changes made to the Company’s loan segments under
 
CECL
:CECL:
January 1, 2022
As Reported under ASU
2016-13
Pre-ASU 2016-13
Impact of ASU 2016-13
Adoption
(Dollars in thousands)
Assets:
Loans (outstanding balance)
Commercial and Industrial
$
843,024
$
1,401,681
$
(558,657)
Commercial and Industrial lines of credit
617,398
0-
617,398
Energy
278,579
278,860
(281)
Commercial real estate
1,278,479
1,281,095
(2,616)
Construction and land development
574,852
578,758
(3,906)
Residential real estate
360,046
600,816
(240,770)
Multifamily real estate
240,230
0-
240,230
PPP
0-
64,805
(64,805)
Consumer
63,605
63,605
0-
Gross Loans
4,256,213
4,269,620
(13,407)
Net deferred loan fees and costs
0-
13,407
(13,407)
Allowance for credit losses on loans
56,628
58,375
(1,747)
Loans, net of the allowance for credit
losses on loans
4,199,585
4,197,838
1,747
Deferred tax asset
$
13,647
$
14,474
$
(827)
Liabilities
Allowance for credit losses on off-balance
sheet exposures
$
5,184
$
0-
$
5,184
Stockholders' equity
Retained earnings
$
144,489
$
147,099
$
(2,610)
In connection with adoption of ASU 2016-13, changes were made to the Company’s loan segments to align with the methodology
applied in determining the allowance under CECL. The commercial and industrial loan portfolio
was separated
into term loans
and lines of
credit. In addition, the remaining Paycheck Protection Program (“PPP”)
 
loans were consolidated into the commercial
and industrial term loan
segment due to their declining outstanding balance.
The Company also separated
the residential and
multifamily real estate loan
segments. Refer to “Note 4: Loans and Allowance for Credit Losses (“ACL”)”Losses” for detail on the
loan segments.
 
Accounting Policies:
 
The Company updated the below accounting policies due to adoption of ASU 2016-13:
Notes to Condensed Consolidated Financial Statements
(unaudited)
1213
Accrued Interest -
The Company made an accounting policy election to exclude accrued interest from
 
the amortized cost basis of loans. In addition,
the Company elected not to measure an allowance for credit losses for accrued
 
interest receivable, because a timely write-off
policy exists. The policy generally requires loans to be placed on nonaccrualnon-accrual
 
when principal or interest is 90 days or more past
due unless the loan is well-secured and in the process of collection. A well-secured loan means that collateral or a guaranty has
sufficient value to pay off the loan in full. When a loan is placed on nonaccrual,non-accrual, accrued
interest is reversed
against interest
income.
 
The Company made a policy election to exclude accrued interest from
 
the amortized cost basis of AFS securities. AFS securities
are placed on non-accrual status when the Company no longer expects
 
to receive all contractual amounts due, which is generally
at 90 days past due. Accrued interest receivable is reversed against interest income when a security is placed on nonaccrual
status.non-accrual
status. Accordingly, the Company did not recognize an allowance for credit loss against
accrued interest receivable.
 
Available-for-sale Securities in an Unrealized Loss Position –
 
For AFS securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more
 
likely than not
that it will be required to sell the security before recovery of its amortized cost basis. If
 
either of the criteria regarding
 
intent or
requirement to sell is met, the securities’ amortized cost basis is written down to fair value through income. For AFS securities
that do not meet the criteria above, the Company evaluates whether the decline
 
in fair value has resulted from credit losses or
other factors. Management considers the extent to which fair value is less than amortized
 
cost, any changes to the rating of the
security by a rating agency, and adverse conditions specifically related to
 
the security, among other factors.
 
If this assessment indicates that a credit loss exists, the present value of cash flows
 
expected to be collected from the security is
compared to the amortized cost basis of the security. If the present value of
 
cash flows expected to be collected is less than the
amortized cost basis, a credit loss exists and an allowance for credit losses is recorded
 
for the credit loss, limited by the amount
that the fair value is less than amortized cost basis.
 
ASU 2016-02, Leases (Topic 842):
 
Background
 
– ASU 2016-02 and its subsequent amendments require lessees to recognize the assets and liabilities that arise
from
such leases. This represents a change from previous GAAP that did not require operating leases to be recognized on the lessees’
balance sheet. The purpose
 
of Topic 842 is to increase transparency and comparability between organizations
 
that enter into lease
agreements.
 
The update modifies lease disclosure requirements as well.
 
On the lease commencement date (or on the date of adoption), a lessee is required
 
to measure and record a lease liability equal to
the present value of the remaining lease payments, discounted using an appropriate
 
discount rate. In addition, a right-of-use asset
is recorded that consists of the initial measurement of the lease liability adjusted for
 
certain payments, including lease incentives
received and initial direct costs.
For operating leases, after lease commencement, the lease liability is reported
 
at the present value of the unpaid lease payments
discounted using the discount rate established at lease commencement. The
 
lease expense is calculated by summing all future
lease payments in the lease term and lease incentives not yet recognized. The sum is then
 
amortized on a straight-line basis over
the lease term. The right-of-use asset is amortized as the difference between the straight
 
-linethe straight-line expense and the amortizing lease
liability.
Implementation
 
– The Company’s lease agreements to which Topic 842 has been applied primarily relate
to branch
real estate
properties located in the Kansas City, Missouri; Tulsa, Oklahoma; Dallas, Texas; Frisco, Texas; and Phoenix, Arizona markets.
The remaining lease terms range from two to twenty years with potential renewal
 
terms. The leases include various payment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
1314
terms including fixed payments with annual increases to variable payments.
 
In addition, several of the leases include lease
incentives.
The discount rates were not readily determinable in the lease agreements. As a result, the Company used the
incremental
borrowing rate in accordance with Topic 842. The Company used the FHLB Federal Home Loan Bank (“FHLB”)
yield curve as the
incremental borrowing rate.
The Company elected several practical expedients that are listed below:
Practical Expedient Elected
Impact to Lease Accounting Implementation
An entity need not reassess whether any expired
or existing contracts are or contain leases.
The Company was not required to re-evaluate previously identified leases,
including embedded leases, that existed as of the adoption date.
 
An entity need not reassess the lease classification
for an expired or existing leases.
 
The Company was not required to re-classify previously identified operating
leases that existed as of the adoption date. The Company did not have any
capital leases as of December 31, 2021.
An entity need not reassess initial direct costs for
any existing leases.
The Company was not required to review previously established lease
agreements as of the adoption date for initial direct costs. Initial direct costs
increase the right-of-use asset and do not impact the lease liability.
An entity may combine lease and nonleasenon-lease
components.
If not elected, the Company would be required to allocate the total
consideration in a lease contract to lease and nonleasenon-lease components based
 
on
their relative standalone price. The election results in higher right-of-use
assets and lease liabilities.
Short-term lease exemption.
The Company is not required to record a right-of-use asset and lease liability
for a lease whose term is 12 months or less and does not include a purchase
option that the lessee is reasonably certain to exercise.
 
Impact of Adoption
 
– The Company adopted ASU 2016-02 on January 1, 2022 using the modified retrospective approach. The
Company did not recast comparative financial periods and has presented
 
those disclosures under previously applicable GAAP.
The following table illustrates the impact of adopting ASU 2016-02 on the Company’s financial statements:
January 1, 2022
As Reported under ASU
2016-02
Pre-ASU 2016-02
Impact of ASU 2016-02
Adoption
(Dollars in thousands)
Assets:
Right-of-use asset
$
23,589
$
0-
$
23,589
Liabilities:
Lease incentive
0-
2,125
(2,125)
Accrued rent payable
0-
904
(904)
Lease liability
$
26,618
$
0-
$
26,618
Recent Accounting Pronouncements
ASU 2022-02, Financial Instruments-Credit Losses (Topic 326):
Troubled Debt
Restructurings and Vintage Disclosures
Background
 
– ASU 2022-02 provides
 
new guidance on (i) troubled debt restructurings
 
(“TDRs”) and (ii) vintage disclosures for
gross write-offs. The update eliminates the accounting guidance for TDRs and requires a company to
 
determine if a modification
results in a new loan or a continuation of an existing loan. The update enhances the required
 
disclosures for certain modifications
made to borrowers experiencing financial difficulty.
 
In addition, the update requires disclosure of current-period gross
charge-offs by year of origination for financing receivables.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
1415
In addition, the update requires disclosure of current-period gross charge
-offs by year of origination for financing receivables.
For the Company, the amendments are effective as of January 1, 2023, but early
 
but early adoption is permitted and would be applied as of
the beginning of the fiscal year of adoption.
Impact of adoption
 
– The Company anticipates adopting ASU 2022-02 as of January 1, 2023. At this time, an estimate of the
impact cannot be established.
 
Note 2: Earnings Per Share
The following table presents the computation of basic and diluted earnings per
 
share:
Three Months Ended
March 31,Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
(Dollars in thousands except per share data)
Earnings per Share
Net income available to common stockholders
$
16,82817,280
$
12,03521,000
$
49,653
$
48,612
Weighted average common shares
50,251,29749,266,811
51,657,20450,990,113
49,755,184
51,368,957
Earnings per share
$
0.330.35
$
0.230.41
$
1.00
$
0.95
Diluted Earnings per Share
Net income available to common stockholders
$
16,82817,280
$
12,03521,000
$
49,653
$
48,612
Weighted average common shares
50,251,29749,266,811
51,657,20450,990,113
49,755,184
51,368,957
Effect of dilutive shares
659,193454,682
724,270615,608
525,409
699,257
Weighted average dilutive common shares
50,910,49049,721,493
52,381,47451,605,721
50,280,593
52,068,214
Diluted earnings per share
$
0.330.35
$
0.230.41
$
0.99
$
0.93
Stock-based awards not included because to do so would be
antidilutive
285,672529,336
669,112587,200
334,725
657,887
Note 3: Securities
The amortized cost and approximate fair values, together with gross unrealized
 
gains and losses, of period end available-for-sale
securities consisted of the following:
 
March 31,September 30, 2022
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Approximate
Fair Value
(Dollars in thousands)
Available-for-sale securities
Mortgage-backed - GSE residential
$
179,842178,287
$
105-
$
11,11327,761
$
168,834150,526
Collateralized mortgage obligations - GSE residential
15,55712,489
16-
251752
15,32211,737
State and political subdivisions
552,069568,863
6,820299
25,43779,696
533,452489,466
Corporate bonds
5,2235,110
4613
99325
5,1704,798
Total available-for-sale securities
$
752,691764,749
$
6,987312
$
36,900108,534
$
722,778656,527
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
1516
December 31, 2021
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Approximate
Fair Value
(Dollars in thousands)
Available-for-sale securities
Mortgage-backed - GSE residential
$
161,675
$
1,809
$
1,774
$
161,710
Collateralized mortgage obligations - GSE residential
18,130
311
10
18,431
State and political subdivisions
532,906
29,329
767
561,468
Corporate bonds
4,241
119
0-
4,360
Total available-for-sale securities
$
716,952
$
31,568
$
2,551
$
745,969
As of March 31,September 30, 2022, the available-for-sale securities had $
6
 
million of accrued interest, excluded from the amortized cost
basis.
 
The amortized cost and fair value of available-for-sale securities at March 31,September
 
30, 2022, by contractual maturity, are shown
below:
 
March 31,September 30, 2022
Within
After One to
After Five to
After
One Year
Five Years
Ten Years
Ten Years
Total
(Dollars in thousands)
Available-for-sale securities
Mortgage-backed - GSE residential
(1)
Amortized cost
$
-
$
3024
$
117105
$
179,695178,158
$
179,842178,287
Estimated fair value
$
-
$
3123
$
118101
$
168,685150,402
$
168,834150,526
Weighted average yield
(2)
-
%
4.714.78
%
3.974.01
%
1.902.06
%
1.902.06
%
Collateralized mortgage obligations -
GSE residential
(1)
Amortized cost
$
-
$
-
$
2,4052,365
$
13,15210,124
$
15,55712,489
Estimated fair value
$
-
$
-
$
2,4202,241
$
12,9029,496
$
15,32211,737
Weighted average yield
(2)
-
%
-
%
2.782.77
%
2.012.27
%
2.132.37
%
State and political subdivisions
Amortized cost
$
7411,127
$
5,1865,028
$
92,361112,642
$
453,781450,066
$
552,069568,863
Estimated fair value
$
7471,131
$
5,3345,070
$
94,719110,310
$
432,652372,955
$
533,452489,466
Weighted average yield
(2)
3.493.37
%
3.953.88
%
3.293.26
%
2.672.73
%
2.792.85
%
Corporate bonds
Amortized cost
$
-
$
604498
$
4,6194,612
$
-
$
5,2235,110
Estimated fair value
$
-
$
644501
$
4,5264,297
$
-
$
5,1704,798
Weighted average yield
(2)
-
%
5.846.22
%
4.304.31
%
-
%
4.484.49
%
Total available-for-sale securities
Amortized cost
$
7411,127
$
5,8205,550
$
99,502119,724
$
646,628638,348
$
752,691764,749
Estimated fair value
$
7471,131
$
6,0095,594
$
101,783116,949
$
614,239532,853
$
722,778656,527
Weighted average yield
(2)
3.493.37
%
4.154.09
%
3.323.29
%
2.442.53
%
2.572.66
%
1)(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)
(2)
Yields are calculated based on amortized cost.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
1617
The following tables show the number of securities, unrealized loss, and fair value of
 
the Company’s investments with unrealized
losses, aggregated by investment class and length of time that individual
 
securities have been in a continuous unrealized loss position at
March 31,September 30, 2022 and December 31, 2021:
 
March 31,September 30, 2022
Less than 12 Months
12 Months or More
Total
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
Number of
Securities
(Dollars in thousands)
Available-for-sale
securities
Mortgage-backed -
GSE residential
$
124,358104,743
$
6,83516,106
3043
$
36,25245,783
$
4,27811,655
614
$
160,610150,526
$
11,11327,761
3657
Collateralized
mortgage obligations
- GSE residential
12,33911,430
237740
1718
560307
1412
1
12,89911,737
251752
1819
State and political
subdivisions
232,842410,905
24,74755,588
149344
5,90048,255
69024,108
839
238,742459,160
25,43779,696
157383
Corporate bonds
4,7454,535
99325
34
0-
0-
0-
4,7454,535
99325
34
Total temporarily
impaired securities
$
374,284531,613
$
31,91872,759
199409
$
42,71294,345
$
4,98235,775
1554
$
416,996625,958
$
36,900108,534
214463
December 31, 2021
Less than 12 Months
12 Months or More
Total
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
Number of
Securities
(Dollars in thousands)
Available-for-sale
securities
Mortgage-backed -
GSE residential
$
87,306
$
1,774
16
$
0-
$
0-
0-
$
87,306
$
1,774
16
Collateralized
mortgage obligations
- GSE residential
803
10
2
0-
0-
0-
803
10
2
State and political
subdivisions
72,915
762
39
1,310
05
4
74,225
762767
43
Corporate bonds
0-
0-
0-
0-
0-
0-
0-
0-
0-
Total temporarily
impaired securities
$
161,024
$
2,546
57
$
1,310
$
05
4
$
162,334
$
2,5462,551
61
Based on the Company’s evaluation at March 31,September 30, 2022, under
the new
impairment model, an allowance for credit losses has
0no
t
been recorded
0no
r have unrealized losses been recognized into income. The issuers of the securities are of high
 
credit quality and
have a
long history of no credit losses,losses; management does not intend to sell, and
it is likely
that management will not be required to sell the
the securities prior to their anticipated recovery, recovery;
and the decline in fair value is largely
attributed to changes in interest rates and other
market conditions. The issuers continue to make timely principal and interest
 
payments.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
1718
The following tables show the gross gains and losses on securities that matured
 
or were sold:
 
For the Three Months Ended
March 31,For the Nine Months Ended
September 30, 2022
September 30, 2022
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Loss
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Loss
(Dollars in thousands)
Available-for-sale securities
$
1
$
27(5)
$
(26)(4)
$
3
$
(46)
$
(43)
For the Three Months Ended
March 31,For the Nine Months Ended
September 30, 2021
September 30, 2021
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized Gain
Loss
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Loss
(Dollars in thousands)
Available-for-sale securities
$
211,125
$
11(79)
$
101,046
$
1,151
$
(108)
$
1,043
Equity Securities
Equity securities consist of a $
2
 
million investment in a Community Reinvestment Act (“CRA”) mutual fund and $
12
 
million in
three private equity funds. Equity securities are included in “other assets” on
 
the Consolidated Balance Sheets.
The Company elected a measurement alternative for the three private
 
equity funds that allows the securities to remain at cost until
an impairment is identified or an observable price change for an identical
 
or similar investment of the same issuer occurs. Impairment is
recorded when there is evidence that the expected fair value of the investment
 
investment has declined to below the recorded cost. No such events
occurred during the three-month periodthree or nine-month periods ended March 31,September
30, 2022.
The following is a summary of the unrealized and realized gains and losses recognizedon equity
 
securities recognized in net income on equity securities:income:
 
Three Months Ended
March 31,Nine Months Ended
September 30,
 
September 30,
2022
2021
2022
2021
(Dollars in thousands)
Net lossesgains (losses) recognized during the reporting period on equity securities
$
(103)(87)
$
(39)(6,210)
$
(261)
$
(6,243)
Less: net gains recognized during the reporting period on equity securities sold
during
during the reporting period
0-
0-
-
-
Unrealized lossesgains (losses) recognized during the reporting period on equity
securities
still held at
the reporting date
$
(103)(87)
$
(39)(6,210)
$
(261)
$
(6,243)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
1819
Note 4:
 
Loans and Allowance for Credit Losses (“ACL”)
Loan Portfolio Segments
Categories of loans at March 31,September 30, 2022 and December 31, 2021
include:
March 31,September 30, 2022
December 31, 2021
(Dollars in thousands)
Commercial and industrial
$
802,774857,836
$
843,024
Commercial and industrial lines of credit
678,127831,187
617,398
Energy
271,309178,855
278,579
Commercial real estate
1,375,6551,400,338
1,278,479
Construction and land development
563,538674,041
574,852
Residential real estate
365,719393,867
360,046
Multifamily real estate
243,107275,795
240,230
Consumer
49,33965,727
63,605
Loans, net of unearned fees
4,349,5684,677,646
4,256,213
Less: allowance for credit losses
(1)
55,23155,864
58,375
Loans, net
$
4,294,3374,621,782
$
4,197,838
(1)
 
As of December 31, 2021, this line represents the allowance for loan and lease losses. See further
 
further discussion in "Note 1: Nature of Operations
Operations and Summary of Significant Accounting Policies.”
 
Accrued interest of $
15
million and $
10
 
million at March 31,September 30, 2022 and December 31, 2021, respectively,
presented in “other
assets” on the
Consolidated
Balance Sheets is excluded from the amortized cost basis disclosed
in the above
table.
 
The Company aggregates the loan portfolio by similar credit risk characteristics. The loan
 
loan segments are described in additional
detail below:
●
Commercial and Industrial
 
- The category includes loans to commercial and industrial customers for use in property,
plant, and equipment purchases
and expansions. Loan terms typically require
principal and interest payments that
that decrease the outstanding loan balance.
Repayment is primarily from the cash flow of a borrower’s principal business
operation. Credit risk is driven by
creditworthiness of a borrower and
the economic conditions that impact the cash flow
flow stability from business operations.
The category also includes the remaining PPP loans outstanding. These loans were established by the
 
Coronavirus Aid,
Relief, and Economic Security Act which authorized forgivable loans to small businesses to pay their employees during
the COVID-19 pandemic. The loans are
100
 
percent guaranteed by the Small Business Administration (“SBA”) and
repayment is primarily dependent on the borrower’s cash flow or SBA repayment approval.
●
Commercial and Industrial Lines of Credit
– The category includes lines of credit to commercial and industrial
customers for working capital needs.
The loan terms typically require interest-only
payments, mature in
one year, and
require the full balance paid-off at
maturity. Lines of credit allow the borrower
to drawdown and repay the
line of credit
based on the customer’s cash flow
needs. Repayment is primarily from the operating
cash flow of the business. Credit
risk
is driven by creditworthiness of
a borrower and the economic conditions that impact
the cash flow stability from
from business operations.
●
Energy
 
- The category includes loans to oil and natural gas customers for use in financing working
 
capital needs,
exploration and production activities, and acquisitions. The loans are repaid primarily
 
from the conversion of crude oil
and natural gas to cash. Credit risk is driven by creditworthiness of a borrower and the
 
economic conditions that impact
the cash flow stability from business operations. Energy loans are typically collateralized
 
with the underlying oil and gas
reserves.
Notes to Condensed Consolidated Financial Statements
(unaudited)
20
●
Commercial Real Estate
 
- The category includes loans that typically involve larger principal amounts and repayment
of
these loans is generally dependent on the successful operations of the property
 
securing the loan or the business
conducted on the property securing the loan. These are viewed primarily as cash flow loans and
 
secondarily as loans
Notes to Condensed Consolidated Financial Statements
(unaudited)
19
secured by real estate. Credit risk may be impacted by the creditworthiness of
 
of a borrower, property values and the local
economies in the borrower’s market areas.
●
Construction and Land Development
 
- The category includes loans that are usually based upon estimates of costs and
estimated value of the completed project and include independent appraisal reviews
 
and a financial analysis of the
developers and property owners. Sources of repayment include permanent
 
loans, sales of developed property or an
interim loan commitment from the Company until permanent financing
 
is obtained. These loans are higher risk than
other real estate loans due to their ultimate repayment being sensitive to interest rate changes,
 
changes, general economic
conditions, and the availability of long-term financing. Credit risk may
 
be impacted by the creditworthiness of a
borrower, property values and the local economies in the borrower’s market
 
areas.
●
Residential Real Estate
- The category includes loans that are generally secured by owner-occupied
 
1-4 family
residences.
 
Repayment of these loans is primarily dependent on the personal income and
 
credit rating of the borrowers.
Credit risk in these loans can be impacted by economic conditions within or outside
 
or outside the borrower’s market areas that
might impact either property values or a borrower’s personal income.
 
●
Multifamily Real Estate -
The category includes loans that are generally secured by multifamily properties.
 
Repayment
of these loans is primarily dependent on occupancy rates and the personal
 
income of the tenants. Credit risk in these
loans can be impacted by economic conditions within or outside the
 
borrower’s market areas that might impact either
property values or the tenants’ personal income.
 
●
Consumer
- The category includes revolving lines of credit and various term loans such
as automobile
loans and loans
for other personal purposes. Repayment is primarily dependent on
 
the personal income and credit rating of the
borrowers. Credit risk is driven by consumer economic factors (such as unemployment
 
and general economic conditions
in the borrower’s market area) and the creditworthiness of a borrower.
Allowance for Credit Losses
The Company established a CECL committee that meets at least quarterly to oversee the Allowance for Credit LossACL methodology.
The committee
estimates the ACL using relevant available information, from internal and external sources, relating to past events,
current conditions,
and reasonable and supportable forecasts. The ACL represents the Company’s current estimate of lifetime credit
losses inherent in the
loan portfolio at the balance sheet date. The ACL is adjusted for expected prepayments when appropriate and
excludes expected
extensions, renewals, and modifications.
 
The ACL is the sum of three components: (i) asset specific / individual loan reserves; (ii) quantitative (formulaic or pooled)
reserves; and (iii) qualitative (judgmental) reserves.
 
Asset Specific -
 
When unique qualities cause a loan’s exposure to loss to be inconsistent with the
 
pool segments, the loan is
individually evaluated. Individual reserves are calculated for loans
 
that are risk-rated substandard and on non-accrual and loans that are
risk-rated doubtful or loss that are greater than a defined dollar threshold. In
 
In addition, troubled debt restructurings (“TDRs”)TDRs are also
individually evaluated. Reserves on
asset specific loans may be based on collateral, for collateral-dependent
 
for collateral-dependent loans, or on quantitative and
qualitative factors, including
expected cash flow, market sentiment, and guarantor
support.
Quantitative
- The Company used the cohort method, which identifies and captures the balance of a pool of loans with
similar
risk characteristics as of a particular time to form a cohort. For example, the
 
outstanding commercial and industrial loans and
commercial and industrial lines of
credit loan segments as of quarter-endquarter
-end are considered cohorts. The cohort is then tracked
for losses
over the remaining life of loans or
until the pool is exhausted. The Company used a lookback
period of approximately
six-years to
establish the cohort population. By using
the historical data timeframe,
the Company can establish a historical loss factor
for each of its
loan segments and adjust the losses with
qualitative and forecast factors.
Notes to Condensed Consolidated Financial Statements
(unaudited)
21
Qualitative
 
– The Company uses qualitative factors to adjust the historical loss factors for current conditions. The Company
primarily uses the following qualitative factors:
◾
The nature and volume of changes in risk ratings;
◾
The volume and severity of past due loans;
Notes to Condensed Consolidated Financial Statements
(unaudited)
20
◾
The volume of nonaccrualnon-accrual loans;
◾
The nature and volume of the loan portfolio, including the existence, growth, and
 
and effect of any concentrations of credit;
◾
Changes in the Institute of Supply Management’s Purchasing Manager Indices
 
(“PMI”) for services and manufacturing;
◾
Changes in collateral values;
 
◾
Changes in lending policies, procedures, and quality of loan reviews;
◾
Changes in lending staff; and
◾
Changes in competition, legal and regulatory environments
In addition to the current condition qualitative adjustments, the Company uses the
 
uses the Federal Reserve’s unemployment forecast to
adjust the ACL based on forward looking guidance. The Federal Reserve’s unemployment forecast extends three-years and is eventually
reverted to the mean of six percent by year 10.
 
Drivers of Quarterly Change in the ACL
The ACL declinedincreased by less than $
0.1
million during the three-month period ended September 30, 2022 driven by an
increase of
$
2.1
million related to loan growth, performance and economic factors, partially offset by $
31.9
million in net charge-offs and a reduction
of $
0.2
million in reserves on impaired loans. The ACL decreased by $
2.5
 
million between January 1, 2022 and March 31,September 30, 2022 and was driven by:
-
A $
3
million decline in the required reserve for asset specific loans. The change included a commercial
real estate loan with an
improved collateral valuation that resulted in a $
1
million reduction in the required reserve, a $
628
thousand decline related to
a commercial real estate loan charged down and two energy loans that paid
down their outstanding balance, resulting in a $
1
million decrease to the required reserve.
-
A $
2
million increase in the required reserve because of changes in loan balances
that included a $
97
million increase in
commercial real estate loans and required a $
1.6
million increase to the ACL.
-
A $
1
million reduction in the ACL due to improved credit quality metrics including improved risk ratings and lower
nonaccruals, driven by the energy portfolio that decreased the required ACL by $
830
thousand.
-
$
14.1
 
million in net charge-offs. Charge-offs includedcharge-offs and a reduction of $
15.8
million in reserves on impaired loans which were partially offset by an
increase of $
7.4
 
million related to a medical practice, $
1
loan growth, performance and economic factors.
 
million related to an energy
loan impacted by low prices in 2020 and 2021, and $
750
thousand related to a commercial real estate project. Recoveries were
driven by $
2
million related to an energy loan charged off in 2020.
-
The unemployment forecast provided by the Federal Reserve in March 2022
was consistent with the previously presented
forecast. As a result, no forward-looking adjustment was made during the first quarter of 2022.
Credit Quality Indicators
Internal Credit Risk Ratings
The Company uses a weighted average risk rating factor to adjust the historical
 
loss factors for current events. Risk ratings
incorporate the criteria utilized by regulatory authorities to describe criticized
 
assets, but separate various levels of risk concentrated
within the regulatory “Pass” category. Risk ratings are established for
 
loans at origination and are monitored on an ongoing basis. The
rating assigned to a loan reflects the risks posed by the borrower’s expected performance
 
performance and the transaction’s structure. Performance
metrics used to determine a risk rating include, but are not limited to, cash flow
 
adequacy, liquidity, and collateral. A description of the
loan risk ratings follows:
Loan Grades
●
Pass (risk rating 1-4)
 
- The category includes loans that are considered satisfactory. The category includes borrowers
that generally maintain good liquidity and financial condition, or
the credit
is currently protected with sales trends
remaining flat or declining. Most ratios compare favorably with industry
 
norms and Company policies. Debt is
programmed and timely repayment is expected.
●
Special Mention (risk rating 5)
 
- The category includes borrowers that generally exhibit adverse trends in operations or
an imbalanced position in their balance sheet that has not reached a point where repayment
 
is jeopardized. Credits are
currently protected but, if left uncorrected, the potential weaknesses may result
 
result in deterioration of the repayment
Notes to Condensed Consolidated Financial Statements
(unaudited)
21
prospects for the credit or in the Company’s credit or lien position at a future date. These credits are
 
not adversely
classified and do not expose the Company to enough risk to warrant adverse
classification.
●
Substandard (risk rating 6)
 
- The category includes borrowers that generally exhibit well-defined weakness(es) that
jeopardize repayment. Credits are inadequately protected by the current worth
 
and paying capacity of the obligor or of
the collateral pledged. A distinct possibility exists that the Company will sustain some loss if deficiencies are not
corrected. Loss potential, while existing in the aggregate amount of substandard assets, does
 
not have to exist in
Notes to Condensed Consolidated Financial Statements
(unaudited)
22
individual assets classified substandard. Substandard loans include both
 
performing and nonperformingnon-performing loans and are
broken out in the table below.
●
Doubtful (risk rating 7)
- The category includes borrowers that exhibit weaknesses inherent in a substandard credit and
characteristics that these weaknesses make collection or liquidation in full highly
 
questionable or improbable based on
existing facts, conditions, and values. Because of reasonably specific pending
 
factors, which may work to the advantage
and strengthening of the assets, classification as a loss is deferred until its more
 
exact status may be determined.
●
Loss (risk rating 8)
- Credits which are considered uncollectible or of such little value that their continuance
 
as a
bankable asset is not warranted.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements (unaudited)
2223
The following tables present the credit risk profile of the Company’s loan portfolio
 
based on internal rating categories and loan segments:
 
As of March 31,September 30, 2022
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
loansLoans
Revolving
loansLoans
converted to
term loansTerm Loans
Total
(Dollars in thousands)
Commercial and industrial
Pass
$
85,347285,880
$
372,703287,991
$
133,96270,591
$
62,73755,167
$
62,94155,665
$
29,62921,134
$
0-
$
37,19630,392
$
784,515806,820
Special mention
01,283
02,241
1,56812,063
1,127996
324302
49112
0-
3,5226,501
6,59023,498
Substandard - accrual
1,500-
210455
01,485
2,4152,165
782758
5146
0-
1,94720,416
6,90525,325
Substandard - non-
accrual
0-
1,572104
13-
246
4811,383
760700
0-
1,914-
4,7642,193
Doubtful
0-
0-
0-
0-
0-
0-
0-
0-
0-
Total
$
86,847287,163
$
374,485290,791
$
135,54384,139
$
66,30358,334
$
64,52858,108
$
30,48921,992
$
0-
$
44,57957,309
$
802,774857,836
Commercial and industrial
lines of credit
Pass
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
$
649,230780,710
$
0-
$
649,230780,710
Special mention
0-
0-
0-
0-
0-
0-
15,50432,814
0-
15,50432,814
Substandard - accrual
0-
0-
0-
0-
0-
0-
2,43111,188
0-
2,43111,188
Substandard - non-
accrual
0-
0-
0-
0-
0-
0-
10,9626,475
0-
10,9626,475
Doubtful
0-
0-
0-
0-
0-
0-
0-
0-
0-
Total
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
$
678,127831,187
$
0-
$
678,127831,187
Energy
Pass
$
07,446
$
1,382403
$
264246
$
63-
$
07
$
0-
$
230,193156,119
$
221188
$
232,123164,409
Special mention
0-
0-
0-
1,494-
0-
0-
21,4937,152
0-
22,9877,152
Substandard - accrual
0-
0-
0-
0-
13-
0-
7,3922,131
0-
7,4052,131
Substandard - non-
accrual
0-
0-
0-
0-
0-
0-
6,3433,375
0-
6,3433,375
Doubtful
0-
0-
0-
0-
0-
0-
2,4511,788
0-
2,4511,788
Total
$
07,446
$
1,382403
$
264246
$
1,557-
$
137
$
0-
$
267,872170,565
$
221188
$
271,309178,855
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements (unaudited)
2324
As of March 31,September 30, 2022
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
loansLoans
Revolving
loansLoans
converted to
term loansTerm Loans
Total
(Dollars in thousands)
Commercial real estate
Pass
$
74,272270,669
$
319,575259,299
$
158,034145,530
$
121,203110,155
$
82,02867,990
$
97,98774,465
$
330,590293,169
$
82,45998,783
$
1,266,1481,320,060
Special mention
011,927
27,2109,870
0-
0422
7,5366,280
761290
02,420
48,70933,086
84,21664,295
Substandard - accrual
10,82610,535
655-
0327
695-
0-
3,8011,232
0-
992
16,96913,086
Substandard - non-
accrual
0408
3,7502,489
303-
0-
83-
1,135-
0-
3,051-
8,3222,897
Doubtful
0-
0-
0-
0-
0-
0-
0-
0-
0-
Total
$
85,098293,539
$
351,190271,658
$
158,337145,857
$
121,898110,577
$
89,64774,270
$
103,68475,987
$
330,590295,589
$
135,211132,861
$
1,375,6551,400,338
Construction and land development
Pass
$
86,020205,062
$
228,922290,753
$
141,357126,364
$
73,65024,323
$
20,3463,663
$
4,6111,367
$
8,63214,679
$
0-
$
563,538666,211
Special mention
0-
07,830
0-
0-
0-
0-
0-
0-
07,830
Substandard - accrual
0-
0-
0-
0-
0-
0-
0-
0-
0-
Substandard - non-
accrual
0-
0-
0-
0-
0-
0-
0-
0-
0-
Doubtful
0-
0-
0-
0-
0-
0-
0-
0-
0-
Total
$
86,020205,062
$
228,922298,583
$
141,357126,364
$
73,65024,323
$
20,3463,663
$
4,6111,367
$
8,63214,679
$
0-
$
563,538674,041
Residential real estate
Pass
$
12,95464,540
$
77,24379,235
$
126,735120,891
$
48,60046,023
$
53,48738,417
$
38,56535,590
$
1,2081,894
$
0-
$
358,792386,590
Special mention
0253
2173,290
0-
0231
0-
0-
0-
0-
2173,774
Substandard - accrual
0142
3,326-
3,1833,166
0-
0-
0-
0-
0-
6,5093,308
Substandard - non-
accrual
0-
0-
0-
0-
0-
0-
0-
201195
201195
Doubtful
0-
0-
0-
0-
0-
0-
0-
0-
0-
Total
$
12,95464,935
$
80,78682,525
$
129,918124,057
$
48,60046,254
$
53,48738,417
$
38,56535,590
$
1,2081,894
$
201195
$
365,719393,867
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements (unaudited)
2425
As of March 31,September 30, 2022
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
loansLoans
Revolving
loansLoans
converted to
term loansTerm Loans
Total
(Dollars in thousands)
Multifamily real estate
Pass
$
25,82978,194
$
46,51133,272
$
6,7335,363
$
12,13412,005
$
3,2383,078
$
1,961822
$
121,985126,518
$
24,67616,506
$
243,067275,758
Special mention
0-
0-
0-
0-
0-
0-
0-
4037
4037
Substandard - accrual
0-
0-
0-
0-
0-
0-
0-
0-
0-
Substandard - non-
accrual
0-
0-
0-
0-
0-
0-
0-
0-
0-
Doubtful
0-
0-
0-
0-
0-
0-
0-
0-
0-
Total
$
25,82978,194
$
46,51133,272
$
6,7335,363
$
12,13412,005
$
3,2383,078
$
1,961822
$
121,985126,518
$
24,71616,543
$
243,107275,795
Consumer
Pass
$
48511,629
$
2,7502,512
$
1,9881,914
$
248221
$
118110
$
14430
$
43,60649,311
$
0-
$
49,33965,727
Special mention
0-
0-
0-
0-
0-
0-
0-
0-
0-
Substandard - accrual
0-
0-
0-
0-
0-
0-
0-
0-
0-
Substandard - non-
accrual
0-
0-
0-
0-
0-
0-
0-
0-
0-
Doubtful
0-
0-
0-
0-
0-
0-
0-
0-
0-
Total
$
48511,629
$
2,7502,512
$
1,9881,914
$
248221
$
118110
$
14430
$
43,60649,311
$
0-
$
49,33965,727
Total
Pass
$
284,907923,420
$
1,049,086953,465
$
569,073470,899
$
318,635247,894
$
222,158168,930
$
172,897133,408
$
1,385,4441,422,400
$
144,552145,869
$
4,146,7524,466,285
Special mention
013,463
27,42723,231
1,56812,063
2,6211,649
7,8606,582
810402
36,99742,386
52,27139,624
129,554139,400
Substandard - accrual
12,32610,677
4,191455
3,1834,978
3,1102,165
795758
3,8521,278
9,82313,319
2,93921,408
40,21955,038
Substandard - non-
accrual
0408
5,3222,593
316-
246
5641,383
1,895700
17,3059,850
5,166195
30,59215,135
Doubtful
0-
0-
0-
0-
0-
0-
2,4511,788
0-
2,4511,788
Total
$
297,233947,968
$
1,086,026979,744
$
574,140487,940
$
324,390251,714
$
231,377177,653
$
179,454135,788
$
1,452,0201,489,743
$
204,928207,096
$
4,349,5684,677,646
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements (unaudited)
2526
Loan Portfolio Aging Analysis
The following tables present the Company’s loan portfolio aging analysis as of September
 
March 31,30, 2022:
 
As of March 31,September 30, 2022
Amortized Cost Basis by Origination Year and Past Due Status
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
loans
Revolving
loans
converted to
term loans
Total
(Dollars in thousands)
Commercial and industrial
30-59 days
$
0600
$
0-
$
3-
$
515
$
4-
$
0-
$
0-
$
0-
$
12615
60-89 days
0-
0-
0-
10-
0-
98-
0-
0-
108-
Greater than 90 days
0-
0124
07
075
4681,383
662655
0-
0-
1,1302,244
Total past due
0600
0124
37
1590
4721,383
760655
-
0-
1,2502,859
Current
86,847286,563
374,485290,667
135,54084,132
66,28858,244
64,05656,725
29,72921,337
0-
44,57957,309
801,524854,977
Total
$
86,847287,163
$
374,485290,791
$
135,54384,139
$
66,30358,334
$
64,52858,108
$
30,48921,992
$
0-
$
44,57957,309
$
802,774857,836
Greater than 90 days
and accruing
$
0-
$
020
$
07
$
073
$
0-
$
0-
$
0-
$
0-
$
0100
Commercial and industrial lines of credit
30-59 days
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
$
11,9103,796
$
0-
$
11,9103,796
60-89 days
0-
0-
0-
0-
0-
0-
300-
0-
300-
Greater than 90 days
0-
0-
0-
0-
0-
0-
01,568
0-
01,568
Total past due
0-
0-
0-
0-
0-
0-
12,2105,364
0-
12,2105,364
Current
0-
0-
0-
0-
0-
0-
665,917825,823
0-
665,917825,823
Total
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
$
678,127831,187
$
0-
$
678,127831,187
Greater than 90 days
and accruing
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
$
083
$
0-
$
083
Energy
30-59 days
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
$
2,114-
$
0-
$
2,114-
60-89 days
0-
0-
0-
0-
0-
0-
0-
0-
0-
Greater than 90 days
0-
0-
0-
1,494-
0-
0-
8,0975,163
0-
9,5915,163
Total past due
0-
0-
0-
1,494-
0-
0-
10,2115,163
0-
11,7055,163
Current
07,446
1,382403
264246
63-
137
0-
257,661165,402
221188
259,604173,692
Total
$
07,446
$
1,382403
$
264246
$
1,557-
$
137
$
0-
$
267,872170,565
$
221188
$
271,309178,855
Greater than 90 days
and accruing
$
0-
$
0-
$
0-
$
1,494-
$
0-
$
0-
$
0-
$
0-
$
1,494-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
��
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements (unaudited)
2627
As of March 31,September 30, 2022
Amortized Cost Basis by Origination Year and Past Due Status
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
loans
Revolving
loans
converted to
term loans
Total
(Dollars in thousands)
Commercial real estate
30-59 days
$
0408
$
0-
$
0-
$
0-
$
0-
$
0195
$
0-
$
0-
$
0603
60-89 days
0-
277-
0-
0-
83-
01,032
0-
0-
3601,032
Greater than 90 days
0-
0-
0-
0-
0-
0-
0-
0-
0-
Total past due
0408
277-
0-
0-
83-
01,227
0-
0-
3601,635
Current
85,098293,131
350,913271,658
158,337145,857
121,898110,577
89,56474,270
103,68474,760
330,590295,589
135,211132,861
1,375,2951,398,703
Total
$
85,098293,539
$
351,190271,658
$
158,337145,857
$
121,898110,577
$
89,64774,270
$
103,68475,987
$
330,590295,589
$
135,211132,861
$
1,375,6551,400,338
Greater than 90 days
and accruing
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
Construction and land development
30-59 days
$
0-
$
553-
$
0-
$
0-
$
0-
$
0-
$
010,629
$
0-
$
55310,629
60-89 days
0-
0-
0-
0-
0-
0-
0-
0-
0-
Greater than 90 days
0-
0-
0-
0-
0-
0-
0-
0-
0-
Total past due
0-
553-
0-
0-
0-
0-
010,629
0-
55310,629
Current
86,020205,062
228,369298,583
141,357126,364
73,65024,323
20,3463,663
4,6111,367
8,6324,050
0-
562,985663,412
Total
$
86,020205,062
$
228,922298,583
$
141,357126,364
$
73,65024,323
$
20,3463,663
$
4,6111,367
$
8,63214,679
$
0-
$
563,538674,041
Greater than 90 days
and accruing
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
Residential real estate
30-59 days
$
0142
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
$
0142
60-89 days
0-
217-
0-
0-
0-
0-
0-
0-
217-
Greater than 90 days
0-
0120
0-
0-
0-
0-
0-
0-
0120
Total past due
0142
217120
0-
0-
0-
0-
0-
0-
217262
Current
12,95464,793
80,56982,405
129,918124,057
48,60046,254
53,48738,417
38,56535,590
1,2081,894
201195
365,502393,605
Total
$
12,95464,935
$
80,78682,525
$
129,918124,057
$
48,60046,254
$
53,48738,417
$
38,56535,590
$
1,2081,894
$
201195
$
365,719393,867
Greater than 90 days
and accruing
$
-
$
120
$
-
$
-
$
-
$
-
$
-
$
-
$
120
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements (unaudited)
2728
As of March 31,September 30, 2022
Amortized Cost Basis by Origination Year and Past Due Status
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
loans
Revolving
loans
converted to
term loans
Total
(Dollars in thousands)
Multifamily real estate
30-59 days
$
0-
$
192-
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
$
192-
60-89 days
04,566
150-
0-
0-
0-
0-
0-
0-
1504,566
Greater than 90 days
0-
0-
0-
0-
0-
0-
0-
40-
40-
Total past due
04,566
342-
0-
0-
0-
0-
0-
40-
3824,566
Current
25,82973,628
46,16933,272
6,7335,363
12,13412,005
3,2383,078
1,961822
121,985126,518
24,67616,543
242,725271,229
Total
$
25,82978,194
$
46,51133,272
$
6,7335,363
$
12,13412,005
$
3,2383,078
$
1,961822
$
121,985126,518
$
24,71616,543
$
243,107275,795
Greater than 90 days
and accruing
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
$
40-
$
40-
Consumer
30-59 days
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
60-89 days
0-
0-
0-
0-
0-
0-
0-
0-
0-
Greater than 90 days
0-
0-
0-
0-
0-
0-
0-
0-
0-
Total past due
0-
0-
0-
0-
0-
0-
0-
0-
0-
Current
48511,629
2,7502,512
1,9881,914
248221
118110
14430
43,60649,311
0-
49,33965,727
Total
$
48511,629
$
2,7502,512
$
1,9881,914
$
248221
$
118110
$
14430
$
43,60649,311
$
0-
$
49,33965,727
Greater than 90 days
and accruing
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
Total
30-59 days
$
01,150
$
745-
$
3-
$
515
$
4-
$
0195
$
14,02414,425
$
0-
$
14,78115,785
60-89 days
04,566
644-
0-
10-
83-
981,032
300-
0-
1,1355,598
Greater than 90 days
0-
0244
07
1,49475
4681,383
662655
8,0976,731
40-
10,7619,095
Total past due
05,716
1,389244
37
1,50990
5551,383
7601,882
22,42121,156
40-
26,67730,478
Current
297,233942,252
1,084,637979,500
574,137487,933
322,881251,624
230,822176,270
178,694133,906
1,429,5991,468,587
204,888207,096
4,322,8914,647,168
Total
$
297,233947,968
$
1,086,026979,744
$
574,140487,940
$
324,390251,714
$
231,377177,653
$
179,454135,788
$
1,452,0201,489,743
$
204,928207,096
$
4,349,5684,677,646
Greater than 90 days
and accruing
$
0-
$
0140
$
07
$
1,49473
$
0-
$
0-
$
083
$
40-
$
1,534303
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements (unaudited)
2829
Non-accrual Loan Analysis
Non-accrual loans are loans for which the Company does not record interest
 
income. The accrual of interest on loans is discontinued at the time the loan is 90 days past due
unless the credit is well secured and in process of collection. Past due status is based on
 
contractual terms of the loan. In all cases, loans are placed on non-accrual or
 
charged off at
an earlier date, if collection of principal or interest is considered doubtful. Loans
 
are returned to accrual status when all the principal and interest amounts contractually due
 
are
brought current and future payments are reasonably assured. The following
 
table presents the Company’s non-accrual
 
loans by loan segments:
As of March 31,September 30, 2022
Amortized Cost Basis by Origination Year and On NonaccrualNon-accrual
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
loans
Revolving
loans
converted
to term
loans
Total Non-
Nonaccrualaccrual
Loans
NonaccrualNon-accrual
Loans with no
no related
Allowance
(Dollars in thousands)
Commercial and industrial
$
0-
$
1,572104
$
13-
$
246
$
4821,383
$
760700
$
0-
$
1,914-
$
4,7652,193
$
3,2572,193
Commercial and industrial
lines of credit
0-
0-
0-
0-
0-
0-
10,9876,475
0-
10,9876,475
10,9876,475
Energy
0-
0-
0-
0-
0-
0-
8,7955,163
0-
8,7955,163
6983,587
Commercial real estate
0408
3,7502,489
303-
0-
83-
1,136-
0-
3,051-
8,3232,897
8,2412,897
Construction and land
development
0-
0-
0-
0-
0-
0-
0-
0-
0-
0-
Residential real estate
0-
0-
0-
0-
0-
0-
0-
201195
201195
201195
Multifamily real estate
0-
0-
0-
0-
0-
0-
0-
0-
0-
0-
Consumer
0-
0-
0-
0-
0-
0-
0-
0-
0-
0-
Total
$
408
$
2,593
$
-
$
5,3226
$
3161,383
$
24700
$
56511,638
$
1,896195
$
19,78216,923
$
5,166
$
33,071
$
23,38415,347
Interest income recognized on nonaccrualnon-accrual loans was $
10.9
 
thousandmillion and $
1.3
million for the three-month periodthree- and nine-month periods ended March 31, 2022.September 30,
2022, respectively.
 
Notes to Condensed Consolidated Financial Statements (unaudited)
30
Allowance for Credit Losses
The following table presents the activity in the allowance for credit losses and
allowance for credit losses on off-balance sheet credit exposures by portfolio
segment for the
three-month period ended September 30, 2022:
For the Three Months Ended September 30, 2022
Commercial
and Industrial
Commercial
and
Industrial
Lines of
Credit
Energy
Commercial
Real Estate
Construction
and Land
Development
Residential
Real Estate
Multifamily
Real Estate
Consumer
Total
(Dollars in thousands)
Allowance for Credit Losses:
Beginning balance
$
10,920
$
11,267
$
6,428
$
17,042
$
3,918
$
3,134
$
2,427
$
681
$
55,817
Charge-offs
-
(2,000)
(642)
-
-
-
-
-
(2,642)
Recoveries
-
9
-
748
-
-
-
9
766
Provision (credit)
417
2,781
(958)
(1,335)
669
103
246
-
1,923
Ending balance
$
11,337
$
12,057
$
4,828
$
16,455
$
4,587
$
3,237
$
2,673
$
690
$
55,864
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures:
Beginning balance
$
63
$
-
$
470
$
657
$
4,016
$
4
$
109
$
1
$
5,320
Provision (credit)
34
-
78
19
1,304
(2)
(25)
3
1,411
Ending balance
$
97
$
-
$
548
$
676
$
5,320
$
2
$
84
$
4
$
6,731
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements (unaudited)
29
Allowance for Credit Losses
The following table presents the activity in the allowance for credit losses and
allowance for credit losses on off-balance sheet credit exposures by portfolio
segment for the
three-month period ended March 31 2022:
For the ThreeNine Months Ended March 31,September 30, 2022
Commercial and
Industrial
(1)
Commercial
and
Industrial
Lines of
Credit
(1)
Energy
Commercial
Real Estate
Construction
and Land
Development
Residential
Real
Estate
(2)
Multifamily
Real
Estate
(2)
Consumer
Total
(Dollars in thousands)
Allowance for Credit Losses:
Beginning balance, prior to
adoption of ASU 2016-13
$
20,352
$
0-
$
9,229
$
19,119
$
3,749
$
5,598
$
0-
$
328
$
58,375
Impact of ASU 2016-13
adoption
(10,213)
8,866
(39)
(186)
(83)
(2,552)
2,465
(5)
(1,747)
Charge-offs
(209)(790)
(1,221)(3,971)
(1,067)(4,609)
(1,102)
0-
0(217)
0-
(13)
(3,612)(10,702)
Recoveries
755
211,788
1,754
02,333
0-
0-
0-
111
2,5316,641
Provision (credit)
(704)1,233
1,6955,374
(2,370)(1,507)
797(3,709)
12921
43408
(123)208
334369
(316)3,297
Ending balance
$
9,98111,337
$
9,36112,057
$
7,5074,828
$
18,62816,455
$
3,6784,587
$
3,0893,237
$
2,3422,673
$
645690
$
55,23155,864
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures:
Beginning balance, prior to
adoption of ASU 2016-13
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
$
0-
Impact of ASU 2016-13
adoption
107
44
265
711
3,914
5
137
1
5,184
Provision (credit)
(41)(10)
109(44)
(7)283
42(35)
(400)1,406
(1)(3)
(21)(53)
103
(309)1,547
Ending balance
$
6697
$
153-
$
258548
$
753676
$
3,5145,320
$
2
$
84
$
4
$
116
$
11
$
4,8756,731
(1)
 
Prior to the adoption of ASU 2016-13, the Commercial and industrial and Commercial and industrial lines of credit
were consolidated under
the Commercial and industrial
segment.
(2)
 
Prior to the adoption of ASU 2016-13, the Residential real estate and Multifamily real estate segments were consolidated
 
under the Residential and Multifamily Real Estate
segment.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
3032
Collateral Dependent Loans:
Collateral dependent loans are loans for which the repayment is expected to be provided
 
substantially through the operation or
sale of the collateral and the borrower is experiencing financial difficulty. The following
 
table presents the amortized cost balance of
loans considered collateral dependent by loan segment and collateral type
 
as of March 31,September 30, 2022:
As of March 31,September 30, 2022
Loan Segment and Collateral Description
Amortized Cost of
Collateral Dependent
Loans
Related Allowance for
Credit Losses
Amortized Cost of
Collateral Dependent
Loans with no related
Allowance
(Dollars in thousands)
Commercial and Industrial
All business assets
$
4,0402,668
$
130-
$
3,2572,668
Commercial linesand Industrial Lines of creditCredit
All business assets
10,9875,519
0-
10,9875,519
Energy
Oil and natural gas properties
8,7959,626
790157
6989,469
Commercial Real Estate
Commercial real estate properties
2,489
-
2,489
$
23,82220,302
$
920157
$
14,94220,145
Troubled Debt Restructurings (“TDR”)
TDRs are those extended to borrowers who are experiencing financial
 
difficulty and who have been granted a concession,
excluding loan modifications as a result of the COVID-19 pandemic.
 
The modification of terms typically includes the extension of
maturity, reduction or deferment of monthly payment, or reduction of the
 
stated interest rate.
 
For the three-monthnine-month periods ended March 31,September 30, 2022 and 2021,
0no
 
loans were restructured under the TDR guidance. The
outstanding balance of TDRs was $
3834
 
million and $
40
 
million as of March 31,September 30, 2022 and December 31, 2021, respectively.
Disclosures under Previously Applicable
GAAP
The following disclosures are presented under previously applicable GAAP. The description
of the general characteristics of the
loan rating categories is as described above. The following table presents
the credit risk profile of the Company’s loan portfolio based on
an internal rating category and portfolio segment as of December 31, 2021:
As of December 31, 2021
Pass
Special
Mention
Substandard
Performing
Substandard
Nonperforming
Doubtful
Loss
Total
(Dollars in thousands)
Commercial
$
1,356,883
$
16,201
$
23,739
$
4,858
$
0
$
0
$
1,401,681
Energy
184,269
73,196
5,246
13,595
2,554
0
278,860
Commercial real
estate
1,172,323
86,768
11,782
10,222
0
0
1,281,095
Construction and
land development
578,758
0
0
0
0
0
578,758
Residential and
multifamily real
estate
593,847
257
6,508
204
0
0
600,816
PPP
64,805
0
0
0
0
0
64,805
Consumer
63,605
0
0
0
0
0
63,605
$
4,014,490
$
176,422
$
47,275
$
28,879
$
2,554
$
0
$
4,269,620
��
Notes to Condensed Consolidated Financial Statements
(unaudited)
31
The following table presents the Company’s loan portfolio aging analysis of the
recorded investment in loans as of December 31,
2021:
As of December 31, 2021
30-59 Days
Past Due
60-89 Days
Past Due
90 Days or
More
Total Past
Due
Current
Total Loans
Receivable
Loans >= 90
Days and
Accruing
(Dollars in thousands)
Commercial
$
183
$
499
$
1,037
$
1,719
$
1,399,962
$
1,401,681
$
90
Energy
0
0
4,644
4,644
274,216
278,860
0
Commercial real estate
85
992
0
1,077
1,280,018
1,281,095
0
Construction and land
development
966
117
0
1,083
577,675
578,758
0
Residential and multifamily
real estate
437
151
0
588
600,228
600,816
0
PPP
0
0
0
0
64,805
64,805
0
Consumer
0
99
0
99
63,506
63,605
0
$
1,671
$
1,858
$
5,681
$
9,210
$
4,260,410
$
4,269,620
$
90
The following table presents the Company’s loans on non-accrual as of
December 31, 2021:
December 31, 2021
(Dollars in thousands)
Commercial
$
4,858
Energy
16,148
Commercial real estate
10,222
Construction and land development
0
Residential and multifamily real estate
204
PPP
0
Consumer
0
Total non-accrual loans
$
31,432
Notes to Condensed Consolidated Financial Statements
(unaudited)
32
The following table presents the allowance for loan losses by portfolio segment
and disaggregated based on the Company’s
impairment methodology:
As of December 31, 2021
Commercial
Energy
Commercial
Real Estate
Construction
and Land
Development
Residential
and
Multifamily
Real Estate
PPP
Consumer
Total
(Dollars in thousands)
Period end allowance for loan losses allocated to:
Individually
evaluated for
impairment
$
333
$
2,100
$
3,164
$
0
$
0
$
0
$
0
$
5,597
Collectively
evaluated for
impairment
20,019
7,129
15,955
3,749
5,598
0
328
52,778
Ending balance
$
20,352
$
9,229
$
19,119
$
3,749
$
5,598
$
0
$
328
$
58,375
Allocated to loans:
Individually
evaluated for
impairment
$
5,739
$
16,204
$
31,597
$
0
$
3,387
$
0
$
0
$
56,927
Collectively
evaluated for
impairment
1,395,942
262,656
1,249,498
578,758
597,429
64,805
63,605
4,212,693
Ending balance
$
1,401,681
$
278,860
$
1,281,095
$
578,758
$
600,816
$
64,805
$
63,605
$
4,269,620
Notes to Condensed Consolidated Financial Statements
(unaudited)
33
A loan is considered impaired when based on current information and events, it is probable the Company will be unable to collect
all amounts due from the borrower in accordance with the contractual terms
of the loan. Impaired loans include nonperforming loans but
also include loans modified in TDRs where concessions have been granted to borrowers
experiencing financial difficulties. The intent of
concessions is to maximize collection. The following table presents loans individually
evaluated for impairment:
As of December 31, 2021
Recorded Balance
Unpaid Principal Balance
Specific Allowance
(Dollars in thousands)
Loans without a specific valuation
Commercial
$
4,659
$
4,740
$
-
Energy
3,509
7,322
-
Commercial real estate
1,729
1,729
-
Construction and land development
0
0
-
Residential and multifamily real estate
3,387
3,387
-
PPP
0
0
-
Consumer
0
0
-
Loans with a specific valuation
Commercial
1,080
1,080
333
Energy
12,695
17,977
2,100
Commercial real estate
29,868
30,854
3,164
Construction and land development
0
0
0
Residential and multifamily real estate
0
0
-
PPP
0
0
0
Consumer
0
0
0
Total
Commercial
5,739
5,820
333
Energy
16,204
25,299
2,100
Commercial real estate
31,597
32,583
3,164
Construction and land development
0
0
0
Residential and multifamily real estate
3,387
3,387
0
PPP
0
0
0
Consumer
0
0
0
56,927
67,089
5,597
Total interest income recognized during the three-month period ended
March 31, 2021 for impaired loans was $
642
thousand.
The three-month average balance of impaired loans for the period ended
March 31, 2021 was $
112
million.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
34
The following table presents the activity in the allowance for loan losses by portfolio
segment for the three-month period ended
March 31, 2021:
Three Months Ended March 31, 2021
Commercial
Energy
Commercial
Real Estate
Construction
and Land
Development
Residential
and
Multifamily
Real Estate
PPP
Consumer
Total
(Dollars in thousands)
Allowance for loan losses:
Beginning
balance
$
24,693
$
18,341
$
22,354
$
3,612
$
5,842
$
0
$
453
$
75,295
Provision
7,015
1,951
(1,745)
225
214
0
(160)
7,500
Charge-offs
(8,266)
0
0
0
0
0
0
(8,266)
Recoveries
22
0
0
0
0
0
0
22
Ending balance
$
23,464
$
20,292
$
20,609
$
3,837
$
6,056
$
0
$
293
$
74,551
Allowance for Credit Losses (“ACL”) on Off-Balance Sheet Credit Exposures
The Company estimates expected credit losses for off-balance sheet credit
exposures unless the obligation is unconditionally
cancellable by the Company. The ACL on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The
estimate is calculated for each loan segment and includes consideration of the
likelihood that funding will occur and an estimate of the
expected credit losses on commitments expected to be funded over its estimated life.
For each pool of contractual obligations expected
to be funded, the Company uses the reserve rate established for the related
loan pools. The $
5
million allowance for credit losses on off
balance sheet credit exposures at March 31, 2022 is included in “interest payable
and other liabilities” on the balance sheet.
The following categories of off-balance sheet credit exposures have been
identified:
Loan commitments – include revolving lines of credit, non-revolving lines of
credit, and loans approved that are not yet funded.
Risks inherent to revolving lines of credit often are related to the susceptibility of
an individual or business experiencing
unpredictable cash flow or financial troubles, thus leading to payment default.
The primary risk associated with non-revolving
lines of credit is the diversion of funds for other expenditures.
Letters of credit – are primarily established to provide assurance to the beneficiary
that the applicant will perform certain
obligations arising out of a separate transaction between the beneficiary and
applicant. If the obligation is not met, it gives the
beneficiary the right to draw on the letter of credit.
Note 5:
Derivatives and Hedging
The Company is exposed to certain risks arising from both its business operations and
economic conditions, including interest
rate, liquidity, and
credit risk. The Company uses derivative financial instruments as part of its risk management
activities to manage
exposures that arise from business activities that result in the receipt or payment
of future known and uncertain cash amounts, the value
of which are determined by interest rates.
Cash Flow Hedges of Interest Rate Risk
Notes to Condensed Consolidated Financial Statements
(unaudited)
35
The Company uses interest rate derivatives to add stability to interest expense
and to manage its exposure to interest rate
movements. Interest rate swaps designated as cash flow hedges involve
the receipt of variable amounts from a counterparty in exchange
for the Company making fixed-rate payments over the life of the agreements
without exchange of the underlying notional amount.
During 2021, the Company entered into forward-looking
derivatives that will be used to hedge variable cash flows associated with
variable-rate funding. These
5
swaps had an aggregate notional amount of $
100
million at March 31, 2022 and December 31, 2021.
For derivatives designated and that qualify as cash flow hedges of interest rate
risk, the gain or loss on the derivative is recorded
in Accumulated Other Comprehensive Income (“AOCI”) and subsequently reclassified into interest expense
in the same period(s)
during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest
expense as interest payments are made on the Company’s related, variable
-rate debt. During the next twelve months, the Company
estimates that an additional $
0
will be reclassified as a reduction to interest expense.
The Company’s derivative financial instruments are not effective until 2023. As a result, the derivative financial instrument
s
did
not impact the Consolidated Statement of Income for the three-month
period ended March 31, 2022.
Non-designated Hedges
Derivatives not designated as hedges are not speculative and result from
a service provided to clients. The Company executes
interest rate swaps with customers to facilitate their respective risk management
strategies. Those interest rate swaps are simultaneously
hedged by offsetting derivatives that the Company executes with a third-party,
such that the Company minimizes its net risk exposure
resulting from such transactions. Interest rate derivatives associated
with this program do not meet the strict hedge accounting
requirements and changes in the fair value of both the customer derivatives
and the offsetting derivatives are recognized directly in
earnings.
Swap fees earned upon origination and credit valuation adjustments that represent
the risk of a counterparty’s default are reported
on the Consolidated Statements of Income as swap fee income, net. The effect of the
Company’s derivative financial instruments gain
(loss) are reported on the Consolidated Statements of Cash Flows within “other
assets” and “other liabilities”.
These
56
and
54
swaps had an aggregate notional amount of $
563
million and $
535
million at March 31, 2022 and December 31,
2021, respectively.
Notes to Condensed Consolidated Financial Statements
(unaudited)
36
Fair Values
of Derivative Instruments on the Balance Sheet
The table below presents the fair value of the Company’s derivative financial
instruments and their classification on the balance
sheet as of March 31, 2022 and December 31, 2021:
Asset Derivatives
Liability Derivatives
Balance Sheet
March 31,
December 31,
Balance Sheet
March 31,
December 31,
Asset
Derivatives
2022
2021
Location
2022
2021
(Dollars in thousands)
Interest rate products:
Derivatives not
designated as hedging
instruments
Other assets
$
3,857
$
11,305
Interest payable
and other
liabilities
$
3,862
$
11,322
Derivatives
designated as hedging
instruments
Other assets
2,090
3
Interest payable
and other
liabilities
0
565
Total
$
5,947
$
11,308
$
3,862
$
11,887
The table below presents the effect of cash flow hedge accounting on Accumulated Other Comprehensive Income
as of March 31,
2022. The Company had no cash flow hedges for the three-months ended March 31,
2021.
March 31, 2022
Gain or
(Loss)
Recognized
in OCI on
Derivative
Gain or
(Loss)
Recognized
in OCI
Included
Component
Gain or
(Loss)
Recognized
in OCI
Excluded
Component
Location of
Gain or (Loss)
Recognized
from
Accumulated
Other
Comprehensive
Income into
Income
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Income
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Income
Included
Component
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Income
Excluded
Component
(Dollars in thousands)
Derivatives in Cash Flow Hedging Relationships
Interest Rate Products
$
2,655
$
2,655
$
0
Interest expense
$
0
$
0
$
0
Note 6:
Time Deposits and Borrowings
The scheduled maturities, excluding interest, of the Company’s borrowings at
March 31, 2022 were as follows:
March 31, 2022
Within One
Year
One to Two
Years
Two to
Three Years
Three to
Four Years
Four to Five
Years
After Five
Years
Total
(Dollars in thousands)
Time deposits
$
445,252
$
54,360
$
10,248
$
1,151
$
1,056
$
0
$
512,067
FHLB borrowings
11,500
35,000
0
5,100
0
175,000
226,600
Trust preferred securities
(1)
0
0
0
0
0
1,022
1,022
$
456,752
$
89,360
$
10,248
$
6,251
$
1,056
$
176,022
$
739,689
Notes to Condensed Consolidated Financial Statements
(unaudited)
37
(1)
The contract value of the trust preferred securities is $
2.6
million and is currently being accreted to the maturity date of 2035.
Note 7:
Change in Accumulated Other Comprehensive Income (Loss) (“AOCI”)
Amounts reclassified from AOCI and the affected line items in the Condensed Consolidated Statements of Income
during the
three-month periods ended March 31, 2022 and 2021, were as follows:
Three Months Ended
March 31,
Affected Line Item in the
2022
2021
Statements of Income
(Dollars in thousands)
Unrealized gains (losses) on available-for-sale
securities
$
(26)
$
10
Gain (loss) on sale of available-
for-sale securities
Less: tax expense (benefit) effect
(6)
2
Income tax expense (benefit)
Net reclassified amount
$
(20)
$
8
Note 8:
Regulatory Matters
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory
and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on the Company’s consolidated
financial statements. Management believes that,
as of March 31, 2022, the Company and the Bank met all capital adequacy requirements
to which they are subject.
The capital rules require the Company to maintain a
2.5
% capital conservation buffer with respect to Common Equity Tier I
capital, Tier I capital to risk-weighted assets, and total capital to risk-weighted assets, which
is included in the column “Minimum
Capital Required - Basel III” within the table below. A financial institution with a conservation buffer of less than the required amount is
subject to limitations on capital distributions, including dividend payments and
stock repurchases, as well as certain discretionary bonus
payments to executive officers.
The Company and the Bank opted to exclude AOCI from the regulatory capital calculations. As a result, change in AOCI,
including the recent decrease in the available-for-sale securities portfolio, net
of tax, did not impact the Company’s or Bank’s capital
ratios.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
3833
Disclosures under Previously Applicable
GAAP
The following disclosures are presented under previously applicable GAAP. The description
of the general characteristics of the
loan rating categories is as described above. The following table presents
the credit risk profile of the Company’s loan portfolio based on
an internal rating category and the Bank’s actual capital amounts and ratiosportfolio segment as of March
31, 2022 and December 31, 2021 are presented in
the following table:
2021:
ActualAs of December 31, 2021
Minimum Capital
Pass
Required - Basel IIISpecial
Required to be ConsideredMention
Well CapitalizedSubstandard
AmountPerforming
RatioSubstandard
AmountNon-
Ratioperforming
AmountDoubtful
RatioLoss
Total
(Dollars in thousands)
March 31, 2022Commercial and
Total Capital to Risk-Weighted Assets
Consolidatedindustrial
$
704,612
13.0
%1,356,883
$
568,675
10.5
%
N/A
N/A
Bank
698,888
12.9
567,544
10.516,201
$
540,518
10.0
%
Tier I Capital to Risk-Weighted Assets
Consolidated
644,506
11.9
460,356
8.5
N/A
N/A
Bank
638,782
11.8
459,440
8.5
432,414
8.0
Common Equity Tier 1 to Risk-Weighted Assets
Consolidated
643,484
11.9
379,117
7.0
N/A
N/A
Bank
638,782
11.8
378,363
7.0
351,337
6.5
Tier I Capital to Average Assets
Consolidated
644,506
11.6
222,092
4.0
N/A
N/A
Bank23,739
$
638,782
11.5
%4,858
$
222,000
4.0
%-
$
277,500-
5.0$
%1,401,681
Energy
184,269
73,196
5,246
13,595
2,554
-
278,860
Commercial real
estate
1,172,323
86,768
11,782
10,222
-
-
1,281,095
Construction and
land development
578,758
-
-
-
-
-
578,758
Residential and
multifamily real
estate
593,847
257
6,508
204
-
-
600,816
PPP
64,805
-
-
-
-
-
64,805
Consumer
63,605
-
-
-
-
-
63,605
$
4,014,490
$
176,422
$
47,275
$
28,879
$
2,554
$
-
$
4,269,620
The following table presents the Company’s loan portfolio aging analysis of the
recorded investment in loans as of December 31,
2021:
As of December 31, 2021
30-59 Days
Past Due
60-89 Days
Past Due
90 Days or
More
Total Past
Due
Current
Total Loans
Receivable
Loans >= 90
Days and
Accruing
(Dollars in thousands)
Commercial and industrial
$
183
$
499
$
1,037
$
1,719
$
1,399,962
$
1,401,681
$
90
Energy
-
-
4,644
4,644
274,216
278,860
-
Commercial real estate
85
992
-
1,077
1,280,018
1,281,095
-
Construction and land
development
966
117
-
1,083
577,675
578,758
-
Residential and multifamily
real estate
437
151
-
588
600,228
600,816
-
PPP
-
-
-
-
64,805
64,805
-
Consumer
-
99
-
99
63,506
63,605
-
$
1,671
$
1,858
$
5,681
$
9,210
$
4,260,410
$
4,269,620
$
90
Notes to Condensed Consolidated Financial Statements
(unaudited)
34
The following table presents the Company’s loans on non-accrual as of
December 31, 2021:
December 31, 2021
Total Capital to Risk-Weighted Assets(Dollars in thousands)
ConsolidatedCommercial and industrial
$
704,5444,858
13.6Energy
%16,148
Commercial real estate
10,222
Construction and land development
-
Residential and multifamily real estate
204
PPP
-
Consumer
-
Total non-accrual loans
$
544,060
10.5
%
N/A
N/A
Bank
681,980
13.2
543,708
10.5
$
517,817
10.0
%
Tier I Capital to Risk-Weighted Assets
Consolidated
646,169
12.5
440,430
8.5
N/A
N/A
Bank
623,605
12.0
440,144
8.5
414,253
8.0
Common Equity Tier 1 to Risk-Weighted Assets
Consolidated
645,160
12.5
362,707
7.0
N/A
N/A
Bank
623,605
12.0
362,472
7.0
336,581
6.5
Tier I Capital to Average Assets
Consolidated
646,169
11.8
218,510
4.0
N/A
N/A
Bank
$
623,605
11.4
%
$
218,366
4.0
%
$
272,958
5.0
%31,432
Note 9:The following table presents the allowance for loan losses by portfolio segment
 
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 expiredisaggregated based on the tenthCompany’s
impairment methodology:
As of December 31, 2021
Commercial
and
Industrial
Energy
Commercial
Real Estate
Construction
and Land
Development
Residential
and
Multifamily
Real Estate
PPP
Consumer
Total
(Dollars in thousands)
Period end allowance for loan losses allocated to:
Individually
evaluated for
impairment
$
333
$
2,100
$
3,164
$
-
$
-
$
-
$
-
$
5,597
Collectively
evaluated for
impairment
20,019
7,129
15,955
3,749
5,598
-
328
52,778
Ending
balance
$
20,352
$
9,229
$
19,119
$
3,749
$
5,598
$
-
$
328
$
58,375
Allocated to loans:
Individually
evaluated for
impairment
$
5,739
$
16,204
$
31,597
$
-
$
3,387
$
-
$
-
$
56,927
Collectively
evaluated for
impairment
1,395,942
262,656
1,249,498
578,758
597,429
64,805
63,605
4,212,693
Ending
balance
$
1,401,681
$
278,860
$
1,281,095
$
578,758
$
600,816
$
64,805
$
63,605
$
4,269,620
 
anniversary
addition,Notes to Condensed Consolidated Financial Statements
(unaudited)
35
A loan is considered impaired when based on current information and events, it is probable the Company has an Employee Stock Purchase Plan thatwill be unable to
 
was reinstatedcollect
all amounts due from the borrower in accordance with the contractual terms
of the loan. Impaired loans include non-performing loans
but also include loans modified in TDRs where concessions have been granted to borrowers experiencing
financial difficulties. The
intent of concessions is to maximize collection. The following table presents loans
individually evaluated for impairment:
As of December 31, 2021
Recorded Balance
Unpaid Principal Balance
Specific Allowance
(Dollars in thousands)
Loans without a specific valuation
Commercial and industrial
$
4,659
$
4,740
$
-
Energy
3,509
7,322
-
Commercial real estate
1,729
1,729
-
Construction and land development
-
-
-
Residential and multifamily real estate
3,387
3,387
-
PPP
-
-
-
Consumer
-
-
-
Loans with a specific valuation
Commercial and industrial
1,080
1,080
333
Energy
12,695
17,977
2,100
Commercial real estate
29,868
30,854
3,164
Construction and land development
-
-
-
Residential and multifamily real estate
-
-
-
PPP
-
-
-
Consumer
-
-
-
Total
Commercial and industrial
5,739
5,820
333
Energy
16,204
25,299
2,100
Commercial real estate
31,597
32,583
3,164
Construction and land development
-
-
-
Residential and multifamily real estate
3,387
3,387
-
PPP
-
-
-
Consumer
-
-
-
$
56,927
$
67,089
$
5,597
Total interest income recognized during the third quarter of 2020. The aggregate numberthree and nine-month periods
ended September 30, 2021 for impaired loans was $
of shares authorized for future issuance under the Omnibus Plan is0.6
1,546,521million and $
1.9
 
shares asmillion, respectively. The three- and nine-month average balance of March 31, 2022.impaired loans for the period
ended September 30,
2021 was $
95
million and $
97
million, respectively.
Notes to Condensed Consolidated Financial Statements
(unaudited)
36
The following table below summarizespresents the stock-based compensationactivity in the allowance for loan losses by portfolio
segment for the three-
 
three-month and nine-month
periods ended March 31, 2022 andSeptember 30, 2021:
Three Months Ended September 30, 2021
MarchCommercial
and
Industrial
Energy
Commercial
Real Estate
Construction
and Land
Development
Residential
and
Multifamily
Real Estate
PPP
Consumer
Total
(Dollars in thousands)
Allowance for loan losses:
Beginning
balance
$
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
-
-
-
5
-
4
234
Ending balance
$
23,921
$
12,548
$
18,945
$
3,191
$
5,270
$
-
$
277
$
64,152
Nine Months Ended September 30, 2021
Commercial
and
Industrial
Energy
Commercial
Real Estate
Construction
and Land
Development
Residential
and
Multifamily
Real Estate
PPP
Consumer
Total
(Dollars in thousands)
Allowance for loan losses:
Beginning
balance
$
24,693
$
18,341
$
22,354
$
3,612
$
5,842
$
-
$
453
$
75,295
Provision
10,881
(5,290)
(3,409)
(421)
(577)
-
(184)
1,000
Charge-offs
(11,903)
(503)
-
-
-
-
(1)
(12,407)
Recoveries
250
-
-
-
5
-
9
264
Ending balance
$
23,921
$
12,548
$
18,945
$
3,191
$
5,270
$
-
$
277
$
64,152
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
The Company estimates expected credit losses for off-balance sheet credit
exposures unless the obligation is unconditionally
cancellable by the Company. The ACL on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The
estimate is calculated for each loan segment and includes consideration of the
likelihood that funding will occur and an estimate of the
expected credit losses on commitments expected to be funded over its estimated life.
For each pool of contractual obligations expected
to be funded, the Company uses the reserve rate established for the related
loan pools.
The $7 million allowance for credit losses on off
balance sheet credit exposures at September 30, 2022 is included in “interest payable
and other liabilities” on the balance sheet.
The following categories of off-balance sheet credit exposures have been
identified:
Loan commitments – include revolving lines of credit, non-revolving lines
of credit, and loans approved that are not yet funded.
Risks inherent to revolving lines of credit often are related to the susceptibility of
an individual or business experiencing
unpredictable cash flow or financial troubles, thus leading to payment default.
The primary risk associated with non-revolving
lines of credit is the diversion of funds for other expenditures.
Letters of credit – are primarily established to provide assurance to the beneficiary
that the applicant will perform certain
obligations arising out of a separate transaction between the beneficiary and
applicant. If the obligation is not met, it gives the
beneficiary the right to draw on the letter of credit.
Notes to Condensed Consolidated Financial Statements
(unaudited)
37
Note 5:
Derivatives and Hedging
The Company is exposed to certain risks arising from both its business operations and
economic conditions, including interest
rate, liquidity, and
credit risk. The Company uses derivative financial instruments as part of its risk management
activities to manage
exposures that arise from business activities that result in the receipt or payment
of future known and uncertain cash amounts, the value
of which are determined by interest rates.
Cash Flow Hedges of Interest Rate Risk
The Company uses interest rate derivatives to add stability to interest income
and expense and to manage its exposure to interest
rate movements. To
accomplish this objective, the Company uses interest rate swaps and collars as part of its interest
rate risk
management strategy.
Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts
from a counterparty in
exchange for the Company making fixed-rate payments over the life
of the agreements without exchange of the underlying notional
amount. Interest rate collars designated as cash flow hedges involve
payments of variable-rate amounts if interest rates rise above the
cap strike rate on the contract and the receipt of variable-rate amounts
if interest rates fall below the floor strike rate on the contract.
During 2022, such derivatives were used to hedge the variable cash flows
associated with existing variable-rate loan assets.
The five
swaps that were entered into in 2021 were terminated during the third quarter
of 2022, however, the amortization of the gains
on these
instruments will start in 2023 based on the original effective dates
of these swaps.
The Company also entered into a new interest rate
collar during the third quarter of 2022. Derivatives designated and
that qualify as cash flow hedges include
one
instrument with a
notional amount of $
250
million at September 30, 2022 and
five
instruments with an aggregate notional value of $
100
million at
December 31, 2021.
For derivatives designated and that qualify as cash flow hedges of interest rate
risk, the gain or loss on the derivative is recorded
in Accumulated Other Comprehensive Income (Loss) (“AOCI”) and subsequently reclassified into interest
income or expense in the
same period(s) during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be
reclassified to interest income and expense as interest payments are received
and made on the Company’s variable-rate assets and
liabilities. The derivative financial instruments did not impact the Condensed Consolidated
Statements of Income for the three-
and
nine-month periods ended September 30, 2022. The Company estimates that less than $
0.1
million will be reclassified as a decrease to
interest expense during the next twelve months.
The Company is hedging its exposure to the variability in future cash flows for forecasted
transactions over a maximum period of
6.6
years.
Non-designated Hedges
Derivatives not designated as hedges are not speculative and result from
a service provided to clients. The Company executes
interest rate swaps with customers to facilitate their respective risk management
strategies. Those interest rate swaps are simultaneously
hedged by offsetting derivatives that the Company executes with a third-party,
such that the Company minimizes its net risk exposure
resulting from such transactions. Interest rate derivatives associated
with this program do not meet the strict hedge accounting
requirements and changes in the fair value of both the customer derivatives
and the offsetting derivatives are recognized directly in
earnings.
Swap fees earned upon origination and credit valuation adjustments that represent
the risk of a counterparty’s default are reported
on the Consolidated Statements of Income as swap fee income, net. The effect of the
Company’s derivative financial instruments gain
(loss) is reported on the Consolidated Statements of Cash Flows within “other
assets” and “other liabilities”.
These
48
and
54
swaps had an aggregate notional amount of $
409
million and $
535
million at September 30, 2022 and December
31, 2021, respectively.
Notes to Condensed Consolidated Financial Statements
(unaudited)
38
Fair Values
of Derivative Instruments on the Consolidated Balance Sheets
The table below presents the fair value of the Company’s derivative financial
instruments and their classification on the
Consolidated Balance Sheets as of September 30, 2022 and December
31, 2021:
Asset Derivatives
Liability Derivatives
Balance Sheet
September 30,
December 31,
 
Balance Sheet
September 30,
December 31,
Location
2022
2021
Location
2022
2021
(Dollars in thousands)
Stock appreciation rightsInterest rate products:
Derivatives not
designated as hedging
instruments
Interest
receivable and
Other assets
$
9911,430
$
23611,305
Performance-based stock awardsInterest payable
211and other
(266)
Restricted stock units and awards
778
665
Employee stock purchase plan
27
14
Total stock-based compensationliabilities
$
1,11511,431
$
64911,322
Derivatives
designated as hedging
instruments
Other assets
-
3
Interest payable
and other
liabilities
6,891
565
Total
$
11,430
$
11,308
$
18,322
$
11,887
The table below presents the effect of cash flow hedge accounting on Accumulated Other Comprehensive Income
(Loss) for the
three-
and nine-months ended September 30, 2022. The Company had no cash flow hedges for
the nine-months ended September 30,
2021.
For the Three Months Ended
For the Nine Months Ended
September 30, 2022
September 30, 2022
Location of
Gain or (Loss)
Recognized
from
Accumulated
Other
Comprehensive
Income into
Income
Gain or
(Loss)
Recognized
in OCI on
Derivative
Gain or
(Loss)
Recognized
in OCI
Included
Component
Gain or
(Loss)
Recognized
in OCI
Excluded
Component
Gain or
(Loss)
Recognized
in OCI on
Derivative
Gain or
(Loss)
Recognized
in OCI
Included
Component
Gain or
(Loss)
Recognized
in OCI
Excluded
Component
(Dollars in thousands)
Derivatives in Cash Flow Hedging Relationships:
Interest Rate Products
Interest Income
$
(6,891)
$
(6,891)
$
-
$
(6,891)
$
(6,891)
$
-
Interest Rate Products
Interest expense
(185)
(185)
-
3,855
$
3,855
-
$
(7,076)
$
(7,076)
$
-
$
(3,036)
$
(3,036)
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
39
Performance-Based StockNote 6:
 
Awards (“PBSAs”)Time Deposits and Borrowings
The Company awards PBSAs to key officersscheduled maturities, excluding interest, of the Company. The performanceCompany’s borrowings at
 
-based shares typically cliff-vest at the end of
three years
based on attainment of certain performance metrics developed by the Compensation
Committee. The ultimate number of
shares issuable under each performance award is the product of the
award target and the award payout percentage given the level of
achievement. The award payout percentages by level of achievement range between
0
% of target and
150
% of target.
During the three-month period ended March 31,September 30, 2022 the Company
were as follows:
granted
66,667
PBSAs. The performance metrics include
three-year
cumulative, adjusted earnings per share and relative total shareholder return.
The following table summarizes the status
September 30, 2022
Within One
Year
One to Two
Years
Two to
Three Years
Three to
Four Years
Four to Five
Years
After Five
Years
Total
(Dollars in thousands)
Time deposits
$
487,378
$
244,594
$
673
$
1,722
$
15,804
$
-
$
750,171
FHLB borrowings
35,000
-
-
5,100
-
97,500
137,600
FHLB line of and changes in the performance-basedcredit
67,749
awards:
-
-
-
-
-
67,749
Trust preferred securities
(1)
-
-
-
-
-
1,048
1,048
$
590,127
$
244,594
$
673
$
6,822
$
15,804
$
98,548
$
956,568
Performance-Based Awards(1)
NumberThe contract value of Shares
Weighted-Average
Grant Date Fair Value
Unvested, January 1, 2022
98,352
the trust preferred securities is $
13.59
Granted
66,667
16.04
Vested
0
0
Forfeited
(24,944)
15.03
Unvested, March 31, 2022
140,075
$
14.50
Unrecognized stock-based compensation related to the performance
awards issued through March 31, 2022 was $
22.6
 
million and is
expected currently being accreted to be recognized overthe maturity date of 2035.
2.5
 
years.
Restricted Stock Units (“RSUs”) and Restricted Stock
Awards (“RSAs”)
The Company issues RSUs and RSAs to provide incentives to key officers,
employees, and nonemployee directors. Awards are
typically granted annually as determined by the Compensation Committee. The service-based
RSUs typically vest in equal amounts over
three years. The service-based RSAs typically cliff-vest after
one year
.
The following table summarizesNote 7:
Change in Accumulated Other Comprehensive (Loss) Income
Amounts reclassified from AOCI and the status of and changesaffected line items in the RSUs Condensed Consolidated Statements of Income
during the
three-
and RSAs:nine-month periods ended September 30, 2022 and 2021, were as follows:
Restricted Stock Units and AwardsThree Months Ended
Number of SharesNine Months Ended
Weighted-AverageSeptember 30,
Grant Date Fair ValueSeptember 30,
Unvested, January 1, Affected Line Item in the
2022
383,6302021
2022
2021
Statements of Income
(Dollars in thousands)
Unrealized gains (losses) on available-for-sale
securities
$
13.52
Granted
176,351
15.86
Vested
(137,224)
13.62
Forfeited
(10,441)
13.72
Unvested, March 31, 2022
412,316(4)
$
14.481,046
$
(43)
$
1,043
Gain (loss) on sale of available-
for-sale securities
Less: tax benefit effect
(1)
256
(11)
255
Income tax expense (benefit)
Net reclassified amount
$
(3)
$
790
$
(32)
$
788
Unrecognized stock-based compensation relatedNote 8:
Regulatory Matters
The Company and the Bank are subject to the RSUs and RSAs issued throughvarious regulatory capital requirements
 
March 31,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, 2022, was $
5
the Company and the Bank met all capital adequacy
 
million and is
expectedrequirements to be recognized over
2.3
years.which they are subject.
The capital rules require the Company to maintain a
2.5
% capital conservation buffer with respect to Common Equity Tier I
capital, Tier I capital to risk-weighted assets, and total capital to risk-weighted assets, which
is included in the column “Minimum
Capital Required - Basel III” within the table below. A financial institution with a conservation buffer of less than the required amount is
subject to limitations on capital distributions, including dividend payments and
stock repurchases, as well as certain discretionary bonus
payments to executive officers.
The Company and the Bank opted to exclude AOCI from the regulatory capital calculations. As a result, change in AOCI,
including the recent decrease in the available-for-sale securities portfolio, net
of tax, did not impact the Company’s or Bank’s regulatory
capital ratios.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
40
The Company’s and the Bank’s actual capital amounts and ratios as of September
30, 2022 and December 31, 2021 are presented
in the following table:
Actual
Minimum Capital
Required - Basel III
Required to be Considered
Well Capitalized
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
September 30, 2022
Total Capital to Risk-Weighted Assets
Consolidated
$
728,639
12.1
%
$
632,742
10.5
%
N/A
N/A
Bank
712,631
11.8
632,414
10.5
$
602,299
10.0
%
Tier I Capital to Risk-Weighted Assets
Consolidated
666,044
11.1
512,220
8.5
N/A
N/A
Bank
650,036
10.8
511,954
8.5
481,839
8.0
Common Equity Tier 1 to Risk-Weighted Assets
Consolidated
664,997
11.0
421,828
7.0
N/A
N/A
Bank
650,036
10.8
421,609
7.0
391,495
6.5
Tier I Capital to Average Assets
Consolidated
666,044
11.4
233,086
4.0
N/A
N/A
Bank
$
650,036
11.2
%
$
233,019
4.0
%
$
291,274
5.0
%
December 31, 2021
Total Capital to Risk-Weighted Assets
Consolidated
$
704,544
13.6
%
$
544,060
10.5
%
N/A
N/A
Bank
681,980
13.2
543,708
10.5
$
517,817
10.0
%
Tier I Capital to Risk-Weighted Assets
Consolidated
646,169
12.5
440,430
8.5
N/A
N/A
Bank
623,605
12.0
440,144
8.5
414,253
8.0
Common Equity Tier 1 to Risk-Weighted Assets
Consolidated
645,160
12.5
362,707
7.0
N/A
N/A
Bank
623,605
12.0
362,472
7.0
336,581
6.5
Tier I Capital to Average Assets
Consolidated
646,169
11.8
218,510
4.0
N/A
N/A
Bank
$
623,605
11.4
%
$
218,366
4.0
%
$
272,958
5.0
%
Note 9:
Stock-Based Compensation
The Company issues stock-based compensation in the form of non-vested
restricted stock, restricted stock units and stock
appreciation rights under the 2018 Omnibus Equity Incentive Plan (as amended,
the “Omnibus Plan”). The Omnibus Plan will expire on
the tenth anniversary of its effective date. In addition, the Company
has an Employee Stock Purchase Plan that was reinstated during the
third quarter of 2020. The aggregate number of shares authorized for future issuance under the
Omnibus Plan is
1,441,879
shares as of
September 30, 2022.
Notes to Condensed Consolidated Financial Statements
(unaudited)
41
The table below summarizes the stock-based compensation for the
three- and nine-month periods ended September 30, 2022 and
2021:
Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
(Dollars in thousands)
Stock appreciation rights
$
75
$
150
$
262
$
584
Performance-based stock awards
200
75
611
337
Restricted stock units and awards
763
895
2,336
2,394
Employee stock purchase plan
31
29
95
58
Total stock-based compensation
$
1,069
$
1,149
$
3,304
$
3,373
Performance-Based Restricted Stock Units
The Company awards performance-based restricted stock units (“PBRSUs”) to
key officers of the Company. The performance-
based shares typically cliff-vest at the end of
three years
based on attainment of certain performance metrics developed by the
Compensation Committee. The ultimate number of shares issuable under each performance
award is the product of the award target and
the award payout percentage given the level of achievement. The award payout percentages
by level of achievement range between
0
%
of target and
150
% of target.
During the nine-month period ended September 30, 2022, the Company
granted
66,667
PBRSUs. The performance metrics
include
three year
cumulative, adjusted earnings per share and relative total shareholder return.
The following table summarizes the status of and changes in the performance
-based awards:
Performance-Based Restricted
Stock Unit Awards
Number of Shares
Weighted-Average
Grant Date Fair Value
Unvested, January 1, 2022
98,352
$
13.59
Granted
66,667
16.04
Vested
-
-
Forfeited
(24,944)
15.03
Unvested, September 30, 2022
140,075
$
14.51
Unrecognized stock-based compensation related to the performance
awards issued through September 30, 2022 was $
1
million
and is expected to be recognized over
2.1
years.
Restricted Stock Units and Restricted Stock
Awards
The Company issues time-based restricted stock units (“RSUs”) and restricted
stock awards (“RSAs”) to provide incentives to
key officers, employees, and non-employee directors. Awards are typically granted annually as determined by
the Compensation
Committee. The service-based RSUs typically vest in equal amounts over three years. The service-based
RSAs typically cliff-vest after
one year
.
Notes to Condensed Consolidated Financial Statements
(unaudited)
42
The following table summarizes the status of and changes in the RSUs and RSAs:
Restricted Stock Units and Awards
Number of Shares
Weighted-Average
Grant Date Fair Value
Unvested, January 1, 2022
383,630
$
13.52
Granted
259,627
14.97
Vested
(197,536)
13.83
Forfeited
(35,612)
14.22
Unvested, September 30, 2022
410,109
$
14.22
Unrecognized stock-based compensation related to the RSUs and RSAs issued through
September 30, 2022 was $
4
million and is
expected to be recognized over
1.9
years.
Note 10:
 
Income Tax
An income tax expense reconciliation at the statutory rate to the Company’s actual
 
income tax expense is shown below:
Three Months Ended
March 31,Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
(Dollars in thousands)
Computed at the statutory rate (
21
%)
$
4,4134,555
$
3,1385,598
$
13,078
$
12,693
Increase (decrease) resulting from
Tax-exempt income
(854)(903)
(790)(828)
Nondeductible(2,647)
(2,830)
Non-deductible expenses
8272
5055
265
145
State income taxes
696740
496912
2,164
2,090
Equity based compensation
(169)(47)
14(40)
(201)
(157)
Other adjustments
20(7)
0(37)
(34)
(110)
Actual tax expense
$
4,1884,410
$
2,9085,660
$
12,625
$
11,831
Notes to Condensed Consolidated Financial Statements
(unaudited)
43
The tax effects of temporary differences related to deferred taxes shownlocated
 
in “other assets” on the Condensed Consolidated
Balance Sheets are presented below:
March 31,September 30, 2022
December 31, 2021
(Dollars in thousands)
Deferred tax assets
Net unrealized loss on securities available-for-sale
$
6,80827,374
$
0-
Allowance for credit losses
14,46715,067
14,051
Lease incentive
495467
508
Loan fees
3,1903,645
3,227
Accrued expenses
1,0732,438
2,735
Deferred compensation
1,6531,969
2,418
State tax credit
774-
1,033
Other
561495
2,057
Total deferred tax asset
29,02151,455
26,029
Deferred tax liability
 
 
Net unrealized gain on securities available-for-sale
0-
(6,967)
FHLB stock basis
(689)(735)
(757)
Premises and equipment
(2,470)(2,209)
(2,602)
Other
(969)(1,410)
(1,229)
Total deferred tax liability
(4,128)(4,354)
(11,555)
Net deferred tax asset
$
24,89347,101
$
14,474
Note 11:
 
Disclosures about Fair Value of Financial Instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability
 
in an orderly transaction between
market participants at the measurement date. Fair value measurements must maximize
 
maximize the use of observable inputs and minimize the use
of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair
 
value:
Level 1
 
Quoted prices in active markets for identical assets or liabilities.
Level 2
 
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted
 
prices in
markets that are not active; or other inputs that are observable or can be corroborated
 
by observable market data for
substantially the full term of the assets or liabilities.
Level 3
 
Unobservable inputs supported by little or no market activity and significant to
 
the fair value of the assets or liabilities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
4144
Recurring Measurements
The following list presents the assets and liabilities recognized in the accompanying
 
Condensed Consolidated Balance Sheets
measured at fair value on a recurring basis and the level within the fair value
 
hierarchy in which the fair value measurements fall at
March 31,September 30, 2022 and December 31, 2021:
 
Fair Value Description
Valuation
Hierarchy
Level
Where Fair
Value Balance
Can Be Found
Available-for-
Sale Securities and
CRA Equity Security
Where quoted market prices are available in an active market, securities are
classified within Level 1 of the valuation hierarchy. If quoted market prices
are not available, then fair values are estimated by using quoted prices
of
securities with similar characteristics or independent asset pricing services
and pricing models, the inputs of which are market-based or independently
sourced market parameters, including, but not limited to, yield curves,
interest rates, volatilities, prepayments, defaults, cumulative loss projections
and cash flows.
 
Level 2
Note 3:
Securities
 
Derivatives
Fair value of the interest rate swaps is obtained from independent pricing
services based on quoted market prices for similar derivative contracts.
Level 2
Note 5:
Derivatives and
Hedging
NonrecurringNon-recurring Measurements
The following tables present assets measured at fair value on a nonrecurringnon-recurring
 
basis and the level within the fair value hierarchy in
which the fair value measurements fall at March 31,September 30, 2022 and December
 
31, 2021:
March 31,September 30, 2022
Fair Value Measurements Using
Fair Value
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
(Dollars in thousands)
Collateral-dependent loans
$
22,90220,302
$
0-
$
0-
$
22,90220,302
Foreclosed assets held-for-sale
$
9731,588
$
0-
$
0-
$
9731,588
December 31, 2021
Fair Value Measurements Using
Fair Value
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
(Dollars in thousands)
Collateral-dependent impaired loans
$
38,046
$
0-
$
0-
$
38,046
Foreclosed assets held-for-sale
$
1,148
$
0-
$
0-
$
1,148
Following is a description of the valuation methodologies and inputs used for
 
assets measured at fair value on a nonrecurringnon-recurring
basis and recognized in the accompanying Condensed Consolidated Balance Sheets.
Collateral-Dependent Loans, Net of ACL
The estimated fair value of collateral-dependent loans is based on the appraised
 
fair value of the collateral, less estimated cost to
sell. If the fair value of the collateral is below the loan’s amortized cost, the ACL is netted against the loan balance. Collateral-dependent
loans are classified within Level 3 of the fair value hierarchy.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
4245
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.management. Appraisers are selected from the
list of approved
appraisers maintained by management. The appraised values are reduced
by discounts to
consider lack of marketability
and estimated
cost to sell if repayment or satisfaction of the loan is dependent on the
sale of the collateral. These discounts
and estimates
are developed
by the Office of the Chief Credit Officer by comparison to historical
results.
Foreclosed Assets Held-for-Sale
The fair value of foreclosed assets-held-for-sale is based on the appraised fair value of
 
the collateral, less estimated cost to sell.
Unobservable (Level 3) Inputs
The following tables present quantitative information about unobservable
 
inputs used in nonrecurringnon-recurring Level 3 fair value
measurements at March 31,September 30, 2022 and December 31, 2021:
March 31,September 30, 2022
Fair Value
Valuation Techniques
Unobservable
Inputs
Range
(Weighted Average)
(Dollars in thousands)
$
Market comparable
properties
Marketability
discount
 
4-
 
%
-
100
%
Collateral dependent loans
22,90220,302
(
821
)%
$
Market comparable
properties
Marketability
discount
Foreclosed assets held-for-sale
9731,588
(
1011
)%
December 31, 2021
Fair Value
Valuation Techniques
Unobservable
Inputs
Range
(Weighted Average)
(Dollars in thousands)
$
Market comparable
properties
Marketability
discount
7
%
-
100
%
Collateral-dependent impaired loans
38,046
(
26
)%
$
Market comparable
properties
Marketability
discount
Foreclosed assets held-for-sale
1,148
(
10
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
46
The following tables present the estimated fair values of the Company’s financial
instruments at September 30, 2022 and
December 31, 2021:
September 30, 2022
Carrying
Fair Value Measurements
Amount
Level 1
Level 2
Level 3
(Dollars in thousands)
Financial Assets
Cash and cash equivalents
$
309,135
$
309,135
$
-
$
-
Available-for-sale securities
656,527
-
656,527
-
Loans, net of allowance for credit losses
4,621,782
-
-
4,599,659
Restricted equity securities
9,277
-
-
9,277
Interest receivable
20,553
-
20,553
-
Equity securities
4,022
-
1,969
2,053
Derivative assets
11,430
-
11,430
-
$
5,632,726
$
309,135
$
690,479
$
4,610,989
Financial Liabilities
Deposits
$
4,987,515
$
1,113,934
$
-
$
3,731,781
Federal Home Loan Bank line of credit
67,749
-
67,749
-
Federal Home Loan Bank advances
137,600
-
130,684
-
Other borrowings
1,048
-
1,875
-
Interest payable
2,318
-
2,318
-
Derivative liabilities
18,322
-
18,322
-
$
5,214,552
$
1,113,934
$
220,948
$
3,731,781
December 31, 2021
Carrying
Fair Value Measurements
Amount
Level 1
Level 2
Level 3
(Dollars in thousands)
Financial Assets
Cash and cash equivalents
$
482,727
$
482,727
$
-
$
-
Available-for-sale securities
745,969
-
745,969
-
Loans, net of allowance for loan losses
4,197,838
-
-
4,178,268
Restricted equity securities
11,927
-
-
11,927
Interest receivable
16,023
-
16,023
-
Equity securities
2,642
-
2,209
433
Derivative assets
11,308
-
11,308
-
$
5,468,434
$
482,727
$
775,509
$
4,190,628
Financial Liabilities
Deposits
$
4,683,597
$
1,163,224
$
-
$
3,482,218
Federal Home Loan Bank advances
236,600
-
241,981
-
Other borrowings
1,009
-
2,318
-
Interest payable
1,336
-
1,336
-
Derivative liabilities
11,887
-
11,887
-
$
4,934,429
$
1,163,224
$
257,522
$
3,482,218
Notes to Condensed Consolidated Financial Statements
(unaudited)
47
Note 12:
Commitments and Credit Risk
Commitments
The Company had the following commitments at September 30, 2022
and December 31, 2021:
September 30, 2022
December 31, 2021
(Dollars in thousands)
Commitments to originate loans
$
353,783
$
118,651
Standby letters of credit
56,791
51,114
Lines of credit
2,288,742
1,768,231
Future lease commitments
-
11,100
Commitments related to investment fund
3,947
2,067
$
2,703,263
$
1,951,163
Note 13:
Legal and Regulatory Proceedings
We accrue estimates for resolution of any legal and other contingencies when
losses are probable and reasonably estimable in
accordance with ASC 450,
Contingencies
("ASC 450"). No less than quarterly, and as facts and circumstances change, we review
the
status of each significant matter underlying a legal proceeding or claim and
assess our potential financial exposure. The Company
establishes reserves for litigation-related matters when it is probable
that a loss associated with a claim or proceeding has been incurred
and the amount of the loss can be reasonably estimated. If the assessment indicates
that a potentially material loss contingency is not
probable, but is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an
estimate of the range of possible loss if determinable and material, would
be disclosed. Loss contingencies considered remote are
generally not disclosed unless they involve guarantees, in which case the nature
of the guarantee would be disclosed.
Significant
judgment is required in both the determination of probability and the determination
as to whether the amount of an exposure is
reasonably estimable, and accruals are based only on the information available
to our management at the time the judgment is made,
which may prove to be incomplete or inaccurate or unanticipated events
and circumstances may occur that might cause us to change
those estimates and assumptions. Furthermore, the outcome of legal proceedings
is inherently uncertain, and we may incur substantial
defense costs and expenses defending any of these matters. Should any one or
a combination of more than one of these proceedings be
successful, or should we determine to settle any one or a combination of these
matters, we may be required to pay substantial sums,
become subject to the entry of an injunction or be forced to change the manner in
which we operate our business, which could have a
material adverse impact on our business, results of operations, cash flows or financial
condition.
The Company is subject to various legal proceedings and claims that arise primarily
in the ordinary course of business. At this
time, we do not believe the range of potential losses will have a material adverse effect on the
consolidated financial position, results of
operations and cash flows of the Company.
Note 14:
Leases
The Company’s leases primarily include bank branches located in
Kansas City, Missouri; Tulsa, Oklahoma; Dallas, Texas; Frisco,
Texas; and Phoenix, Arizona. The remaining lease terms on these branch leases range from less than
one year
to
twenty years
with
certain options to renew. Renewal terms can extend the lease term between
five years
and
twenty years
. The exercise of lease renewal
options is at the Company’s sole discretion. When it is reasonably certain that the Company
will exercise its option to renew or extend
the lease term, that option is included in the estimated value of the right
of use (“ROU”) asset and lease liability. The Company’s lease
agreements do not contain any material residual value guarantees or material
restrictive covenants.
As of September 30, 2022, the
Company recognized one finance lease and the remaining Company
leases are classified as operating leases.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
4348
The following tables present the estimated fair values of the Company’s financial
instruments at March 31, 2022 and
December 31, 2021:
March 31, 2022
Carrying
Fair Value Measurements
Amount
Level 1
Level 2
Level 3
Total
(Dollars in thousands)
Financial Assets
Cash and cash equivalents
$
276,927
$
276,927
$
0
$
0
$
276,927
Available-for-sale securities
722,778
0
722,778
0
722,778
Loans, net of allowance for credit losses
4,294,337
0
0
4,284,841
4,284,841
Restricted equity securities
10,526
0
0
10,526
10,526
Interest receivable
16,933
0
16,933
0
16,933
Equity securities
3,222
0
2,112
1,110
3,222
Derivative assets
5,947
0
5,947
0
5,947
$
5,330,670
$
276,927
$
747,770
$
4,296,477
$
5,321,174
Financial Liabilities
Deposits
$
4,621,680
$
1,110,284
$
0
$
3,369,350
$
4,479,634
Federal Home Loan Bank advances
226,600
0
226,388
0
226,388
Other borrowings
1,022
0
2,230
0
2,230
Interest payable
1,196
0
1,196
0
1,196
Derivative liabilities
3,862
0
3,862
0
3,862
$
4,854,360
$
1,110,284
$
233,676
$
3,369,350
$
4,713,310
December 31, 2021
Carrying
Fair Value Measurements
Amount
Level 1
Level 2
Level 3
Total
(Dollars in thousands)
Financial Assets
Cash and cash equivalents
$
482,727
$
482,727
$
0
$
0
$
482,727
Available-for-sale securities
745,969
0
745,969
0
745,969
Loans, net of allowance for loan losses
4,197,838
0
0
4,178,268
4,178,268
Restricted equity securities
11,927
0
0
11,927
11,927
Interest receivable
16,023
0
16,023
0
16,023
Equity securities
2,642
0
2,209
433
2,642
Derivative assets
11,308
0
11,308
0
11,308
$
5,468,434
$
482,727
$
775,509
$
4,190,628
$
5,448,864
Financial Liabilities
Deposits
$
4,683,597
$
1,163,224
$
0
$
3,482,218
$
4,645,442
Federal Home Loan Bank advances
236,600
0
241,981
0
241,981
Other borrowings
1,009
0
2,318
0
2,318
Interest payable
1,336
0
1,336
0
1,336
Derivative liabilities
11,887
0
11,887
0
11,887
$
4,934,429
$
1,163,224
$
257,522
$
3,482,218
$
4,902,964
Notes to Condensed Consolidated Financial Statements
(unaudited)
44
Note 12:
Commitments and Credit Risk
Commitments
The Company had the following commitments at March 31, 2022
and December 31, 2021:
March 31, 2022
December 31, 2021
(Dollars in thousands)
Commitments to originate loans
$
226,902
$
118,651
Standby letters of credit
53,761
51,114
Lines of credit
1,876,281
1,768,231
Future lease commitments
11,100
11,100
Commitments related to investment fund
4,890
2,067
$
2,172,934
$
1,951,163
Note 13:
Legal and Regulatory Proceedings
General Litigation
The Company establishes reserves for litigation-related matters that arise in the
ordinary course of business activities when it is
probable that a loss associated with a claim or proceeding has been incurred
and the amount of the loss can be reasonably estimated. If
the assessment indicates that a potentially material loss contingency is not
probable, but is reasonably possible, or is probable but cannot
be estimated, then the nature of the contingent liability, together with an estimate
of the range of possible loss if determinable and
material, would be disclosed. Loss contingencies considered remote are generally
not disclosed unless they involve guarantees, in which
case the nature of the guarantee would be disclosed.
The Company is in preliminary settlement negotiations in connection
with a former employee’s departure. At this time, a range of
loss is not estimatable. The Company currently expects that a portion of any settlement
will be paid by the Company’s insurance
carriers.
The Company is subject to claims and lawsuits that arise primarily in the ordinary
course of business. It is the opinion of
management the disposition or ultimate resolution of such
claims and lawsuits will not have a material adverse effect on the
consolidated financial position, results of operations and cash flows of
the Company.
Note 14:
Leases
The Company’s operating leases primarily include bank branches located in
Kansas City, Missouri; Tulsa, Oklahoma; Dallas,
Texas; Frisco, Texas; and Phoenix, Arizona. The remaining lease terms range from
one year
to
twenty years
with certain options to
renew. Renewal terms can extend the lease term between
five years
and
twenty years
. The exercise of lease renewal options is at the
Company’s sole discretion. When it is reasonably certain that the Company will exercise its option
to renew or extend the lease term,
that option is included in the estimated value of the right of use (“ROU”) asset and lease liability. The
Company’s lease agreements do
not contain any material residual value guarantees or material restrictive covenants
.
As of March 31, 2022, the Company’s leases are
classified as operating leases.
Under ASC 842, a modified retrospective transition approach is required, applying the new standard to all leases existing at
 
at the
date of initial application. The Company chose to use the adoption date of January 1, 2022, for ASC 842. As such, all periods presented
after January 1, 2022, are under ASC 842 whereas periods presented prior to January 1, 2022, are in accordance with prior
 
with prior lease
accounting of ASC 840. Financial information was not updated, and the disclosures required under ASC 842 were not provided for dates
and periods before January 1, 2022.
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
45
The Company’s right to use an asset over the life of a lease is recorded as an ROU asset, is included
 
in other assets“Other assets” on the
Condensed Consolidated Balance Sheets and was $
2329
 
million at March 31,September 30, 2022. Certain adjustments to the ROU asset may be
required for items
such as initial direct costs paid or incentives received. The Company recordedlease liability
 
a lease liabilityis located in interest“Interest payable and other liabilities
liabilities” on
the Condensed Consolidated Balance Sheets of $
2632
 
million at March 31,September 30, 2022.
 
The Company was unable to determine the implicit rate in the leases and used the incremental borrowing
 
incremental borrowing rate instead. The
Company used the FHLB yield curve on the lease commencement date and
 
selected the rate closest to the remaining lease term. The
remaining weighted-average lease term is
10.512.3
 
years, and the weighted-average discount rate iswas
1.902.39
%. as of September 30, 2022.
The following table presents components of operating lease expense
 
in the accompanying consolidated statementsCondensed Consolidated Statements of income
Income for
the three-monthsthree- and nine-month periods ended March 31,September
30, 2022:
For the Three Months Ended
September 30, 2022
For the Nine Months Ended
March 31,
September 30, 2022
(Dollars in thousands)
Finance lease amortization of right-of-use asset
$
69
$
161
Finance lease interest on lease liability
69
115
Operating lease expense
$603
7261,932
Variable lease expense
213297
855
Short-term lease expense
5
15
Total lease expense
$
9441,043
$
3,078
Future minimum commitments due under these lease agreements as of March
 
31,September 30, 2022 are as follows:
Operating Leases
Finance Lease
(Dollars in thousands)
Remainder of 2022
$
2,305762
$
123
2023
3,1683,070
490
2024
2,8922,793
490
2025
2,9032,804
490
2026
2,9352,836
490
Thereafter
15,50915,243
8,823
Total lease payments
$
29,71227,508
$
10,906
Less imputed interest
4,0842,965
3,232
Total
$
25,62824,543
$
7,674
Supplemental cash flow information –
Operating cash flows paid for operating lease amounts included in the measurement
 
of
lease liabilities was $
7430.7
 
thousandmillion and $
2.2
million for the three monthsthree- and nine-months ended March 31, 2022.September 30, 2022, respectively. Operating
cash flows paid for finance lease amounts included in the measurement of
lease liabilities was $
0.1
million and $
0.2
million for the
three-
and nine-month periods ended September 30, 2022, respectively. During the three months ended
 
March 31,three- and nine-months ended September 30 2022, the
the Company did
0no
t record any ROU assets that were exchanged for operating lease liabilities.
Notes to Condensed Consolidated Financial Statements
(unaudited)
49
Note 15:
 
Stock Warrants
During the three-monthnine-month period ended March 31,September 30, 2022,
33,500
 
warrants were exercised at a strike price of $
5.00
 
per share and
33,500
 
common shares were issued.
The Company had
80,000
 
and
113,500
 
outstanding, fully vested warrants to purchase common stock at a strike price
 
of $
5.00
 
per
share as of March 31,September 30, 2022 and December 31, 2021, respectively.
 
The
80,000
 
warrants expire on April 26, 20232023.
Note 16:
Subsequent Events
On November 7, 2022, the Company announced its receipt of regulatory
approval from the Federal Deposit Insurance
Corporation to complete the previously announced acquisition of Central Bancorp,
Inc.’s (“Central”) bank subsidiary, Farmers &
Stockmens Bank (“F&S Bank”).
The Company and have a strike price
of $
5.00
Central expect to complete the merger during the fourth
 
per share.quarter of 2022 pending
satisfaction or waiver of customary closing conditions set forth in the agreement.
 
4650
ITEM 2. MANAGEMENT’S DISCUSSION AND
 
ANALYSIS OF FINANCIAL
 
CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
 
with the consolidated financial statements and related notes
and with the statistical information and financial data appearing in this report
 
as well as in the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2021 filed with the Securities and Exchange
 
Commission (“SEC”) on February 28, 2022 (the
“2021 Form 10-K”). Results of operations for the three-month periodthree-
 
and nine-month periods ended March 31,September 30, 2022 are not necessarily
indicative of results to
be attained for any other period. Certain statements in this report contain
 
contain forward-looking statements regarding
our plans, objectives,
beliefs, expectations, representations,
 
and projections.
 
See “Forward-Looking Information”
 
which is incorporated
herein by reference.
Actual results could differ materially from the anticipated results and other
expectations expressed in our forward-looking statements
because of several factors, including but not limited to those discussed in Item
1A – "Risk Factors" in the 2021 Form 10-K.
Unless we state otherwise or the context otherwise requires, references
below to “we,” “our,” “us,” “ourselves,” “our company,”
and the “Company” refer to CrossFirst Bankshares, Inc., and its consolidated
subsidiaries. References to “CrossFirst Bank” and the
“Bank” refer to CrossFirst Bank, our wholly owned consolidated bank
subsidiary.
FirstThird Quarter 2022 Highlights
During the firstthird quarter ended March 31,September 30, 2022, we accomplished
the following:
●•
$5.55.8 billion of assets with net income for the quarter ended March 31, 2022 of $16.8 million,5% operating revenue
(1)
 
an increase of $4.8 million or
40%growth compared to the firstsecond quarter of 2021;2022;
●•
Implemented CECL on January 1, 2022, with a combined allowance for credit losses (“ACL”) and ACL on off-balance sheet
credit exposures totaling $62$149 million or 1.45%3.3% of outstanding loanstotal loan growth from the previous quarter and
 
,
compared to $60$445 million or 1.38%10.5% loan growth from the same
quarter last year;
•
Continued improvement in credit quality during the third quarter of outstanding loans2022
as evidenced by the decrease in non-performing
assets to total assets ratio from 0.92% at March 31,September 30, 2021 to 0.31% at September
30, 2022;
●•
Return on Average Assets of 1.23%1.19% and a Return on Equity of 10.44% 11.18%
for the quarter ended March 31,September 30, 2022; and
●•
Net Interest Margin (Fully Tax-Equivalent) of 3.29%
(1)(2)
 
of 3.56% for the quarter ended March 31,September 30, 2022, compared to 3.01%
(1)
from3.23% for the
same quarter last year;
●
$93 million of loan growth from the previous quarter;
●
Book value per share of $12.53 at March 31, 2022 compared to $12.17
at March 31, 2021.year.
(1)
Net interest income plus non-interest income
(2)
The Company modified the yield calculation. Refer to the section “Update to Net Interest Margin Methodology” below for additional information.
Acquisition Update
As previously disclosed, during the second quarter of 2022 the Company entered
 
into an agreement to acquire Farmers &
Credit QualityStockmens Bank for approximately $75 million, subject to
the satisfaction or waiver of customary closing conditions. The Company
believes the acquisition will advance its expansion strategy with access to
Colorado and ImplementationNew Mexico while deploying a portion of the Current Expected Credit Loss (“CECL”) Methodology
Bank’s capital. The Company believes that the acquisition will increase core deposits and
enhance the Company’s SBA lending and
mortgage operations. The Company anticipates the acquisition will close
during the fourth quarter of 2022 with system integration
occurring in 2023. Refer to “Note 16: Subsequent Events” within the Notes
to Condensed Consolidated Financial Statements
(unaudited) for further information about the acquisition.
Interest Rate Risk Management
The Company implemented the CECL modelis monitoring interest rate sensitivity closely as of January 1, 2022. Refer to “Note 1: Nature of Operations$3.6
 
and Summarybillion or 62% of
Significant Accounting Policies” and “Note 4: Loans and Allowance for Credit Losses (“ACL”)” earning assets mature or reprice within the Notes
twelve-month period following September 30, 2022, including
$2.8 billion that reprices in the first month. $3.8 billion of interest-
bearing liabilities mature or reprice over the same twelve-month
period. The Company is reviewing additional options to Condensedmanage
Consolidated Financial Statements (unaudited) for details regarding
balance sheet sensitivity in the transition, including the impact to the financial statements. Theevent interest rates decline in early 2024.
CECL model compared to the incurred loss model may accelerate the provision for credit losses if the
Company’s loan portfolio
continues to grow. In addition, positive (negative) forward-looking
indicators may decrease (increase) the required provision for credit
losses.
Credit Quality
Credit quality metrics generally improved during the firstthird quarter of 2022
 
as classifiedof 2022. Classified loans decreased $5$8 million from the prior
quarter to $73$72 million
at March 31, 2022, including a $5 million decline in classified energySeptember 30, 2022. Non-performing assets declined
 
loans. Nonperforming assets increasedfrom $31 million at June 30, 2022 to $36$18 million or 0.64% ofat
total assets due primarily to a commercial loan that was placed on nonaccrual
during the three-month period ended March 31,September 30, 2022. Net
charge-offs for the three-month period
ended March 31,September 30, 2022 were $1$2 million,
or 0.10%0.16% of average loans. The Company currently
expects net charge-offs to average loans to remain in the range of 0.13%
to 0.15% for the remainder of 2022.
 
The Company continues to monitor the U.S. economic indicators, including
 
the inflation rate, commodity prices, interest rates,
and potential supply chain disruptions and the impact it may have on the
 
Company’s markets, clients, and prospects. The Company is
monitoring the impact of a rising interest rate environment on the commercial
real estate market and enterprise and leverage loans that is
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
47
monitoring the impact of a rising interest rate environment on the commercial
real estate market and enterprise and leverage loans that is51
currently mitigated by low debt-to-equity ratios.
 
As of March 31,September 30, 2022, the Company did not identify any systemic issues within its
loan portfolio that would significantly affect the credit quality of the loan portfolio.
 
Update to Net Interest Margin Methodology
The Company modified the yield calculation on the available-for-sale security
 
security portfolio to better conform to peer disclosures.
Alldisclosures in
the first quarter of 2022. All earning-asset yields and net interest margins presented were retroactively updated
 
updated for the change in
methodology. The following
changes were made:
◾
The average unrealized gain (loss) on available-for-sale securities balance was removed
 
from the security lines and placed in
other non-interest earning assets.
◾
The annualization method was changed from Actual/Actual to 30/360 for the security yields.
Impact to Yield
March 31,
December 31,
September 30,
June 30,
March 31,
Lines Impacted
2022
2021
2021
2021
2021
Previous calculation
Yield on securities - taxable
2.20
%
2.11
%
1.96
%
1.96
%
1.71
%
Yield on securities - tax-exempt
(1)
3.31
3.17
3.20
3.34
3.43
Total securities yield
(1)
3.00
2.89
2.87
2.93
2.89
Yield on interest-earning assets
(1)
3.64
3.70
3.62
3.57
3.50
Net interest spread
(1)
3.25
3.22
3.16
3.08
2.94
Net interest margin
(1)
3.29
3.28
3.20
3.12
3.00
As calculated going forward
Yield on securities - taxable
2.15
2.14
2.01
1.99
1.73
Yield on securities - tax-exempt
(1)
3.35
3.35
3.43
3.54
3.61
Total securities yield
(1)
3.00
3.02
3.04
3.07
3.01
Yield on interest-earning assets
(1)
3.64
3.72
3.64
3.59
3.52
Net interest spread
(1)
3.25
3.24
3.18
3.10
2.96
Net interest margin
(1)
3.29
3.30
3.23
3.14
3.01
Change
Yield on securities - taxable
(0.05)
0.03
0.05
0.03
0.02
Yield on securities - tax-exempt
(1)
0.04
0.18
0.23
0.20
0.18
Total securities yield
(1)
-
0.13
0.17
0.14
0.12
Yield on interest-earning assets
(1)
-
0.02
0.02
0.02
0.02
Net interest spread
(1)
-
0.02
0.02
0.02
0.02
Net interest margin
(1)
-
%
0.02
%
0.03
%
0.02
%
0.01
%
(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%.
The Company believes the new calculation provides better insight into
 
why the security yields and net interest margin changed
period-to-period.
 
Impact to Yield
For the Quarter Ended
For the Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
Lines Impacted
2022
2022
2022
2021
2021
2022
2021
Previous calculation
Yield on securities - taxable
2.50
%
2.77
%
2.20
%
2.11
%
1.96
%
2.41
%
1.87
%
Yield on securities - tax-exempt
(1)
3.64
3.46
3.31
3.17
3.20
3.51
3.32
Total securities yield
(1)
3.33
3.29
3.00
2.89
2.87
3.20
2.90
Yield on interest-earning assets
(1)
4.73
4.01
3.64
3.70
3.62
4.14
3.56
Net interest spread
(1)
3.50
3.51
3.25
3.22
3.16
3.42
3.06
Net interest margin
(1)
3.60
3.55
3.29
3.28
3.20
3.48
3.10
As calculated going forward
Yield on securities - taxable
2.32
2.35
2.15
2.14
2.01
2.28
1.91
Yield on securities - tax-exempt
(1)
3.37
3.36
3.35
3.35
3.43
3.36
3.52
Total securities yield
(1)
3.07
3.07
3.00
3.02
3.04
3.05
3.04
Yield on interest-earning assets
(1)
4.68
3.98
3.64
3.72
3.64
4.11
3.58
Net interest spread
(1)
3.45
3.48
3.25
3.24
3.18
3.39
3.08
Net interest margin
(1)
3.56
3.52
3.29
3.30
3.23
3.46
3.12
Change
Yield on securities - taxable
(0.18)
(0.42)
(0.05)
0.03
0.05
(0.13)
0.04
Yield on securities - tax-exempt
(1)
(0.27)
(0.10)
0.04
0.18
0.23
(0.15)
0.20
Total securities yield
(1)
(0.26)
(0.22)
-
0.13
0.17
(0.15)
0.14
Yield on interest-earning assets
(1)
(0.05)
(0.03)
-
0.02
0.02
(0.03)
0.02
Net interest spread
(1)
(0.05)
(0.03)
-
0.02
0.02
(0.03)
0.02
Net interest margin
(1)
(0.04)
%
(0.03)
%
-
%
0.02
%
0.03
%
(0.02)
%
0.02
%
(1)
Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are
exempt from Federal income taxes. The
incremental tax rate used is 21.0%.
Update to Customer Concentrations
As of September 30, 2022, the Company’s
top 20 customer relationships represented approximately 24% or $1.2
billion of total
deposits. The Company believes that there are sufficient
funding sources, including on-balance sheet liquid assets and wholesale deposit
options, so that an immediate reduction in these deposit balances would
not be expected to have a material, detrimental effect on the COVID-19 Global Pandemic (“COVID-19”) Impact
The COVID-19 pandemic has caused, and may continue to cause, economicCompany’s financial position
 
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 is provided below.
Paycheck Protection Program (“PPP”) Lending Facility and Loans
The PPP was established by the 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 Consolidatedor operations.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
48
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 following table summarizes the impact of the PPP loans on our financials:
As of or for the Three Months Ended
March 31,
2022
2021
(Dollars in thousands)
PPP Loan
Activity
Outstanding loan balance, beginning
$
64,805
$
292,230
Loan increases
-
110,962
Loan payoffs
(33,487)
(66,837)
Outstanding loan balance, end
$
31,318
$
336,355
PPP Loan Fee Activity
Unearned fee balance, beginning
$
1,683
$
4,189
Unearned fees added
-
4,105
Earned fees recognized
(876)
(2,415)
Unearned fee balance, end
$
808
$
5,879
Update to Customer and Industry Concentrations
As of March 31, 2022, the Company’s
top 20 customer relationships, represented approximately 28% or $1.
3
billion of total
deposits. The Company believes that there are sufficient funding
sources, including on-balance sheet liquid assets and wholesale deposit
options, so that an immediate reduction in these deposit balances would
not be expected to have a material, detrimental effect on the
Company’s financial position
or operations.
For the three-month period ended March 31, 2022, approximately 68%
of credit card interchange income came from customers
that mobilized their workforce directly impacted by the COVID-19
pandemic. We currently
anticipate the concentration to decline over
the remainder of 2022 as we grow the Company’s
credit card business.
52
Performance Measures
As of or For the Quarter Ended
March 31,
December 31,As of or For the Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
2022
2022
2022
2021
2021
20212022
2021
(Dollars in thousands, except per share data)
Return on average assets
(1)
1.19
%
1.12
%
1.23
%
1.50
%
1.54
%
1.101.18
%
0.841.16
%
Return on average equity
(1)
11.18
%
10.15
%
10.44
%
12.57
%
12.92
%
9.8610.59
%
7.8010.24
%
Earnings per share
$
0.35
$
0.31
$
0.33
$
0.41
$
0.41
$
0.301.00
$
0.230.95
Diluted earnings per share
$
0.35
$
0.31
$
0.33
$
0.40
$
0.41
$
0.300.99
$
0.230.93
Efficiency
(2)
53.20
%
57.36
%
57.57
%
55.38
%
59.06
%
53.6155.97
%
50.4154.18
%
Ratio of equity to assets
9.93
%
10.65
%
11.29
%
11.88
%
12.08
%
12.009.93
%
10.4812.08
%
(1)
 
Interim periods annualized
(2)
 
We calculate efficiency ratio as noninterestnon-interest expense
 
divided by the sum of net interest income and noninterest
 
non-interest income.
49
Results of Operations
Net Interest Income
Net interest income is presented on a tax-equivalent basis below. APresentation
on a tax-equivalent basis makesreflects all income as taxable at the same
rate. For example, $100
of
tax-exempt income would be presented as $126.58,$121.00, which represents the
 
antax-exempt income amount that, if taxedplus the tax at the statutory federal income
tax rate of 21% would yield $100.. We
believe a tax-equivalenttax-
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,
 
JuneSeptember 30,
 
March 31,September 30,
 
2022
2022
2022
2021
2021
20212022
2021
Yield on securities - tax-equivalent
(1)
3.07
%
3.07
%
3.00
%
3.02
%
3.04
%
3.073.05
%
3.013.04
%
Yield on loans
5.08
4.28
4.00
4.17
4.00
3.994.47
3.943.98
Yield on earning assets - tax-equivalent
(1)
4.68
3.98
3.64
3.72
3.64
3.594.11
3.523.58
Cost of interest-bearing deposits
1.56
0.56
0.41
0.43
0.47
0.500.87
0.570.51
Cost of total deposits
1.20
0.42
0.31
0.33
0.38
0.410.66
0.480.42
Cost of FHLB and short-term borrowings
2.18
1.66
1.95
3.03
1.82
1.791.87
1.791.80
Cost of funds
1.23
0.50
0.39
0.48
0.46
0.490.72
0.560.50
Net interest margin - tax-equivalent
(1)
3.56
%
3.52
%
3.29
%
3.30
%
3.23
%
3.143.46
%
3.013.12
%
(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
50
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
March 31, 2022
March 31, 2021
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
$
220,802
$
1,188
2.15
%
$
211,646
$
916
1.73
%
Securities - tax-exempt
(1)
533,674
4,467
3.35
449,925
4,055
3.61
Interest-bearing deposits in other banks
309,948
152
0.20
452,305
128
0.11
Gross loans, net of unearned income
(2)(3)
4,332,831
42,728
4.00
4,506,843
43,758
3.94
Total interest-earning assets
(1)
5,397,255
$
48,535
3.64
%
5,620,719
$
48,857
3.52
%
Allowance for credit losses
(57,922)
(78,371)
Other non-interest-earning assets
224,405
255,819
Total assets
$
5,563,738
$
5,798,167
Interest-bearing liabilities
Transaction deposits
$
585,990
$
222
0.15
%
$
716,763
$
364
0.21
%
Savings and money market deposits
2,302,552
1,847
0.33
2,421,765
2,388
0.40
Time deposits
587,452
1,442
1.00
972,006
2,976
1.24
Total interest-bearing deposits
3,475,994
3,511
0.41
4,110,534
5,728
0.57
FHLB and short-term borrowings
231,156
1,109
1.95
290,187
1,284
1.79
Trust preferred securities, net of fair value adjustments
1,012
25
10.25
965
24
9.96
Non-interest-bearing deposits
1,157,387
-
-
731,472
-
-
Cost of funds
4,865,549
$
4,645
0.39
%
5,133,158
$
7,036
0.56
%
Other liabilities
44,442
39,134
Stockholders’ equity
653,747
625,875
Total liabilities and stockholders’ equity
$
5,563,738
$
5,798,167
Net interest income - tax-equivalent
(1)
$
43,890
$
41,821
Net interest spread - tax-equivalent
(1)
3.25
%
2.96
%
Net interest margin - tax-equivalent
(1)
3.29
%
3.01
%
(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 $33 million and $63 million as of March 31, 2022 and 2021, respectively.
(3)
Loan interest income includes loan fees of $4 million and $4 million for the three months ended March 31, 2022 and 2021, 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.
51
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
March 31, 2022 over 2021
Average Volume
Yield/Rate
Net Change
(2)
(Dollars in thousands)
Interest Income
Securities - taxable
$
41
$
231
$
272
Securities - tax-exempt
(1)
716
(304)
412
Interest-bearing deposits in other banks
(49)
73
24
Gross loans, net of unearned income
(1,708)
678
(1,030)
Total interest income
(1)
$
(1,000)
$
678
$
(322)
Interest Expense
Transaction deposits
$
(59)
$
(83)
$
(142)
Savings and money market deposits
(113)
(428)
(541)
Time deposits
(1,022)
(512)
(1,534)
Total interest-bearing deposits
(1,194)
(1,023)
(2,217)
FHLB and short-term borrowings
(277)
102
(175)
Trust preferred securities, net of fair value adjustments
1
-
1
Total interest expense
(1,470)
(921)
(2,391)
Net interest income
(1)
$
470
$
1,599
$
2,069
(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-month period ended
March 31, 2022 compared to the same period in 2021
driven by lower average loans outstanding and a $1.5 million reduction
of PPP fee income. Average earning assets decreased $223
million or 4% from the same quarter in 2021, which included a $269 million or
86% decrease in average PPP loans.
Interest expense
- Interest expense declined for the three-month period ended
March 31, 2022 compared to the same period in 2021 as
$385 million in higher-rate time deposits matured
that decreased the cost of time deposits by 24 basis points.
Average interest-bearing
deposits decreased $635 million or 15% to $3.5 billion in the first quarter of
2022 from the same prior year period, partially offset by a
$426 million or 58% increase in non-interest-bearing deposits. The
change in deposit mix improved the overall cost of funds.
Net interest income
- Net interest income increased for the three-month period ended
March 31, 2022
compared to the same period in
2021 driven by rate and volume declines in interest-bearing liabilities. The Company currently
anticipates net interest margin to increase
for the remainder of 2022 because of the Company’s variable-rate
assets and the rising rate environment, although deposit migration and
remaining pressure on loan pricing will be headwinds.
Impact of Transition Away from LIBOR
The Company had $1.0
billion in loans tied to LIBOR at March 31, 2022. Starting in October 2021, the Company
began limiting
loans originated using the LIBOR index. For current borrowers, the Company
is modifying loan document language to account for the
transition away from LIBOR as loans renew or originate. The Company plans to
replace LIBOR-based loans with the Secured
Overnight Financing Rate (“SOFR”). At March 31, 2022, the Company had
$322 million in loans tied to SOFR. The Company adopted
Accounting Standards Update (“ASU”) 2020-04 “Reference Rate Reform
(Topic 848): Facilitation of the Effects of Reference Rate
Reform on Financial Reporting” in 2020. The ASU allows the Company to recognize the modification related to LIBOR as a
52
continuation of the old contract, rather than a cancellation of the old contract
resulting in a write-off of unamortized fees and creation of
a new contract.
Non-Interest Income (Expense)
For the Quarter Ended
March 31,
December 31,
September 30,
June 30,
March 31,
2022
2021
2021
2021
2021
(Dollars in thousands)
Total non-interest income (expense)
$
4,942
$
4,796
$
(1,105)
$
5,825
$
4,144
Non-interest income (expense) to average
assets
(1)
0.36
%
0.34
%
(0.08)
%
0.41
%
0.29
%
(1)
Interim periods annualized.
The components of non-interest income were as follows for the periods shown:
Three Months Ended
March 31,
Change
2022
2021
$
%
(Dollars in thousands)
Service charges and fees on customer accounts
$
1,408
$
957
$
451
47
%
Realized gains (losses) on available-for-sale securities
(26)
10
(36)
(360)
Unrealized gains (losses), net on equity securities
(103)
(39)
(64)
164
Income from bank-owned life insurance
388
416
(28)
(7)
Swap fees and credit valuation adjustments, net
118
155
(37)
(24)
ATM and credit card interchange income
2,664
2,328
336
14
Other non-interest income
493
317
176
56
Total non-interest income
$
4,942
$
4,144
$
798
19
%
The changes in non-interest income were driven primarily by the following:
Service charges and fees on customer accounts
- This category includes account analysis fees offset by a customer rebate program.
The increase for the quarter ended March 31, 2022 compared to the corresponding
period in 2021 was driven by a $431 thousand
increase in account analysis fees due to customer growth and an increase
in outstanding balances.
ATM and credit card interchange income
- The increase in ATM and credit card interchange income for the quarter ended March 31,
2022 compared to the same period in 2021 was primarily the result of customer growth.
For the three-month period ended March 31, 2022, approximately 68% of credit
card interchange income came from customers that
mobilized their workforce directly impacted by the COVID-19
pandemic. The Company anticipates a portion of credit card activity and
related income will continue to fluctuate in connection with changes in COVID-19
cases and demand for a temporary, mobilized
workforce.
Other non-interest income
- The increase in other non-interest income for the quarter ended March 31, 2022
compared to the same
period in 2021 was primarily related to $126 thousand in state employment incentives
received during 2022. We expect to continue to
receive the incentives quarterly going forward for three years, but at significantly
lower amounts. The Company also saw a $53
thousand increase in foreign exchange fees for the quarter ended March 31,
2022 compared to the same period in 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
53
Non-Interest ExpenseThe following tables present, for the periods indicated, average balance
sheet information, interest income, interest expense and the corresponding
average yield and rates
For the Quarter Ended
March 31,paid:
 
December 31,
Three Months Ended
September 30,
June 30,
March 31,
2022
September 30, 2021
2021Average Balance
2021Interest Income
2021/ Expense
Average Yield /
Rate
(1)
Average Balance
Interest Income
/ Expense
Average Yield /
Rate
(1)
(Dollars in thousands)
Total non-interest expenseInterest-earning assets:
Securities - taxable
$
27,666213,775
$
26,7151,241
2.32
%
$
24,036191,636
$
25,813964
2.01
%
Securities - tax-exempt
(2)
560,541
4,725
3.37
502,107
4,310
3.43
Interest-bearing deposits in other banks
231,345
1,193
2.05
313,188
121
0.15
Gross loans, net of unearned income
(3)(4)
4,626,684
59,211
5.08
4,230,553
42,664
4.00
Total interest-earning assets
(2)
5,632,345
$
22,81866,370
Non-interest expense to average assets
(1)
2.024.68
%
1.935,237,484
$
48,059
3.64
%
1.76Allowance for credit losses
(56,995)
(75,103)
Other non-interest-earning assets
188,997
246,603
Total assets
$
5,764,347
$
5,408,984
Interest-bearing liabilities
Transaction deposits
$
531,999
$
1,539
1.95
%
1.82$
510,823
$
259
0.20
%
1.60Savings and money market deposits
2,519,574
10,568
1.66
2,276,436
1,907
0.33
Time deposits
733,607
2,802
1.52
752,012
2,045
1.08
Total interest-bearing deposits
3,785,180
14,909
1.56
3,539,271
4,211
0.47
FHLB and short-term borrowings
165,196
907
2.18
278,154
1,275
1.82
Trust preferred securities, net of fair value
adjustments
1,037
39
14.58
988
24
9.63
Non-interest-bearing deposits
1,137,626
-
-
909,750
-
-
Cost of funds
5,089,039
$
15,855
1.23
%
4,728,163
$
5,510
0.46
%
Other liabilities
62,102
36,106
Stockholders’ equity
613,206
644,715
Total liabilities and stockholders’ equity
$
5,764,347
$
5,408,984
Net interest income - tax-equivalent
(2)
$
50,515
$
42,549
Net interest spread - tax-equivalent
(2)
3.46
%
3.18
%
Net interest margin - tax-equivalent
(2)
3.56
%
3.23
%
(1)
Interim periods annualized.
The components of non-interest expense were as follows for the periods
indicated:
Quarter Ended
March 31,
Change
2022
2021
$
%
(Dollars in thousands)
Salary and employee benefits
$
17,941
$
13,553
$
4,388
32
%
Occupancy
2,493
2,494
(1)
-
Professional fees
805
782
23
3
Deposit insurance premiums
737
1,151
(414)
(36)
Data processing
812
716
96
13
Advertising
692
303
389
128
Software and communication
1,270
1,065
205
19
Foreclosed assets, net
(53)
50
(103)
(206)
Other non-interest expense
2,969
2,704
265
10
Total non-interest expense
$
27,666
$
22,818
$
4,848
21
%
The changes in non-interest expense were driven primarily by the following:
Salary and Employee Benefits
- Salary and employee benefit costs increased for the quarter ended
March 31, 2022 compared to the
same period in 2021 primarily due to the impact of continued hiring for production talent
in a very competitive environment, annual
merit increases, increased stock-based compensation costs due to
improved, expected payouts on performance-based awards, and higher
taxes and benefits due to incentive payouts.
Deposit Insurance Premiums
- The FDIC uses a risk-based premium systemActual unrounded values are used to calculate the quarterly fee. Our premium costsreported yield or rate. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same amounts.
decreased(2)
Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal income taxes. The incremental tax rate used is 21.0%.
(3)
Loans, net of unearned income include non-accrual loans of $17 million and $48 million as of September 30, 2022 and 2021, respectively.
(4)
Loan interest income includes loan fees of $3 million and $4 million for the quarterthree months ended March 31,September 30, 2022 compared to the same period
inand 2021, as a result of asset balance changes, changes in
asset quality and changes in capital ratios. We currently anticipate deposit insurance
premiums will increase over the next quarter
because of expected loan growth and the common stock repurchase
program.
Advertising
- The increase in advertising costs was driven by increased in-person events for the
quarter ended March 31, 2022
compared to the same quarter in 2021 because of COVID-19 pandemic
restrictions being lifted.
Software and Communication
- The increase was driven by our continued strategy to invest in technologies that allow us to
cover
beginning-to-end loan originations, provide customers with a suite of online tools
and analyze operational trends. In addition to the
growing number of technologies implemented, a portion of the increase
in costs was due to our growth. We currently anticipate our
software and communication costs to continue to increase in 2022 as we continue
adding and implementing new software products that
improve our customer’s experience.
Other Non-interest Expense
- Other non-interest expense increased for the quarter ended March 31, 2022
compared to the same period
in 2021 primarily due to an increase in commercial card costs as a result of our growing
customer base and increased use as a result of
the COVID-19 pandemic. In addition, insured cash sweep deposits increased
in 2022 from 2021, which drove related fees higher and the
Company’s travel costs increased as COVID-19 restrictions have eased. The increase
was partially offset by a recovery from a
previously expensed fraud claim.respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
54
Income Taxes
For the Quarter Ended
March 31,
December 31,
September 30,
June 30,
March 31,
2022
2021
2021
2021
2021
(Dollars in thousands)
Income tax expense
$
4,188
$
5,725
$
5,660
$
3,263
$
2,908
Income before income taxes
21,016
26,526
26,660
18,840
14,943
Effective tax rate
20
%
22
%
21
%
17
%
19
%
Our income tax expense differs from the amount that would be calculated
using the federal statutory tax rate, primarily from
investments in tax advantaged assets, including bank-owned life insurance
and tax-exempt municipal securities;
state tax credits;
and
permanent tax differences from equity-based compensation. Refer to “Note
10: Income Tax” within the Notes to Condensed
Consolidated Financial Statements (unaudited) for a reconciliation of
the statutory rate to the Company’s actual
income tax expense.
During the three-month period ended March 31, 2022, the Company’s
effective tax rate benefited from permanent tax differences
related to stock-compensation awards that vested during
the first quarter of 2022 and tax-exempt interest. 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 currently anticipate the Company’s effective tax rate to remain within
the 20% to 23% range in the near term.
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 March 31, 2022, available-for-sale investments totaled $723 million, a decrease
of $23 million
from December 31, 2021.
The decline in the securities portfolio was driven by a $59 million decline in the unrealized
gain (loss) on AFS securities. The
decline was partially offset by the purchase of $22 million in tax-exempt
municipal securities and $26 million in mortgage-backed
securities. The Company currently anticipates continuing to grow the securities
portfolio in proportion to the growth of the balance
sheet. For additional information, see “Note 3: Securities” in the Notes to
Condensed Consolidated Financial Statements (unaudited).
55
Loan Portfolio
Refer to “Note 4: Loans and Allowance for Credit Losses (“ACL”)” within the Notes to Condensed Consolidated Financial Statements (unaudited)
for additional
information regarding the Company’s loan portfolio. As of March 31, 2022, gross loans increased $93 million or
2% from December 31, 2021 and was driven by the following:
Commercial
- The $41 million or 5% decline in commercial loans was driven by $34 million of PPP forgiveness,
as well as, commercial loan paydowns.
Commercial lines of credit
- The $61 million or 10% increase in commercial lines of credit was driven by loan originations
and drawdowns in excess of loan paydowns.
Energy
- Our energy portfolio decreased $7 million or 3% from December 31,
2021 primarily due to paydowns on outstanding lines of credit.
Commercial Real Estate
- The $97 million or 8% increase was driven by strong originations and customer
drawdowns on lines of credit primarily for commercial projects.
The following table shows the contractual maturities of our gross loans and
sensitivity to interest rate changes:
As of March 31, 2022
Due in One Year or Less
Due in One Year through
Five Years
Due in Five Year through
Fifteen Years
Due after Fifteen Years
Fixed Rate
Adjustable
Rate
Fixed Rate
Adjustable
Rate
Fixed Rate
Adjustable
Rate
Fixed Rate
Adjustable
Rate
Total
(Dollars in thousands)
Commercial
$
17,593
$
32,254
$
287,935
$
305,912
$
42,807
$
98,726
$
20,000
$
-
$
805,227
Commercial lines of credit
28,508
292,359
14,886
316,691
11,636
17,012
-
-
681,092
Energy
39
69,129
10,614
192,037
-
-
-
-
271,819
Commercial real estate
55,607
157,631
336,844
471,575
144,706
198,154
-
14,013
1,378,530
Construction and land
development
14,676
73,954
35,785
373,212
9,244
25,531
2,587
32,488
567,477
Residential real estate
2,585
990
15,081
1,331
86,011
2,642
272
256,932
365,844
Multifamily real estate
8,459
65,485
54,163
101,382
6,142
7,877
-
-
243,508
Consumer
5,203
16,213
2,540
3,694
-
19,316
-
2,359
49,325
Total
$
132,670
$
708,015
$
757,848
$
1,765,834
$
300,546
$
369,258
$
22,859
$
305,792
$
4,362,822
Provision and Allowance for
Credit Losses
(“ACL”)
On January 1, 2022, the Company adopted ASU 2016-13, Financial Instruments-Credit Losses. Refer to “Note
1: Nature of Operations and Summary of Significant
Accounting Policies” and “Note 4: Loans and Allowance for Credit Losses (“ACL”)” within the Notes to Condensed
Consolidated Financial Statements (unaudited) for information
regarding the Company’s ACL implementation and the ACL
process.
The ACL at March 31, 2022 represents our best estimate of the expected credit losses in the Company’s loan portfolio and off-balance
sheet commitments, measured over the
contractual life of the underlying instrument.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5654
March 31,Nine Months Ended
September 30, 2022
December 31, 2021
September 30, 2021
June 30, 2021Average Balance
March 31, 2021Interest Income
/ Expense
Average Yield /
Rate
(1)
Average Balance
Interest Income
/ Expense
Average Yield /
Rate
(1)
(Dollars in thousands)
Provision for credit lossesInterest-earning assets:
(1)
Securities - loanstaxable
$
(316)218,421
$
(5,000)3,728
2.28
%
$
(10,000)203,633
$
3,5002,911
1.91
%
Securities - tax-exempt
(2)
549,490
13,845
3.36
476,980
12,596
3.52
Interest-bearing deposits in other banks
246,213
1,714
0.93
390,588
359
0.12
Gross loans, net of unearned income
(3)(4)
4,466,887
149,266
4.47
4,381,213
130,268
3.98
Total interest-earning assets
(2)
5,481,011
$
7,500168,553
Provision for credit losses4.11
(1)%
- off-balance sheet5,452,414
(309)$
N/A146,134
N/A3.58
N/A
N/A%
Allowance for credit losses
(2)(57,213)
- loans(76,726)
55,231Other non-interest-earning assets
58,375201,519
64,152249,816
75,493
74,551
Allowance for credit losses
(2)
- off-balance sheet
4,875
N/A
N/A
N/A
N/A
Net charge-offsTotal assets
$
1,0815,625,317
$
7775,625,504
Interest-bearing liabilities
Transaction deposits
$
1,341541,933
$
2,5582,134
$
8,244
(1)
Prior to March 31, 2022, this line represents the provision for loan losses
(2)
Prior to March 31, 2022, this line represents the allowance for loan losses
January 1, 2022, the adoption date, is presented below instead of December
31, 2021 for comparability purposes. The allocation in one portfolio segment does not
preclude its
availability to absorb losses in other segments. The table below presents the allocation of
the allowance for credit losses as of the dates indicated:
March 31, 2022
January 1, 2022
ACL
Amount
Percent of
ACL to
Total ACL
Percent of
Loans to
Total Loans
ACL
Amount
Percent of
ACL to
Total ACL
Percent of
Loans to
Total Loans
Loans
Off-
Balance
Sheet
Total
Loans
Off-
Balance
Sheet
Total
(Dollars in thousands)
Commercial
$
9,981
$
66
$
10,047
17
%
180.89
%
$
10,139629,959
$
107936
0.20
%
Savings and money market deposits
2,386,205
15,285
0.86
2,360,559
6,402
0.36
Time deposits
627,458
5,733
1.22
863,592
7,451
1.15
Total interest-bearing deposits
3,555,596
23,152
0.87
3,854,110
14,789
0.51
FHLB and short-term borrowings
241,897
3,385
1.87
285,371
3,841
1.80
Trust preferred securities, net of fair value
adjustments
1,024
94
12.29
976
72
9.80
Non-interest-bearing deposits
1,148,150
-
-
814,924
-
-
Cost of funds
4,946,667
$
10,24626,631
170.72
%
204,955,381
$
18,702
0.50
%
Commercial lines of creditOther liabilities
9,36151,634
15335,385
9,514Stockholders’ equity
16627,016
16
8,866
44
8,910
14
14
Energy
7,507
258
7,765
13
6
9,190
265
9,455
15
7
Commercial real estate
18,628
753
19,381
32
32
18,933
711
19,644
32
30
Construction and land
development
3,678
3,514
7,192
12
13
3,666
3,914
7,580
12
14
Residential real estate
3,089
4
3,093
5
8
3,046
5
3,051
5
8
Multifamily real estate
2,342
116
2,458
4
6
2,465
137
2,602
4
6
Consumer
645
11
656
1
1
323
1
324
1
1634,738
Total liabilities and stockholders’ equity
$
55,2315,625,317
$
4,8755,625,504
Net interest income - tax-equivalent
(2)
$
60,106141,922
100$
127,432
Net interest spread - tax-equivalent
(2)
3.39
%
1003.08
%
$Net interest margin - tax-equivalent
56,628(2)
$
5,184
$
61,812
1003.46
%
1003.12
%
Refer(1)
Actual unrounded values are used to “Note 4: calculate the reported yield or rate. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same amounts.
(2)
Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal income taxes. The incremental tax rate used is 21.0%.
(3)
Loans, net of unearned income include non-accrual loans of $17 million and Allowance$48 million as of September 30, 2022 and 2021, respectively.
(4)
Loan interest income includes loan fees of $10 million and $13 million for Credit Losses (“ACL”)” within the Notes to the Condensed Consolidated Financial Statements
(unaudited) for a discussion of the
changes in the ACL. Provided below is additional information regarding charge-offsnine months ended September 30, 2022 and recoveries:2021, respectively.
 
57
Charge-offs and Recoveries:
For the three months ended March 31, 2022, net charge-offs were $1 million.
Charge-offs included $1 million related to a commercial line of credit that originated
in 2018 and
started to deteriorate at the end of 2021, a $1 million charge-off related to an energy
loan originated in 2016 that was significantly impacted by lower oil prices over
the past few
years, and a $750 thousand charge-off on a commercial real estate project that originated
in 2017 and started to deteriorate in 2020. Charge-offs were partially offset primarily
by a
$1.8 million recovery on an energy loan that was charged-off in 2020. The trailing twelve-month
net charge-off rate was 0.13%. The Company currently expects the current trailing
twelve-month net charge-off rate to better represent the anticipated activity
for 2022.
During the three-months ended March 31, 2021, charge-offs primarily
related to two commercial borrowers that were unable to support their debt obligations. The $8 million
charged-off was greater than the reserved balance in the allowance for loan
losses at December 31, 2020 resulting in a $5 million increase in the provision during
the quarter ended
March 31, 2021.
The below table provides the ratio of net charge-offs (recoveries) to average
loans outstanding based on our loan categories for the periods indicated:
For the Quarter Ended
March 31, 2022
December 31, 2021
September 30, 2021
June 30, 2021
March 31, 2021
Commercial
(0.27)
%
0.27
%
0.04
%
-
%
0.02
%
Commercial lines of credit
0.76
0.04
0.62
2.20
5.93
Energy
(1.02)
0.68
0.64
-
-
Commercial real estate
0.34
-
-
-
-
Construction and land development
-
-
-
-
-
Residential real estate
-
(0.32)
-
-
-
Multifamily real estate
-
(0.06)
(0.01)
-
-
Consumer
0.05
(0.01)
(0.03)
(0.04)
0.29
Total
0.10
%
0.07
%
0.13
%
0.23
%
0.74
%
Nonperforming Assets and
Other Asset Quality Metrics
Nonperforming assets include: (i) 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.
Nonperforming assets increased slightly to $36 million or 0.64% of total
assets as of March 31, 2022
primarily due to an $11 million, previously identified substandard
commercial line of credit.
The increase was partially offset by a $7 million decline in nonaccrual energy loans due to
$1 million in charge-offs, $3 million in payoffs and $3 million
in loans placed back on accrual status. As of period end, 25% of nonperforming assets remain in the energy sector, which continues
to be positively impacted by the sustained higher
commodity prices.
During 2021, nonperforming assets continued to decrease due primarily
to upgrades and pay offs in the commercial and energy portfolios. As of December 31, 2021, 49% of
nonperforming assets related to energy credits that were significantly impacted
by lower oil prices over the past few years.
58
Credit quality metrics generally improved during the first quarter of 2022
as the ACL decreased compared to the prior quarter, reflecting some stabilization in the Company’s
economic outlook.
The table below summarizes our nonperforming assets and related ratios as of the
dates indicated:
For the Quarter Ended
March 31,
December 31,
September 30,
June 30,
March 31,
2022
2021
2021
2021
2021
(Dollars in thousands)
Nonaccrual loans
$
33,071
$
31,432
$
48,147
$
54,652
$
63,319
Loans past due 90 days or more and still accruing
1,534
90
342
1,776
3,183
Total nonperforming loans
34,605
31,522
48,489
56,428
66,502
Foreclosed assets held for sale
973
1,148
1,148
1,718
2,347
Total nonperforming assets
$
35,578
$
32,670
$
49,637
$
58,146
$
68,849
ACL to total loans
1.27
%
1.37
%
1.51
%
1.78
%
1.65
%
ACL + RUC to total loans
(1)
1.38
N/A
N/A
N/A
N/A
ACL to nonaccrual loans
167
186
133
138
118
ACL to nonperforming loans
160
185
132
134
112
Nonaccrual loans to total loans
0.76
0.74
1.13
1.29
1.40
Nonperforming loans to total loans
0.79
0.74
1.15
1.33
1.48
Nonperforming assets to total assets
0.64
%
0.58
%
0.92
%
1.09
%
1.15
%
(1)
Includes the ACL on off-balance sheet credit exposure that resulted from CECL adoption on January 1, 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5955
Other asset quality metrics management reviews include gross loans past dueChanges 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, 2022 over 2021
September 30, 2022 over 2021
Average Volume
Yield/Rate
Net Change
(1)
Average Volume
Yield/Rate
Net Change
(1)
(Dollars in thousands)
Interest Income
Securities - 89 daystaxable
$
119
$
158
$
277
$
222
$
595
$
817
Securities - tax-exempt
(2)
501
(86)
415
1,840
(591)
1,249
Interest-bearing deposits in other banks
(39)
1,111
1,072
(176)
1,531
1,355
Gross loans, net of unearned income
4,251
12,296
16,547
2,604
16,394
18,998
Total interest income
(2)
$
4,832
$
13,479
$
18,311
$
4,490
$
17,929
$
22,419
Interest Expense
Transaction deposits
$
5
$
1,275
$
1,280
$
(207)
$
1,405
$
1,198
Savings and classified, gross loans. money market deposits
223
8,438
8,661
69
8,814
8,883
Time deposits
(49)
806
757
(2,145)
427
(1,718)
Total interest-bearing deposits
179
10,519
10,698
(2,283)
10,646
8,363
FHLB and short-term borrowings
(583)
215
(368)
(601)
145
(456)
Trust preferred securities, net of fair value adjustments
1
14
15
4
18
22
Total interest expense
(403)
10,748
10,345
(2,880)
10,809
7,929
Net interest income
(2)
$
5,235
$
2,731
$
7,966
$
7,370
$
7,120
$
14,490
(1)
The Company defines classified,change in interest not due solely to volume or rate has been allocated in proportion to the respective absolute dollar amounts of the change in volume or rate.
(2)
Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal income taxes. The incremental tax rate used is 21.0%.
Interest income -
Interest income increased for the three-
and nine-month periods ended September 30, 2022 compared to the same periods
in 2021 driven by higher average loans
outstanding and higher interest rates. The yield on taxable securities benefited from a slowdown
in mortgage-backed securities (“MBS”) prepayments
that reduced the premium
amortization on MBS by $0.2 million and $0.7 million for the three-
and nine-month periods ended September 30, 2022, respectively.
The loan yield for the three-month period
ended September 30, 2022, benefited from $1.0 million in interest income
related to recoveries of interest income and loans placed back on accrual status.
Loan yields for the three-
and nine-month periods ended September 30, 2022 compared to the corresponding
periods in 2021 were partially offset by lower PPP loan fees of $1.5 million and $4.8 million,
respectively.
Average earning assets totaled $5.6
billion for the three-month period ended September 30, 2022 and $5.5 billion
for the nine-month period ended September 30, 2022, resulting in
increases of $395 million or 8% and $29 million or 1%, respectively compared
to the same periods in 2021. The increases were driven by higher average gross loans
 
,
average taxable
56
securities,
and average tax-exempt securities, partially offset by a reduction
in average interest-bearing deposits in other banks for the three-
and nine-month periods ended
September 30, 2022 compared to the corresponding periods in 2021.
Interest expense
- Interest expense increased for the three-month period
ended September 30, 2022 compared to the same period in 2021 due to higher interest rates and
higher
average interest-bearing deposits. Interest expense increased for
the nine-month period ended September 30, 2022 compared to the same period
in 2021 due to higher interest rates,
partially offset by lower average interest-bearing deposits.
Average interest-bearing
deposits for the three-month period ended September 30, 2022 increased $246 million
or 7% compared to the same period in the prior year.
Average
interest-bearing deposits for the nine-month period ended September
30, 2022 decreased $299 million or 8% compared to the same period in the 2021. For the
three-
and nine-month
periods
ended September 30, 2022 non-interest-bearing deposits increased compared
to the corresponding periods in 2021.
Net interest income
- Net interest income increased for the three-
and nine-month periods ended September 30, 2022 compared to the same periods in 2021
driven by interest-
earning assets repricing quicker than the cost of interest-bearing
liabilities as grossvariable rate loans tied to 30-day London Interbank Offered Rate (“LIBOR”) and
Secured Overnight
Financing Rate (“SOFR”) rates were rising faster than the Company’s deposit rates
that are typically adjusted when the federal funds rate changes.
The Company currently
anticipates net interest margin for the fourth quarter of 2022 to be in the range
of 3.45% to 3.55% because of the Company’s variable-rate assets and the rising rate environment,
although deposit migration and remaining pressure on loan pricing
are expected to be headwinds.
Impact of Transition Away from LIBOR
The Company had $735 million in loans (deferredtied to LIBOR at September
30, 2022. Starting in October 2021, the Company began limiting loans originated using
the LIBOR
index. For current borrowers, the Company is modifying loan document
language to account for the transition away from LIBOR as loans renew or
originate. The Company plans to
replace LIBOR-based loans with the Secured Overnight Financing
Rate (“SOFR”). At September 30, 2022, the Company had approximately $959 million in loans tied to SOFR. The
Company adopted Accounting Standards Update (“ASU”) 2020-04 “Reference Rate Reform (Topic 848):
Facilitation of the Effects of Reference Rate Reform on Financial
Reporting” in 2020. The ASU allows the Company to recognize the modification related to LIBOR as a continuation of
the old contract, rather than a cancellation of the old contract
resulting in a write-off of unamortized fees and costs are excluded) categorized as substandardcreation of a new contract.
Non-Interest Income
For the Quarter Ended
For the Nine Months Ended
September 30,
 
- performing, substandard - nonperforming, doubtful, or loss. The definitions of substandard,
June 30,
 
doubtful
and loss are provided in “Note 4: Loans and Allowance for Credit Losses (“ACL”)” in the Notes to Condensed Consolidated
Financial Statements (unaudited). The following table
summarizes our gross loans past due 30 - 89 days, classified assets, and related
ratios as of the dates indicated:
March 31,
 
December 31,
 
September 30,
 
JuneSeptember 30,
 
March 31,September 30,
 
2022
2022
2022
2021
2021
20212022
2021
(Dollars in thousands)
Gross Loans Past Due Detail
30 - 59 days past dueTotal non-interest income (expense)
$
14,8153,780
$
1,6714,201
$
3,0724,942
$
18,7584,796
$
10,583
60 - 89 days past due
1,135
1,858
34,528
10
403
Total gross loans 30 - 89 days past due(1,105)
$
15,95012,922
$
3,5298,864
$Non-interest income (expense) to average assets
37,600(1)
$
18,768
$
10,986
Loans 30 - 89 days past due / gross loans
0.370.26
%
0.080.30
%
0.890.36
%
0.440.34
%
0.24(0.08)
%
Classified, Gross Loans
Substandard - performing
$
40,257
$
47,275
$
75,999
$
116,078
$
205,560
Substandard - nonperforming
30,619
28,879
45,063
49,300
57,967
Doubtful
2,451
2,554
3,084
5,352
5,352
Loss
-
-
-
-
-
Total classified, gross loans
73,327
78,708
124,146
170,730
268,879
Foreclosed assets held for sale
973
1,148
1,148
1,718
2,347
Total classified assets
$
74,300
$
79,856
$
125,294
$
172,448
$
271,226
Classified loans / (total capital + ACL)
10.80.31
%
10.8
%
17.3
%
24.0
%
38.2
%
Classified loans / (total capital + ACL + RUC)
(1)
10.7
N/A
N/A
N/A
N/A
Classified assets / (total capital + ACL)
11.0
%
11.0
%
17.5
%
24.2
%
38.60.21
%
(1)
Includes the ACL on off-balance sheet credit exposure that resulted from CECL adoption on January 1, 2022.
The increase in gross loans past due between 30 and 89 days as of March 31, 2022 was primarily
driven by an $11 million commercial line of credit. In the first quarter of
2022, we experienced
improvement in our classified loan totals as classified loans decreased 7% during the quarter to
$73 million. Classified totals in the energy portfolio decreased
24% to $16 million compared to the prior quarter and now represent 22% of total classified
loans. The improvements in credit metrics compared to March 31, 2021 were primarily
driven by upgrades in COVID-19 impacted segments and the energy portfolio.
The Company continually analyzes economic and other factors including
the impact of the COVID-19 pandemic and changes in oil and gas prices
among other
considerations.Interim periods annualized.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
57
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
2022
2021
$
%
2022
2021
$
%
(Dollars in thousands)
Service charges and fees on customer accounts
$
1,566
$
1,196
$
370
31
%
$
4,520
$
3,330
$
1,190
36
%
Realized gains (losses) on available-for-sale securities
(4)
1,046
(1,050)
NM
(43)
1,043
(1,086)
NM
Unrealized gains (losses), net on equity securities
(87)
(6,210)
6,123
(99)
(261)
(6,243)
5,982
(96)
Income from bank-owned life insurance
405
427
(22)
(5)
1,200
3,088
(1,888)
(61)
Swap fees and credit valuation adjustments, net
(7)
31
(38)
NM
123
156
(33)
(21)
ATM and credit card interchange income
1,326
1,735
(409)
(24)
5,513
5,569
(56)
(1)
Other non-interest income
581
670
(89)
(13)
1,870
1,921
(51)
(3)
Total non-interest income (loss)
$
3,780
$
(1,105)
$
4,885
NM
%
$
12,922
$
8,864
$
4,058
46
%
The changes in non-interest income were driven primarily by the following:
Service charges and fees on customer accounts
- This category includes account analysis fees, partially offset by a customer rebate
program. The increase for the three- and nine-
month periods ended September 30, 2022 compared to the corresponding
periods
in 2021 was driven primarily by increases in account analysis fees due to customer growth
,
increases
in outstanding balances, and adjustments to the Company’s fee structure.
Realized gains (losses) on available-for-sale securities
– The decrease for the three- and nine-months ended September 30, 2022 compared
to the same periods for 2021 was due to
the sale of $16 million in tax-exempt securities during the three-
and nine-month periods
ended September 30, 2021 at a gain due to increases in interest rates.
Unrealized gains (losses), net on equity securities
- The increase for the three- and nine-months ended September 30, 2022 compared
to the same periods for 2021 was due to the
Company recording a $6 million unrealized loss during the third quarter
of 2021 related to an equity investment received as part of a modified loan agreement.
Income from bank-owned life insurance (“BOLI”)
– The decline in BOLI income for the nine-months ended September 30, 2022 compared to
the same period in 2021 related to
the recognition of $1.8 million in tax-free death benefits from a BOLI policy
during 2021 compared to no such proceeds for 2022.
ATM and credit card interchange income
- The decrease in ATM and credit card interchange income for the three- and nine-month periods ended September 30, 2022 compared
to
the same periods
in 2021 was driven primarily by a decrease in credit card interest income
associated with customers that mobilized their workforce during the
COVID-19 pandemic
in 2021, partially offset by customer growth.
58
Non-Interest Expense
For the Quarter Ended
For the Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
2022
2022
2022
2021
2021
2022
2021
(1)
(Dollars in thousands)
Total non-interest expense
$
28,451
$
29,203
$
27,666
$
26,715
$
24,036
$
85,319
$
72,667
Non-interest expense to average assets
(1)
1.96
%
2.11
%
2.02
%
1.93
%
1.76
%
2.03
%
1.73
%
(1)
Interim periods annualized.
The components of non-interest expense were as follows for the periods indicated:
Quarter Ended
Nine Months Ended
September 30,
September 30,
Change
Change
2022
2021
$
%
2022
2021
$
%
(Dollars in thousands)
Salary and employee benefits
$
18,252
$
15,399
$
2,853
19
%
$
53,288
$
44,612
$
8,676
19
%
Occupancy
2,736
2,416
320
13
7,851
7,307
544
7
Professional fees
580
618
(38)
(6)
2,453
2,538
(85)
(3)
Deposit insurance premiums
903
927
(24)
(3)
2,355
2,995
(640)
(21)
Data processing
877
700
177
25
2,849
2,136
713
33
Advertising
796
596
200
34
2,247
1,334
913
68
Software and communication
1,222
999
223
22
3,689
3,098
591
19
Foreclosed assets, net
9
(35)
44
NM
(30)
680
(710)
NM
Other non-interest expense
3,076
2,416
660
27
10,617
7,967
2,650
33
Total non-interest expense
$
28,451
$
24,036
$
4,415
18
%
$
85,319
$
72,667
$
12,652
17
%
The changes in non-interest expense were driven primarily by the following:
Salary and Employee Benefits
- Salary and employee benefit costs increased for the three-
and nine-month periods ended September 30, 2022 compared to the
same periods
in
2021 primarily due to the impact of continued hiring for production
talent in a competitive environment, annual merit increases, and an increase related
to a change in the maximum
401(k) plan match from 3.5% in 2021 to 5.0% in 2022. For the nine-month period
ended September 30, 2022 compared to the same period in 2021, the increase also included
higher
incentive costs.
Occupancy
– The increase in occupancy costs was driven by the Company’s
expansion into Arizona in July 2021 and the addition of a second location in Dallas, Texas.
Deposit Insurance Premiums
- The FDIC uses a risk-based premium system to calculate the quarterly fee. Our premium costs decreased
for the three- and nine-month periods
ended September 30, 2022 compared to the same periods in 2021 as a result of
changes in asset quality. We currently anticipate deposit insurance premiums will increase over
the
next quarter because of expected loan growth and the common stock
repurchase program.
Data Processing
– The increase in data processing costs was driven primarily by increased costs associated with
the Company's digital client interface conversion.
59
Advertising
- The increase in advertising costs was driven by increased in-person events for the
three- and nine-month periods ended September 30, 2022 compared to
the same
periods in 2021 because of COVID-19 pandemic restrictions being lifted.
Software and Communication
- The increase was driven by our continued strategy to invest in technologies that allow us to
operate more efficiently, provide customers with a suite
of online tools,
and effectively analyze data to monitor operational trends. In addition, a portion of the increase
in costs was due to our growth. We currently anticipate our software
and communication costs to continue to increase in 2022 as we continue
adding and implementing new software products that improve our customers’ experience and our operating
efficiency.
Foreclosed Assets, net
– The decrease for the nine-month period ended September 30, 2022 compared to the same
period in 2021 was due to a $630 thousand write-down in value of
a commercial use facility foreclosed upon in 2020 during the three-month
period ended June 30, 2021.
Other Non-interest Expense
- Other non-interest expense increased for the three-
and nine-month periods ended September 30, 2022 compared to the same period
s
in 2021 due to
higher commercial card costs as a result of increased use by current
customers and customer growth, an increase in insured cash sweep (“ICS”) deposits which drove
related fees
higher,
and increased travel and meeting costs due to COVID-19 pandemic restrictions
being lifted. Additionally,
the nine-month period ended September 30, 2022 included $1.1
million in employee separation costs.
Income Taxes
For the Quarter Ended
For the Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
2022
2022
2022
2021
2021
2022
2021
(Dollars in thousands)
Income tax expense
$
4,410
$
4,027
$
4,188
$
5,725
$
5,660
$
12,625
$
11,831
Income before income taxes
21,690
19,572
21,016
26,526
26,660
62,278
60,443
Effective tax rate
20
%
21
%
20
%
22
%
21
%
20
%
20
%
Our income tax expense differs from the amount that would be calculated
using the federal statutory tax rate, primarily from investments in tax advantaged
assets, including
BOLI and tax-exempt municipal securities;
state tax credits;
and permanent tax differences from equity-based compensation. Refer to
“Note 10: Income Tax” within the Notes to
Condensed Consolidated Financial Statements (unaudited) for a reconciliation
of the statutory rate to the Company’s
actual income tax expense.
During the three- and nine-month periods ended September 30,
2022, the Company’s effective tax rate benefited from permanent tax differences
related to tax-exempt interest.
During the three- and nine-month periods ended September 30,
2021, the Company benefited from permanent tax differences related to tax-exempt
interest and $1.8 million in BOLI
settlement benefits that reduced income taxes by $0.4 million and reduced
the effective tax rate by approximately 2%.
We currently anticipate the Company’s effective tax rate to remain within
the 20% to 22% range in the near term.
60
Analysis of Financial Condition
Securities Portfolio
The objective of the investment portfolio is to optimize earnings, manage
credit and interest rate risk, ensure adequate liquidity,
and meet pledging and regulatory capital requirements. The securities portfolio is also maintained
to serve as a contingent, on-balance
sheet source of liquidity. As of September 30, 2022, available-for-sale investments totaled $657 million, a decrease
of $89 million from
December 31, 2021.
The decline in the securities portfolio was driven by a $137 million decline
in the unrealized gain (loss) on available-for-sale
securities. The decline was partially offset by the purchase of $45 million in tax-exempt
municipal securities and $35 million in
mortgage-backed securities.
The Company currently anticipates continuing to grow the securities
portfolio in proportion to the growth
of the balance sheet. The Company anticipates additional unrealized losses as interest rates continue
to increase. For additional
information, see “Note 3: Securities” in the Notes to Condensed Consolidated
Financial Statements (unaudited).
61
Loan Portfolio
Refer to “Note 4: Loans and Allowance for Credit Losses” within the Notes to Condensed Consolidated Financial Statements (unaudited)
for additional information
regarding the Company’s loan portfolio. As of September 30, 2022, gross loans, net of unearned fees increased
$421 million or 10% from December 31, 2021
and was driven by the
following:
Commercial and Industrial Lines of Credit
- The $214 million or 35% increase in commercial lines of credit was driven by new
originations of $204 million.
Energy
- Our energy portfolio decreased $100 million or 36% from December
31, 2021 primarily due to $72 million in loans paid off and $79 million in net paydowns,
offset by
new originations of $64 million.
Commercial Real Estate
- The $122 million or 10% increase was driven by originations of $384 million of new
originations, offset by $268 million in loans paid off.
Construction and Land Development
- The $99 million or 17% increase was driven by new originations of $110 million.
Residential Real Estate
- The $34 million or 9% increase was driven by new originations of $62 million, offset by
$42 million loans paid off.
Multifamily Real Estate
- The $36 million or 15% increase was driven by new originations of $30 million.
The following table shows the contractual maturities of our gross loans and
sensitivity to interest rate changes:
As of September 30, 2022
Due in One Year or Less
Due in One Year through
Five Years
Due in Five Year through
Fifteen Years
Due after Fifteen Years
Fixed Rate
Adjustable
Rate
Fixed Rate
Adjustable
Rate
Fixed Rate
Adjustable
Rate
Fixed Rate
Adjustable
Rate
Total
(Dollars in thousands)
Commercial and industrial
$
25,889
$
44,014
$
268,276
$
381,009
$
53,496
$
65,483
$
19,669
$
-
$
857,836
Commercial and industrial
lines of credit
48,030
307,620
16,237
443,233
10,414
5,653
-
-
831,187
Energy
8
40,172
9,448
129,227
-
-
-
-
178,855
Commercial real estate
34,313
193,897
427,932
348,355
181,577
199,339
-
14,925
1,400,338
Construction and land
development
22,434
54,461
73,783
442,656
24,426
16,448
1,637
38,196
674,041
Residential real estate
2,673
270
11,764
3,008
86,286
2,401
882
286,583
393,867
Multifamily real estate
21,416
70,755
44,286
127,202
4,967
7,169
-
-
275,795
Consumer
4,779
14,971
13,719
7,612
-
23,115
-
1,531
65,727
Total
$
159,542
$
726,160
$
865,445
$
1,882,302
$
361,166
$
319,608
$
22,188
$
341,235
$
4,677,646
62
Provision and Allowance for
Credit Losses
The Company implemented the CECL model as of January 1, 2022. Refer to “Note 1: Nature of Operations and
Summary of Significant Accounting Policies” and “Note 4:
Loans and Allowance for Credit Losses” within the Notes to Condensed Consolidated Financial Statements (unaudited)
for details regarding the transition, including the impact to
the financial statements. The CECL model compared to the incurred loss model may accelerate the provision for
credit losses if the Company’s loan portfolio continues to grow. In
addition, positive (negative) forward-looking indicators may decrease
(increase) the required provision for credit losses.
The ACL at September 30, 2022 represents our best estimate of the expected credit losses in the Company’s loan portfolio and off-balance sheet
commitments, measured over
the contractual life of the underlying instrument.
For the Quarter Ended
For the Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
2022
2022
2022
2021
2021
2022
2021
(Dollars in thousands)
Provision for credit losses
(1)
- loans
$
1,923
$
1,690
$
(316)
$
(5,000)
$
(10,000)
$
3,297
$
1,000
Provision for credit losses
(1)
- off-balance sheet
1,411
445
(309)
N/A
N/A
1,547
N/A
Allowance for credit losses
(2)
- loans
55,864
55,817
55,231
58,375
64,152
55,864
64,152
Allowance for credit losses
(2)
- off-balance sheet
6,731
5,320
4,875
N/A
N/A
6,731
N/A
Net charge-offs
$
1,876
$
1,104
$
1,081
$
777
$
1,341
$
4,061
$
12,143
(1)
Prior to March 31, 2022, this line represents the provision for loan losses
(2)
Prior to March 31, 2022, this line represents the allowance for loan
and lease losses
January 1, 2022, the adoption date, is presented below instead of December
31, 2021 for comparability purposes. The allocation in one portfolio segment does
not preclude its
availability to absorb losses in other segments. The table below presents the allocation of
the allowance for credit losses as of the dates indicated:
63
September 30, 2022
January 1, 2022
ACL
Amount
Percent of
ACL to
Total ACL
Percent of
Loans to
Total Loans
ACL
Amount
Percent of
ACL to
Total ACL
Percent of
Loans to
Total Loans
Loans
Off-
Balance
Sheet
Total
Loans
Off-
Balance
Sheet
Total
(Dollars in thousands)
Commercial and industrial
$
11,337
$
97
$
11,434
18
%
18
%
$
10,139
$
107
$
10,246
17
%
20
%
Commercial and industrial
lines of credit
12,057
-
12,057
19
18
8,866
44
8,910
14
14
Energy
4,828
548
5,376
9
4
9,190
265
9,455
15
7
Commercial real estate
16,455
676
17,131
28
31
18,933
711
19,644
32
30
Construction and land
development
4,587
5,320
9,907
16
14
3,666
3,914
7,580
12
14
Residential real estate
3,237
2
3,239
5
8
3,046
5
3,051
5
8
Multifamily real estate
2,673
84
2,757
4
6
2,465
137
2,602
4
6
Consumer
690
4
694
1
1
323
1
324
1
1
Total
$
55,864
$
6,731
$
62,595
100
%
100
%
$
56,628
$
5,184
$
61,812
100
%
100
%
Refer to “Note 4: Loans and Allowance for Credit Losses” within the Notes to Condensed Consolidated Financial Statements (una
udited) for a summary of the changes in the
ACL. Provided below is additional information regarding changes to
the ACL:
Impaired Loans:
For the three-
and nine-month periods
ended September 30, 2022, the impaired loan reserve decreased $0.1 million and
$5.6 million, respectively.
The decrease was primarily
due to a restructured commercial loan relationship in which addition
al collateral was obtained. For the nine-month period ended September
30, 2022, the change included a
commercial real estate loan with an improved collateral valuation that resulted
in a $2 million reduction in the required reserve, a $0.6 million decline related to a
commercial real
estate loan charged down and subsequently paid off, and two energy
loans that paid down their outstanding balance, resulting in a $1 million decrease to the required
reserve and one
energy loan that was charged down,
resulting in a $1 million decrease in the required reserve.
Charge-offs and Recoveries:
Net charge-offs were $2 million and $4 million for the three- and nine-month periods
ended September 30, 2022, respectively. For the three-month period
ended September
30, 2022 charge-offs included $0.6 million related to two collateral-dependent
energy loans and $2.0 million related to a collateral-dependent commercial and industrial
line of credit
loan. Recoveries
primarily included $0.8 million related to a commercial real estate loan charged-off
earlier in 2022.
For the nine-month period ended September 30, 2022, charge-offs
also included $2.0 million related to a collateral-dependent commercial
and industrial line of credit that
originated in 2018 and started to deteriorate at the end of 2021; a $1 million
charge-off related to an energy loan originated in 2016 that was significantly impacted by
lower oil
prices over the past few years;
a $0.8 million charge-off on a commercial real estate project that originated
in 2017 and started to deteriorate in 2020; $2.9 million related to two
collateral-dependent energy loans; $0.6 million related to a commercial and
industrial SBA loan originated in 2018; and $0.2 million related to a junior lien on a residential real estate
64
loan. Charge-offs were partially offset primarily by a $1.8 million recovery
on an energy loan that was charged-off in 2020, $1.6 million related to a commercial real estate loan
charged-off in 2020 and $1.7 million related to a commercial and industrial line
of credit charged-off in 2020.
During the 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 remained on the energy
loan at September 30, 2021. Recoveries totaled $0.2 million
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 and industrial borrower. The $3 million charged-off was greater than the reserved
balance in the Allowance for Loan and Lease Loss at December 31, 2020 resulting in a $2 million increase in the provision during
the three- and six-month periods ended June 30,
2021.
During the three-months ended March 31, 2021, charge-offs primarily
related to two commercial and industrial borrowers that were unable to support their debt obligations.
The $8 million charged-off was greater than the reserved balance in the allowance
for loan losses at December 31, 2020 resulting in a $5 million increase in the provision
during the
quarter ended March 31, 2021.
The below table provides the ratio of net charge-offs (recoveries) to average
loans outstanding based on our loan categories for the periods indicated:
For the Quarter Ended
For the Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
2022
2022
2022
2021
2021
2022
2021
Commercial and industrial
-
%
0.28
%
(0.27)
%
0.27
%
0.04
%
0.01
%
0.02
%
Commercial and industrial lines of credit
1.10
(0.56)
0.76
0.04
0.62
0.36
3.12
Energy
1.19
4.77
(1.02)
0.68
0.64
1.64
0.22
Commercial real estate
(0.21)
(0.45)
0.34
-
-
(0.12)
-
Construction and land development
-
-
-
-
-
-
-
Residential real estate
-
0.21
-
(0.32)
-
0.07
-
Multifamily real estate
-
-
-
(0.06)
(0.01)
-
-
Consumer
(0.05)
-
0.05
(0.01)
(0.03)
-
0.06
Total net charge-offs to average loans
0.16
%
0.10
%
0.10
%
0.07
%
0.13
%
0.12
%
0.37
%
Non-performing Assets and
Other Asset Quality Metrics
Non-performing assets include: (i) non-performing loans - includes
non-accrual loans, loans past due 90 days or more and still accruing interest, and loans modified
under
TDRs that are not performing in accordance with their modified terms; (ii) foreclosed
assets held for sale; (iii) repossessed assets; and (iv) impaired debt securities.
Non-performing assets decreased to $18 million as of September
30, 2022 due to an $11 million decrease
in non-accrual loans and a $2 million decrease in loans past due 90
days or more and still accruing interest. The decline in non-accrual loans was driven by $4 million
in loans returned to accruing status, $3 million in charge-offs on non-accrual
loans,
and $3 million in non-accrual loans that paid off. Improvements in
credit metrics continue to be driven by upgrades in COVID-19 impacted segments and
the energy portfolio.
Non-performing assets decreased to $31 million as of June 30, 2022
due to a $5 million decrease in non-accrual loans. The decline was driven by $4 million in charge-offs on
non-accrual loans. Improvements in credit metrics were driven by upgrades
in COVID-19 impacted segments and the energy portfolio.
65
Non-performing assets increased slightly to $36 million or 0.64% of total
assets as of March 31, 2022
primarily due to an $11 million, previously identified substandard
commercial and industrial line of credit. The increase was partially offset by a $7 million
decline in non-accrual energy loans due to $1 million in charge-offs, $3 million
in payoffs
and $3 million in loans placed back on accrual status. As of March 31, 2022, 25% of non-performing assets remained
in the energy sector.
During 2021, non-performing assets continued to decrease due primarily
to upgrades and pay offs in the commercial and industrial and energy portfolios. As of December 31,
2021, 49% of non-performing assets related to energy credits that were
significantly impacted by lower oil prices over previous few years.
Credit quality metrics were generally improved during the third quarter of 2022,
reflecting overall improvement from the prior quarter and significant improvement
over the
prior year.
The table below summarizes our non-performing assets and related ratios as of
the dates indicated:
For the Quarter Ended
September 30,
June 30,
March 31,
December 31,
September 30,
2022
2022
2022
2021
2021
(Dollars in thousands)
Non-accrual loans
$
16,923
$
27,698
$
33,071
$
31,432
$
48,147
Loans past due 90 days or more and still accruing
303
2,163
1,534
90
342
Total non-performing loans
17,226
29,861
34,605
31,522
48,489
Foreclosed assets held for sale
973
973
973
1,148
1,148
Total non-performing assets
$
18,199
$
30,834
$
35,578
$
32,670
$
49,637
ACL to total loans
1.19
%
1.23
%
1.27
%
1.37
%
1.51
%
ACL + ACL
on off-balance sheet to total loans
(1)
1.34
1.35
1.38
N/A
N/A
ACL to non-accrual loans
330
202
167
186
133
ACL to non-performing loans
324
187
160
185
132
Non-accrual loans to total loans
0.36
0.61
0.76
0.74
1.13
Non-performing loans to total loans
0.37
0.66
0.79
0.74
1.15
Non-performing assets to total assets
0.31
%
0.54
%
0.64
%
0.58
%
0.92
%
(1)
Includes the ACL on off-balance sheet credit exposure that resulted from CECL adoption on January 1, 2022.
Other asset quality metrics management reviews include loans past due
30 - 89 days and classified, gross loans. The Company defines classified loans as loans categorized
as
substandard - performing, substandard – non-performing,
doubtful, or loss. The definitions of substandard, doubtful and loss are provided in “Note 4: Loans and Allowance for
Credit Losses” in the Notes to Condensed Consolidated Financial Statements (unaudited).
The following table summarizes our loans past due 30 - 89 days, classified assets,
and
related ratios as of the dates indicated:
66
September 30,
June 30,
March 31,
December 31,
September 30,
2022
2022
2022
2021
2021
(Dollars in thousands)
Loans Past Due Detail
30 - 59 days past due
$
15,785
$
15,700
$
14,815
$
1,671
$
3,072
60 - 89 days past due
5,598
935
1,135
1,858
34,528
Total gross loans 30 - 89 days past due
$
21,383
$
16,635
$
15,950
$
3,529
$
37,600
Loans 30 - 89 days past due / gross loans
0.46
%
0.37
%
0.37
%
0.08
%
0.89
%
Classified Loans
Substandard - performing
$
55,038
$
52,759
$
40,257
$
47,275
$
75,999
Substandard - non-performing
15,135
25,530
30,619
28,879
45,063
Doubtful
1,788
2,144
2,451
2,554
3,084
Loss
-
-
-
-
-
Total classified, gross loans
71,961
80,433
73,327
78,708
124,146
Foreclosed assets held for sale
973
973
973
1,148
1,148
Total classified assets
$
72,934
$
81,406
$
74,300
$
79,856
$
125,294
Classified loans / (total capital + ACL)
11.3
%
12.1
%
10.8
%
10.8
%
17.3
%
Classified loans / (total capital + ACL +
ACL on off-
balance sheet)
(1)
11.2
12.0
10.7
N/A
N/A
Classified assets / (total capital + ACL)
11.5
%
12.3
%
11.0
%
11.0
%
17.5
%
(1)
Includes the ACL on off-balance sheet credit exposure that resulted from CECL adoption on January 1, 2022.
The increase in loans past due between 30 and 89 days as of September 30,
2022 was primarily driven by net increases in commercial real estate loans .
Loans past due
between 30 and 89 days to gross loans increased to 0.46% compared to the prior
quarter. Classified loans decreased 11% during the third quarter primarily due
to lower non-accrual
loans in the commercial and industrial and commercial real estate portfolios.
The increase in loans past due between 30 and 89 days as of June 30, 2022
was primarily driven by the 4% loan growth from the previous quarter. Loans past due between
30
and 89 days to gross loans remained at 0.37% compared to the prior quarter.
Classified loans increased slightly during the second quarter primarily
due to downgrades in the
commercial and industrial portfolio but remained in an acceptable range
at 12.1% of total capital plus the allowance for credit losses.
The increase in loans past due between 30 and 89 days as of March 31, 2022
was primarily driven by an $11 million commercial and industrial line of credit. In
the first
quarter of 2022, we experienced improvement in our classified loan totals as classified
loans decreased 7% during the quarter to $73 million. Classified totals in
the energy portfolio
decreased 24% to $16 million compared to the prior quarter and represent
ed 22% of total classified loans.
67
Deposits and Other Borrowings
The following table sets forth the maturity of time deposits as of MarchSeptember
 
31,30, 2022:
As of March 31,September 30, 2022
Three Months
or Less
Three to Six Months
Six to Twelve
Months
After Twelve Months
Total
(Dollars in thousands)
Time deposits in excess of FDIC insurance limit
$
22,77235,188
$
89,83722,271
$
61,60027,877
$
12,320159,675
$
186,529245,011
Time deposits below FDIC insurance limit
72,515176,316
94,392100,125
104,135125,601
54,496103,118
325,538505,160
Total
$
95,287211,504
$
184,229122,396
$
165,735153,478
$
66,816262,793
$
512,067750,171
At March 31,September 30, 2022, our deposits totaled approximately $5 billion, a decreasean
increase of $62$304 million or 1%6% from
December 31, 2021. The decrease, included a decline of $112increase
 
included $126 million in time deposits
deposits and $53 million of non-interest bearing deposits, partially offset
by an increase in $103$227 million in money market, NOW and savings deposits.deposits
 
,
partially offset by a decrease of $49 million in non-interest-bearing deposits
.
The increase in time deposits was
the result of a $179 million net increase in wholesale funding to support
current and expected loan growth through the end of 2022, partially offset by
a decrease in customer deposits.
The increase in money market, Now,NOW,
 
and
savings deposits.deposits was driven primarily by required payments from our customersincreases in ICS deposits and both
 
to the Internal Revenue Servicebusiness and interest rate competition. The decrease in time
deposits resulted from
maturities,
primarily from 6-month CD’s and
the current interest rate environment.personal money market deposits.
Other borrowings include FHLBFederal Home Loan Bank (“FHLB”) advances and our
trust preferred
security. At March 31, 2022,September
 
30, 2022, other borrowings totaled $228$206 million, a $10 $31
million or 4%13% decrease from
December 31, 2021. The decline was driven by borrowings that maturedDuring the nine-month
 
period ended September 30, 2022, $21.5 million of FHLB advances matured, $12.5
million of net FHLB
advances were paid off and were not replaced due$65 million of advances converted
into a drawdown on the FHLB line of credit. The Company utilized the
conversion of $65 million of FHLB advances to increased Company liquidity.
the FHLB line of credit and an additional $2.7 million of net withdrawals to support
loan growth and changes in deposits,
resulting in $67.7 million on the FHLB line of credit at
September 30, 2022.
As of March 31,September 30, 2022, the Company had approximately $330 million of deposits with one$2.4 billion
 
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 is accessible and at favorable
rates.
As of March 31, 2022, the Company had approximately $2.3 billion of uninsured
deposits, which is an estimated amount based on the same methodologies
and assumptions
used for the Bank’s regulatory requirements.
 
The Company believes that its current capital ratios and liquidity are sufficient
 
to mitigate the risks of uninsured deposits.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6168
Liquidity and Capital Resources
Contractual Obligations and Off-Balance Sheet
 
Arrangements
The Company is subject to contractual obligations made in the ordinary
 
course of business. The obligations include deposit
liabilities, other borrowed funds, and operating leases. Refer to “Note 6: Time
 
Deposits and Other Borrowings” within the Notes to
Condensed Consolidated Financial Statements (unaudited) for
 
a listing of the Company’s significant contractual
 
contractual cash obligations. Refer
to “Note 14: Leases” within the Notes to Condensed Consolidated Financial Statements
 
(unaudited) for the Company’s contractual
obligations to third parties on lease obligations.
 
As a financial services provider, the Company
 
is a party to various financial instruments with off-balance sheet risks, such
 
as
commitments to extend credit. Off-balance sheet arrangements represent
 
the Company’s future cash requirements.
 
However, a portion
of these commitments may expire without being drawn upon. Refer to
 
“Note 12: Commitments and Credit Risk” within the Notes to
Condensed Consolidated Financial Statements (unaudited) for
 
a listing of the Company’s off
 
-balance sheet arrangements.
The Company’s short-term and long-termlong
 
-term contractual obligations, including off-balance
sheet obligations,
may be satisfied
through the Company’s on-balance
 
sheet and off-balance sheet liquidity discussed below.
Liquidity
The Company’s liquidity strategy is to maintain adequate, but not excessive,
 
liquidity to meet the daily cash flow needs of itsclients
clients while attempting to achieve adequate earnings for its stockholders. The liquidity
 
position is monitored continuously by themanagement. The
Company’s finance department. The Company's short-term and long-term
liquidity requirements are primarily
met through cash flow
from operations, redeployment of
prepaying and maturing balances in our
loan portfolio and security portfolio,
increases in client
deposits and wholesale deposits.
Liquidity
resources can be derived from two sources: (i) on-balance
sheet liquidity resources,
which
represent funds currently on the
balance sheet and (ii) off-balance sheet liquidity
resources, which represent
funds available from third-
partythird-party sources. The Company’s
on-balance sheet and off-balance sheet liquidity
resources consisted of
the following as of the dates
indicated:
March 31,September 30, 2022
December 31, 2021
(Dollars in thousands)
Total on-balance sheet liquidity
$
1,000,925964,952
$
1,224,253
Total off-balance sheet liquidity
779,725779,990
732,748
Total liquidity
$
1,780,6501,744,942
$
1,957,001
On-balance sheet liquidity as a percent of assets
1817
%
22
%
Total liquidity as a percent of assets
3230
%
35
%
For the three-monthsnine-months ended March 31,September 30, 2022, the Company’s cash
and cash
equivalents declined $206$174 million from December 31,
31, 2021 to $277$309 million, representing 5% of total assets. During the first quarter of 2022,nine-month
 
period ended September 30, 2022, the Company
increased the available-for-sale
securityAFS securities portfolio on an amortized cost basis by $36$48 million, net of paydowns, and
 
maturities, and amortization, to
improve the yield on interest-earning
assets. In addition, the Company’sCompany
increased loan growthfunding by $425 million, net of $93 millionpayoffs and
charge-offs during the nine-month period ended September 30, 2022
 
the three-months ended March 31, 2022that reduced cash and cash equivalents.
equivalents. The Company’s time deposits declinedincreased by $112$126 million due to maturities andprimarily from
 
wholesale funding. Non-interest-bearing deposits,
savings, and money market deposits increased $178 million driven primarily
by increases in ICS deposits and both business and
personal money market deposits. Other borrowings decreased $31
million during the current interest rate environment, whichnine-month period ended September 30, 2022,
as
net amounts of $34 million of FHLB advances matured or were paid
off and a net $3 million was partially offset by a $50 million increase in other deposit products. drawn down on the FHLB line of
credit.
The Company
continued its repurchase program, purchasing $17$31
million of common stock during the first quarternine months of 2022.
As of September 30, 2022, $21 million remains available for repurchase
under our share repurchase program. We expect to continue to
repurchase shares under our share repurchase program, but the amount and timing
of such repurchases will be dependent on a number of
69
factors, including the price of our common stock and other cash flow needs. There is no assurance
that we will repurchase up to the full
amount remaining under our program.
 
The Company believes that its current liquidity will be sufficient to meet anticipated
 
cash requirements for the next 12 months
and thereafter. In the near-term, theThe Company currently anticipates a continued
decline in time deposits as approximately $95 million
will mature within the next three months of 2022. In addition, the Company anticipates
$5 million of FHLB borrowings to mature by
June 30, 2022 with an additional $65 millionbelieves that is callable by June 2022. The Company has
several on and off-balance sheet options
to
ensure address any resulting reductions in cash and
cash equivalents are appropriately
offsetin order to ensuremaintain appropriate liquidity.
62
Capital Requirements
The Company and the Bank are subject to various regulatory capital requirements
 
administered by the federal banking agencies.
The regulatory capital requirements involve quantitative measures of
 
the Company’s assets, liabilities, select off-balance sheet items and
equity. Failure to meet minimum capital requirements can initiate certain
 
mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
 
Company’s consolidated financial statements. Refer to “Note 8:
Regulatory Matters” in the Notes to Condensed Consolidated Financial Statements
 
(unaudited) for additional information. Management
believes that as of March 31,September 30, 2022, the Company and the Bank met all capital adequacy
 
adequacy requirements to which they are subject.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance
 
with GAAP and with general practices within the financial
services industry. Application of these principles requires management to make complex and
subjective estimates and
assumptions that
affect the amounts reported in the financial statements and accompanying
 
notes. The Company bases estimates on historical experience
and on various other assumptions that it believes
 
to be reasonable under current circumstances. These assumptions form the basis for
management judgments about the carrying values of assets and liabilities that are
 
are not readily available from independent, objective
sources. The Company evaluates estimates on an ongoing basis. Use of alternative assumptions
 
may have resulted in significantly
different estimates. Actual results may differ from these estimates.
A discussion of these policies can be found in the section captioned “Critical Accounting Policies and Estimates” in
Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2021 Form
 
10-K.
 
On January 1, 2022, the Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326):
 
Measurement of
Credit Losses on Financial Instruments. Refer to “Note 1: Nature of
 
Operations and Summary of Significant Accounting Policies” and
“Note 4: Loans and Allowance for Credit Losses (“ACL”)”Losses” within the Notes to Condensed Consolidated Financial Statements (unaudited)
 
Statementsfor
(unaudited) for information regarding the Company’s ACL implementation and the ACL process. Determining the appropriateness of the ACL
is
ACL is complex and requires judgment by management about the effect of matters that
are inherently uncertain. These
critical estimates include
include significant use of the Company’s historical data and complex methods to interpret
 
to interpret them.
 
It is difficult to estimate how potential changes in any one input might affect the
 
overall ACL because inputs may change at
different rates and may not be consistent across the loan segments. In addition,
 
addition, changes in inputs may be directionally
 
inconsistent such
that one factor may offset deterioration in others. The Company identified the following
 
estimates and assumptions as the main drivers
in the required ACL for loans and the reserve for off-balance sheet commitments:
◾
Fully exhausted loan pool
 
– The historical loss factor is calculated by identifying a group of loans at a point in time (a
“cohort”) and tracking the cohort’s charge-offs, net of recoveries, over
 
a 10-year period (known as the estimated
economic life). A charge-off rate for each cohort is calculated based on charge-offs, net of recoveries over the initial loan
balance. The charge-off rate for a specific cohort is not included in the weighted
 
average historical loss rate until “fully
exhausted.”
 
A cohort balance declines due to modifications, renewals, and paydowns. The Company requires the remaining
cohort
balance to be less than 15% of its original cohort balance before being included
 
in the historical loss factor. The 15%
70
represents the exhaustion rate. Changes to the assumed exhaustion rate could
 
increase or decrease the historical loss rates
based on the timing of charge-offs, net of recoveries. For example, an
exhaustion rate of 50% on the commercial
segment would have reduced the required ACL by approximately $264 thousand for the three-month period ended
March 31, 2022.
◾
Forward looking factors
 
– The Company uses the Federal Reserve Bank’s unemployment rate forecast to adjust
expected losses based on an economic outlook. The Company’s current methodology
 
increases the ACL one basis point
63
for each 1% increase in the average unemployment rate forecast. As of March 31, 2022, a 1% increase in the average
unemployment rate would increase the ACL by approximately $436
 
thousand.
◾
Changes in the assumed utilization rate of off-balance sheet commitments
 
– The Company uses a 12-month
historical utilization rate for all loan segments, excluding construction and
 
and development loans that use a higher
utilization rate. An ACL
 
on off-balance sheet commitments is required if the end of period utilization
 
rate is less than the
12-month historical utilization rate. For example, a 1% decrease in the utilization
rate of commercial lines of credit at
March 31, 2022 would increase the required ACL by $221 thousand.
Besides the ACL methodology mentioned above, there have been no additional changes in the Company’s application of critical
accounting policies and estimates since December 31, 2021.
 
Recent Accounting Pronouncements
Refer to “Note 1: Nature of Operations and Summary of Significant Accounting Policies” included in the Notes to Condensed
Consolidated Financial Statements (unaudited) included elsewhere in this Form
 
10-Q.
 
71
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
 
ABOUT MARKET RISK
Interest Rate Risk
A primary component of market risk is interest rate volatility. Interest rate risk management is a key element of the Company’s
balance sheet management. Interest rate risk is the risk that net interest margins
 
will erode over time due to changing market conditions.
Many factors can cause margins to erode: (i) lower loan demand; (ii) increased
 
competition for funds; (iii) weak pricing policies; (iv)
balance sheet mismatches; and (v) changing liquidity demands. The objective
is to maximize income
while minimizing interest rate risk.
The Company manages its sensitivity position using its interest rate risk policy. The management
 
of interest rate risk is a three-step
process and involves: (i) measuring the interest rate risk position; (ii) policy constraints;
 
constraints; and (iii) strategic review and implementation.
Our exposure to interest rate risk is managed by the Funds Management
Asset/Liability Committee (“FMC”ALCO”). The FMCALCO 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’sALCO’s primary tools to change the interest rate risk position are: (i) investment portfolio
duration; (ii) deposit and borrowing
borrowing mix; and (iii) on balance sheet derivatives.
The FMCALCO 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
March 31,September 30, 2022
March 31,September 30, 2021
Change in Interest
Rate (Basis Points)
Percent change in net
interest income
Percent change in fair
value of equity
Percent change in net
interest income
Percent change in fair
value of equity
+300
6.56.1
%
(8.1)(11.1)
%
0.76.4
%
(12.2)(8.9)
%
+200
3.94.1
(4.6)(7.3)
(0.1)3.6
(7.5)(5.7)
+100
1.62.0
(2.0)(3.2)
(0.6)1.1
(3.6)(3.0)
Base
-
%
-
%
-
%
-
%
-100
NA(1.9)
(1)
NA
(1)3.2
NA
(1)
NA
(1)
-200
(5.7)
5.7
NA
(1)
NA
(1)
-300
(10.1)
7.1
NA
(1)
NA
(1)
(1)
The Company decided to exclude the down rate environment from its analysis due to the already low interest rate environment.
64
Hypothetical Change in Interest Rate - Rate Ramp
March 31,September 30, 2022
March 31,September 30, 2021
Change in Interest Rate
 
(Basis Points)
Percent change in net interest
income
Percent change in net interest
income
+300
2.82.9
%
0.32.5
%
+200
1.61.9
(0.2)1.2
+100
0.61.0
(0.4)0.2
Base
-
%
-
%
-100
NA
(1)(0.9)
NA
(1)
-200
(2.1)
NA
(1)
-300
(4.1)
NA
(1)
(1)
 
The Company decided to exclude the down rate environment from its analysis due to the already low interest rate environment.
72
The Company’s position is slightly asset sensitive as of March 31,September 30, 2022. The hypothetical positive
 
positive change in net interest income
income as of March 31,September 30, 2022 in an up 100 basis point shock is mainly due
to approximately $3.6
 
two-thirdsbillion of the Company’s earning assets
assets repricing or maturing within the first year, with much$2.8 billion of that being
in the first 90
days.
month. In addition, $624 million of the
Company’s time deposits and
other borrowings will continue to mature.mature or reprice
 
Increases inwithin that same 12-month period. Assuming the up 100 environment are impacted by floors on variable rate loans. In
an upsame balance sheet
200 and 300 environment, floors on variable rate loans become less impactful and
earning assets reprice faster than interest-bearing
liabilities. Future rate increases will drive higher loan yields asmix, the impact of
floors diminishes. The Company currently anticipates that
overall cost of funds will lag interest rate increases and will result in an
increase to net interest income.income
in all upward rate ramp and shock scenarios. In down rate
scenarios, income is predicted to decrease. The Company currentlyis monitoring longer term
interest rate expectations and is evaluating options
anticipates to reduce the impact of any downward rate adjustments, including
the use of cash flow hedges in the near term to manage rate
sensitivity.hedges.
The models the Company uses include assumptions regarding interest rates
 
while balances remain unchanged. These assumptions
are inherently uncertain and, as a result, the model cannot precisely estimate net interest income
 
or precisely predict the impact of higher
or lower interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude, and
 
and frequency
of interest rate changes as well as changes in market conditions, customer behavior
 
and management strategies, among other factors.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive
 
Officer and Chief Financial Officer, has
evaluated the effectiveness of the Company’s disclosure controls and procedures
 
(as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934 (“Exchange Act”)) as of March 31,September 30, 2022. Based on that evaluation, the Company’s Chief Executive Officer and
and Chief Financial
Officer concluded that the Company’s disclosure controls
and procedures were effective
as of March 31,September 30, 2022.
 
Changes in Internal Control over Financial Reporting
The Company implemented internal controls to ensure the Company adequately
 
calculated changes due to, and properly assessed
the impact of, the accounting standard updates related to the adoption of ASC 326 on January 1, 2022. There were no
significant
changes to our internal control over financial reporting due to the adoption of
 
the new standard.
 
No change in the Company’s internal control over financial reporting (as such term
 
is defined in Rule 13a-15(f) under the
Exchange Act) that occurred during the firstthird quarter of 2022 has materially affected, or is reasonably likely to materially
 
affect, the
Company’s internal control over financial reporting.
 
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the normal course of business, we are named or threatened to be named
 
as a defendant in various lawsuits. Management,
following consultation with legal counsel, does not expect the ultimate disposition
 
of any or a combination of these matters to have a
65
material adverse effect on our business, financial condition, results of operations,
 
cash flows or growth prospects. However, given the
nature, scope, and complexity of the extensive legal and regulatory landscape
 
applicable to our business (including laws and regulations
governing consumer protection, fair lending, fair labor, privacy, information
 
security and anti-money laundering and anti-terrorism
laws), we, like all banking organizations, are subject to heightened legal
 
and regulatory compliance and litigation risk.
 
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider
 
consider the factors discussed in Part I, "Item 1A.
Risk Factors" in our 2021 Form 10-K, which could materially affect
 
our business, financial condition,
or results of operations in future
periods.
 
There were no material changes from the risk factors disclosed in the 2021 Form 10-K.
73
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
 
AND USE OF PROCEEDS
(a)
Recent Sales of Unregistered Securities
During the quarter-ended March 31, 2022, 33,500 warrants were exercised
at a strike price of $5.00 per warrant. A total of 33,500
common shares were issued. 80,000 warrants remain outstanding at a strike price
of $5.00 per warrant.
None.
(b)
None.Not applicable.
(c)
Share Repurchase Program
The following table summarizes our repurchases of our common shares
 
for the three-months ended March 31,September 30, 2022:
Calendar Month
Total Number of
Shares
Repurchased
Average Price
Paid per
Share
Total Number of Shares
Purchased as Part of
Publicly Announced Plans
or Programs
(1)
Approximate Dollar Value of Shares that
may yet be Purchased as Part of
Publicly Announced Plans or
Programs
January(1)
July 1 - 31
185,466243,254
$
15.7113.26
185,466243,254
$
18,735,40928,273,238
February 1 - 28
284,972
15.92
284,972
14,193,758
MarchAugust 1 - 31
587,894
15.80
587,894304,668
$
4,890,78514.16
304,668
$
23,950,841
September 1 - 30
246,535
$
13.28
246,535
$
20,672,141
Total
1,058,332794,457
$
15.8213.61
1,058,332794,457
(1)
On October 18, 2021, the Company announced that its Board of Directors approved
 
a share repurchase program under which the
Company could repurchase up to $30 million of its common stock. This program was completed
during the third quarter of 2022.
On May 10, 2022, the Company announced that its Board of Directors approved
a second share repurchase program under which
the Company may repurchase up to $30 million of its common stock. As of September 30, 2022, $21 million
remains available for
repurchase under this share repurchase program. Repurchases under
 
the program may be made in the open market or privately
privately negotiated transactions in compliance with SEC Rule 10b-18,
subject to market conditions,
applicable legal requirements,
and other
other relevant factors. The program does not obligate the Company to acquire any amount
 
amount of common stock and it may be suspended at any
any time at the Company's discretion. No time limit has been set for completion of
the program.
 
 
 
6674
ITEM 6. EXHIBITS
 
Exhibit
Number
Exhibit Description
**
101.INS*
XBRL Instance Document - the instance document does not appear in the Interactive Data File because
its XBRL tags
are embedded within the Inline XBRL document
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
104*
Cover Page Interactive Data File (formation in Inline XBRL and contained in Exhibit 101)
*
 
Filed Herewith
**
 
Furnished Herewith
 
†
 
Indicates a management contract or compensatory Planplan arrangement
 
 
6775
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.
May 5,November 8, 2022
/s/ Benjamin R. Clouse
 
Benjamin R. Clouse
 
Chief Financial Officer
 
(Principal Financial Officer and Principal Accounting Officer)