UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, DC 20549
FORM
10-Q/A10-Q
 
☒
 
QUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 
For the quarterly period ended
March 31, 2021June 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 last report)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, par value $0.01 per share
CFB
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section
13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and
(2) has been subject to such filing requirements for the past 90 days.
 
Yes
 
☒
 
No
 
☐
Indicate by check mark whether the registrant has submitted electronically
every Interactive Data File required
to be submitted pursuant to
Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or
for such shorter period
that the registrant
was required to submit such files).
 
Yes
 
☒
 
No
 
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large
“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 5, 2021,August 1, 2022, the registrant had
51,580,76149,310,909
 
shares of common stock, par value $0.01, outstanding.
 
EXPLANATORY NOTE2
CrossFirst Bankshares, Inc. (the “Company”) is filing this Amendment No. 1 (the Amendment”) on Form 10-Q/A to amend its Quarterly
Report on Form 10-Q for the quarterQuarter Ended June 30, 2022
Index
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Forward-Looking Information
4
5
6
7
9
Notes to Condensed Consolidated Financial Statements (unaudited)
10
15
15
19
37
39
39
39
40
42
42
46
46
46
48
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
49
51
51
55
56
58
59
59
59
60
63
66
67
68
70
71
Part II. Other Information
71
71
72
73
74
3
Forward-Looking Information
All statements contained in this quarterly report on Form 10-Q that do not directly
and exclusively relate to historical facts
constitute forward-looking statements. These statements are often, but not always, made
through the use of words or phrases such as
“may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,”
“continue,” “will,” “anticipate,” “seek,” “estimate,”
“intend,” “plan,” “strive,” “projection,” “goal,” “target,” “outlook,”
“aim,” “would,” “annualized” and “outlook,” or the negative of
these words or other comparable words or phrases of a future or forward-looking
nature. For example, our forward-looking statements
include statements regarding our expectations, opportunities or plans
for growth; the proposed acquisition of Farmers & Stockmens
Bank, the bank subsidiary of Central Bancorp, Inc. (collectively, Farmers
& Stockmens Bank and Central Bancorp, Inc. are herein
referred as “Central”); our anticipated expenses, cash requirements and
sources of liquidity; and our capital allocation strategies and
plans.
Unless we state otherwise or the context otherwise requires, references
below to “we,” “our,” “us,” and the “Company” refer to
CrossFirst Bankshares, Inc., and its consolidated subsidiaries. References to “CrossFirst
Bank” and the “Bank” refer to CrossFirst Bank,
our wholly owned consolidated bank subsidiary.
These forward-looking statements are not historical facts, and are based
on current expectations, estimates and projections about
our industry, management’s beliefs and certain assumptions made by management,
many of which, by their nature, are inherently
uncertain and beyond our control. Accordingly, The Company cautions you that any such forward-looking statements are
not guarantees
of future performance and are subject to risks, assumptions, estimates and uncertainties
that are difficult to predict. Although the
Company believes that the expectations reflected in these forward-looking
statements are reasonable as of the date made, actual results
may prove to be materially different from the results expressed or
implied by the forward-looking statements due to a number of factors.
Such factors include: credit quality and risk, risks associated with the ongoing
COVID-19 pandemic, changes in economic conditions in
the United States and the Company’s market areas, legislative and regulatory
changes, fluctuations in interest rates, changes in liquidity
requirements, demand for loans in the Company’s market areas, changes in
accounting and tax principles, estimates made on income
taxes, competition with other entities that offer financial services, cybersecurity
incidents or other failures, disruptions or security
breaches, commercial and residential real estate values, funding availability,
the transition away from the London Interbank Offered
Rate (LIBOR), business strategy execution, hiring and retention
of key personnel, fraud committed against the Company, or other
external events.
Additional discussion of these and other risk factors can be found in our Annual Report on Form 10-K for the fiscal
year ended MarchDecember 31, 2021, filed with the Securities and Exchange Commission (“SEC”)
on May 6,February 28, 2022, and in our other
filings with the SEC.
Except as required by law, the Company undertakes no obligation to update
or revise forward-looking statements to reflect
changed assumptions, the occurrence of unanticipated events or changes
in our business, results of operations or financial condition over
time. Given these risks and uncertainties, readers are cautioned not to place undue
reliance on such forward-looking statements.
��
See Notes to Condensed Consolidated Financial Statements (unaudited)
4
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2022
December 31, 2021
(1)
(Unaudited)
(Dollars in thousands)
Assets
Cash and cash equivalents
$
277,678
$
482,727
Available-for-sale securities - taxable
186,154
192,146
Available-for-sale securities - tax-exempt
509,493
553,823
Loans, net of unearned fees
4,528,234
4,256,213
Allowance for credit losses on loans
(2)
55,817
58,375
Loans, net of the allowance for credit losses on loans
4,472,417
4,197,838
Premises and equipment, net
64,769
66,069
Restricted equity securities
14,946
11,927
Interest receivable
17,909
16,023
Foreclosed assets held for sale
973
1,148
Bank-owned life insurance
68,293
67,498
Other
95,678
32,258
Total assets
$
5,708,310
$
5,621,457
Liabilities and stockholders’ equity
Deposits
Non-interest-bearing
$
1,163,462
$
1,163,224
Savings, NOW and money market
2,847,887
2,895,986
Time
733,071
624,387
Total deposits
4,744,420
4,683,597
Federal Home Loan Bank advances
296,600
236,600
Other borrowings
1,041
1,009
Interest payable and other liabilities
58,234
32,678
Total liabilities
5,100,295
4,953,884
Stockholders’ equity
Common stock, $
0.01
par value:
authorized -
200,000,000
shares, issued -
52,972,244
and
52,590,015
shares at June
30, 2022 and December 31, 2021, (therespectively
529
526
Treasury stock, at cost:
3,436,295
and
2,139,970
shares held at June 30, 2022 and December 31, 2021,
respectively
(48,501)
(28,347)
Additional paid-in capital
528,548
526,806
Retained earnings
176,868
147,099
Accumulated other comprehensive income (loss)
(49,429)
21,489
Total stockholders’ equity
608,015
667,573
Total liabilities and stockholders’ equity
$
5,708,310
$
5,621,457
(1)
The year-end Condensed Consolidated Balance Sheet was derived from
audited financial statements, but does not include all
disclosures required by accounting principles generally accepted in the
United States of America.
(2)
As of December 31, 2021, this line represents the allowance for loan and
lease losses. See further discussion in “Note 1: Nature of
Operations and Summary of Significant Accounting Policies”
in the Notes to Condensed Consolidated Financial Statements
(unaudited).
See Notes to Condensed Consolidated Financial Statements (unaudited)
5
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
(Dollars in thousands except per share data)
Interest Income
Loans, including fees
$
47,327
$
43,846
$
90,055
$
87,604
Available-for-sale securities - taxable
1,086
869
2,130
1,620
Available-for-sale securities - tax-exempt
3,845
3,497
7,537
6,848
Deposits with financial institutions
369
110
521
238
Dividends on bank stocks
213
162
357
327
Total interest income
52,840
48,484
100,600
96,637
Interest Expense
Deposits
4,732
4,850
8,243
10,578
Fed funds purchased and repurchase agreements
74
2
74
3
Federal Home Loan Bank Advances
1,294
1,280
2,403
2,563
Other borrowings
31
24
56
48
Total interest expense
6,131
6,156
10,776
13,192
Net Interest Income
46,709
42,328
89,824
83,445
Provision for Credit Losses
(1)
2,135
3,500
1,510
11,000
Net Interest Income after Provision for Credit Losses
(1)
44,574
38,828
88,314
72,445
Non-Interest Income
Service charges and fees on customer accounts
1,546
1,177
2,954
2,134
Realized losses on available-for-sale securities
(12)
(13)
(38)
(3)
Unrealized gains (losses) on equity securities, net
(71)
6
(174)
(33)
Income from bank-owned life insurance
407
2,245
795
2,661
Swap fees and credit valuation adjustments, net
12
(30)
130
125
ATM and credit card interchange income
1,521
1,506
4,185
3,834
Other non-interest income
798
934
1,291
1,251
Total non-interest income
4,201
5,825
9,143
9,969
Non-Interest Expense
Salaries and employee benefits
17,095
15,660
35,036
29,213
Occupancy
2,622
2,397
5,115
4,891
Professional fees
1,068
1,138
1,873
1,920
Deposit insurance premiums
713
917
1,450
2,068
Data processing
1,160
720
1,972
1,436
Advertising
757
435
1,449
738
Software and communication
1,198
1,034
2,468
2,099
Foreclosed assets, net
15
665
(38)
715
Other non-interest expense
4,575
2,847
7,544
5,551
Total non-interest expense
29,203
25,813
56,869
48,631
Net Income Before Taxes
19,572
18,840
40,588
33,783
Income tax expense
4,027
3,263
8,215
6,171
Net Income
$
15,545
$
15,577
$
32,373
$
27,612
Basic Earnings Per Share
$
0.31
$
0.30
$
0.65
$
0.54
Diluted Earnings Per Share
$
0.31
$
0.30
$
0.64
$
0.53
(1)
For the three-
and six-months ended June 30, 2021, this line represents the provision
for loan and lease losses. See further
discussion of this change in “Note 1: Nature of Operations and Summary of Significant Accounting Policies”
in the Notes to
Condensed Consolidated Financial Statements (unaudited).
See Notes to Condensed Consolidated Financial Statements (unaudited)
6
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - UNAUDITED
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
(Dollars in thousands)
Net Income
$
15,545
$
15,577
$
32,373
$
27,612
Other Comprehensive Income (Loss)
Unrealized gain (loss) on available-for-sale securities
(39,026)
5,527
(97,982)
(3,543)
Less: income tax expense (benefit)
(9,554)
1,354
(23,987)
(867)
Unrealized gain (loss) on available-for-sale securities, net of
income tax
(29,472)
4,173
(73,995)
(2,676)
Reclassification adjustment for realized losses included income
(12)
(13)
(38)
(3)
Less: income tax benefit
(3)
(3)
(9)
(1)
Less: reclassification adjustment for realized loss included in
income, net of income tax
(9)
(10)
(29)
(2)
Unrealized gain on cash flow hedges
1,385
0
4,040
0
Less: income tax expense
339
0
992
0
Unrealized gain on cash flow hedges, net of income tax
1,046
0
3,048
0
Other comprehensive income (loss)
(28,417)
4,183
(70,918)
(2,674)
Comprehensive Income (Loss)
$
(12,872)
$
19,760
$
(38,545)
$
24,938
See Notes to Condensed Consolidated Financial Statements (unaudited)
7
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED
Common Stock
Treasury Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated Other
Comprehensive
Income
Total
Shares
Amount
(Dollars in thousands)
Balance at March 31, 2021
51,678,669
$
523
$
(7,113)
$
523,156
$
89,722
$
22,546
$
628,834
Net income
-
0
0
0
15,577
0
15,577
Change in unrealized appreciation on
available-for-sale securities
-
0
0
0
0
4,183
4,183
Issuance of shares from equity-based awards
155,707
2
0
(94)
0
0
(92)
Open market common share repurchases
(875,696)
0
(12,887)
0
0
0
(12,887)
Stock-based compensation
-
0
0
1,575
0
0
1,575
Balance at June 30, 2021
50,958,680
$
525
$
(20,000)
$
524,637
$
105,299
$
26,729
$
637,190
Common Stock
Treasury Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated Other
Comprehensive Loss
Total
Shares
Amount
(Dollars in thousands)
Balance at March 31, 2022
49,728,253
$
529
$
(45,109)
$
527,468
$
161,323
$
(21,012)
$
623,199
Net income
-
0
0
0
15,545
0
15,545
Other comprehensive loss
-
0
0
0
0
(28,417)
(28,417)
Issuance of shares from equity-based awards
45,689
0
0
(40)
0
0
(40)
Open market common share repurchases
(237,993)
0
(3,392)
0
0
0
(3,392)
Stock-based compensation
-
0
0
1,120
0
0
1,120
Balance June 30, 2022
49,535,949
$
529
$
(48,501)
$
528,548
$
176,868
$
(49,429)
$
608,015
See Notes to Condensed Consolidated Financial Statements (unaudited)
8
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED
Common Stock
Treasury Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated Other
Comprehensive
Income
Total
Shares
Amount
(Dollars in thousands)
Balance at December 31, 2020
51,679,516
$
523
$
(6,061)
$
522,911
$
77,652
$
29,403
$
624,428
Net income
-
0
0
0
27,612
0
27,612
Change in unrealized depreciation of available-
for-sale securities
-
0
0
0
0
(2,674)
(2,674)
Issuance of shares from equity-based awards
243,357
2
0
(498)
0
0
(496)
Open market common share repurchases
(964,193)
0
(13,939)
0
0
0
(13,939)
Employee receivables from sale of stock
-
0
0
0
35
0
35
Stock-based compensation
-
0
0
2,224
0
0
2,224
Balance at June 30, 2021
50,958,680
$
525
$
(20,000)
$
524,637
$
105,299
$
26,729
$
637,190
Common Stock
Treasury Stock
Additional
Paid-in Capital
Retained
Earnings
Accumulated Other
Comprehensive
Income (Loss)
Total
Shares
Amount
(Dollars in thousands)
Balance at December 31, 2021
50,450,045
$
526
$
(28,347)
$
526,806
$
147,099
$
21,489
$
667,573
Cumulative effect from changes in accounting
principle
(1)
-
0
0
0
(2,610)
0
(2,610)
Net income
-
0
0
0
32,373
0
32,373
Change in unrealized depreciation of available-
for-sale securities
-
0
0
0
0
(70,918)
(70,918)
Issuance of shares from equity-based awards
348,729
3
0
(660)
0
0
(657)
Open market common share repurchases
(1,296,325)
0
(20,154)
0
0
0
(20,154)
Employee receivables from sale of stock
-
0
0
0
6
0
6
Stock-based compensation
0
0
2,235
0
0
2,235
Exercise of warrants
33,500
0
0
167
0
0
167
Balance June 30, 2022
49,535,949
$
529
$
(48,501)
$
528,548
$
176,868
$
(49,429)
$
608,015
(1)
Includes the impact of implementing Accounting Standards Update (“ASU”)
2016-13, Financial Instruments - Credit Losses (Accounting Standard Codification
(“ASC”) 326):
Measurement of Credit Losses on Financial Instruments.
See “Note 1: Nature of Operations and Summary of Significant Accounting
Policies” in the Notes to Condensed
Consolidated Financial Statements (unaudited) for more information on the
Company’s adoption of this guidance
and the impact to the Company’s
results of operations.
See Notes to Condensed Consolidated Financial Statements (unaudited)
9
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
Six Months Ended
June 30,
2022
2021
(Dollars in thousands)
Operating Activities
Net income
$
32,373
$
27,612
Items not requiring (providing) cash
Depreciation and amortization
2,474
2,715
Provision for credit losses
(1)
1,510
11,000
Accretion of discounts and amortization of premiums on securities
2,192
2,624
Stock based compensation
2,235
2,224
Foreclosed asset impairment
0
630
Deferred income taxes
2,557
1,235
Net increase in bank owned life insurance
(795)
(2,661)
Net realized gains on available-for-sale securities
38
3
Changes in
Interest receivable
(1,886)
1,420
Other assets
3,780
(2,160)
Other liabilities
(21,268)
(3,151)
Net cash provided by operating activities
23,210
41,491
Investing Activities
Net change in loans
(274,206)
193,151
Purchases of available-for-sale securities
(73,399)
(124,570)
Proceeds from maturities of available-for-sale securities
22,513
60,773
Proceeds from the sale of foreclosed assets
237
0
Purchase of premises and equipment
(1,135)
(152)
Proceeds from the sale of premises and equipment and related insurance claims
13
108
Purchase of restricted equity securities
(4,208)
0
Proceeds from sale of restricted equity securities
1,544
2,539
Proceeds from death benefit on bank owned life insurance
0
3,483
Net cash provided by (used in) investing activities
(328,641)
135,332
Financing Activities
Net decrease in demand deposits, savings, NOW and money market accounts
(47,861)
(98,678)
Net increase (decrease) in time deposits
108,684
(239,435)
Net increase (decrease) in fed funds purchased and repurchase agreements
6
(2,306)
Proceeds from Federal Home Loan Bank advances
50,000
0
Repayment of Federal Home Loan Bank advances
(130,000)
(10,000)
Net proceeds of Federal Home Loan Bank line of credit
140,000
0
Issuance of common shares, net of issuance cost
170
2
Proceeds from employee stock purchase plan
364
172
Repurchase of common stock
(20,154)
(13,939)
Acquisition of common stock for tax withholding obligations
(833)
(670)
Net decrease in employee receivables
6
35
Net cash provided by (used in) financing activities
100,382
(364,819)
Decrease in Cash and Cash Equivalents
(205,049)
(187,996)
Cash and Cash Equivalents, Beginning of Period
482,727
408,810
Cash and Cash Equivalents, End of Period
$
277,678
$
220,814
Supplemental Cash Flows Information
Interest paid
$
10,862
$
13,687
Income taxes paid
$
3,880
$
4,270
(1)
For the six-months ended June 30, 2021, this line represents the Provision for
loan losses.
Notes to Condensed Consolidated Financial Statements
(unaudited)
10
Note 1: Nature of Operations and Summary of Significant Accounting Policies
Organization and Nature of Operations
CrossFirst Bankshares, Inc. (the “Company”) is a bank holding company whose principal activities
are the ownership and
management of its wholly-owned subsidiary, CrossFirst Bank (the
“Original 10-Q”Bank”). In addition, the Bank has
3
subsidiaries including
CrossFirst Investments, Inc. (“CFI”) that holds investments in marketable
securities, CFBSA I, LLC and CFBSA II, LLC.
The Bank is primarily engaged in providing a full range of banking and financial
services to individual and corporate customers
through its branches in: (i) Leawood, Kansas; (ii) Wichita, Kansas; (iii) Kansas City, Missouri;
(iv) Oklahoma City, Oklahoma; (v)
Tulsa, Oklahoma; (vi) Dallas, Texas; (vii) Frisco, Texas; and (viii) Phoenix, Arizona.
On June 13, 2022, the Company announced its entry into an agreement under
which the Bank will acquire Farmers & Stockmens
Bank, the bank subsidiary of Central Bancorp, Inc. (collectively, Farmers
& Stockmens Bank and Central Bancorp, Inc. are herein
referred as “Central”), for the purpose of filing revised versions of Exhibits 31.1approximately $
75
million in cash. Central has branches in Colorado and 31.2 filed with the Original 10-Q.New Mexico. The transaction is
We are filing revised exhibits solely in ordercurrently expected to includeclose in the certifications set forthsecond half of 2022, subject to approval
by Central shareholders and bank regulatory authorities, as
well as the satisfaction of other customary closing conditions.
Basis of Presentation
The Company’s accounting and reporting policies conform to accounting
principles generally accepted in the ExhibitsUnited States
(“GAAP”). The consolidated financial statements include the language added to the introductory
portion of paragraph 4 and the language of revised paragraph 4(b), which language was inadvertently omitted from the certifications when
originally filed. The Amendment does not reflect events occurring after the dateaccounts of the filing of Company,
the Original 10-QBank, CFI, CFBSA I, LLC and CFBSA II,
LLC. All significant intercompany accounts and transactions have been eliminated in consolidation.
The condensed consolidated interim financial statements are unaudited.
Certain information and footnote disclosures presented in
accordance with GAAP have been condensed or modify or update any
of the other disclosures contained therein in any way. Accordingly, the Amendmentomitted and should be read in conjunction with the Original 10-Q.Company’s
consolidated financial
statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2021 (the “2021
Form 10-K”), filed with the Securities and Exchange Commission (the “SEC”) on
February 28, 2022.
In the opinion of management, the interim financial statements include all adjustments
which are of a normal, recurring nature
necessary for the fair presentation of the financial position, results of operations,
and cash flows of the Company. The consolidated
financial statements have been prepared in accordance with GAAP for interim financial information and the
instructions to Form 10-Q
adopted by the SEC.
Refer to the “accounting pronouncements implemented” below for
changes in the accounting policies of the Company.
No
significant changes to the Company’s accounting policies, other
than those mentioned under “accounting pronouncements implemented”
below, have occurred since December 31, 2021, the most recent date
audited financial statements were provided within the Company’s
2021
Form 10-K. Operating results for the interim periods disclosed herein are not necessarily
indicative of the results that may be
expected for a full year or any future period.
Use of Estimates
The Amendment consists solely 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 preceding cover page, this explanatory note, the exhibit index for the Amendment, the signatureCompany’s financial statements to those
pagejudgments and paragraphs 1, 2, 4 and 5 of eachassumptions, are critical to an understanding of the revised certifications filed as exhibits
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 the Amendment.significant change.
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
11
Cash Equivalents
The Company had $
174
million of cash and cash equivalents at the Federal Reserve Bank of Kansas City as of June 30,
2022.
Emerging Growth Company (“EGC”)
The Company is currently an EGC. An EGC may take advantage of reduced reporting requirements and is relieved of
certain
other significant requirements that are otherwise generally applicable
to public companies. Among the reductions and reliefs, the
Company elected to extend the transition period for complying with new or revised
accounting standards affecting public companies.
This means that the financial statements the Company files or furnishes will not be
subject to all new or revised accounting standards
generally applicable to public companies for the transition period
for so long as the Company remains an EGC or until the Company
affirmatively and irrevocably opts out of the extended transition period
under the JOBS Act.
Accounting Pronouncements Implemented
ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement
of Credit Losses on Financial
Instruments:
Background
– ASU 2016-13 and its subsequent amendments provide new guidance on the impairment model for financial assets
measured at amortized cost, including loans held-for-investment and
off-balance sheet credit exposures. The Current Expected
Credit Loss (“CECL”) model requires an estimate of expected credit losses, measured
over the contractual life of an instrument,
that considers forecasts of future economic conditions in addition to information
about past events and current conditions. ASU
2016-13 requires new disclosures, including the use of vintage
analysis on the Company’s credit quality indicators.
In addition, ASU 2016-13 removes the available-for-sale (“AFS”) securities other-than-temporary-impairment model that reduced
the cost basis of the investment and is replaced with an impairment model that
will recognize an allowance for credit losses on
available-for-sale securities.
Implementation
– The Company established a CECL committee to formulate and oversee the implementation process including
selection, implementation, and testing of third-party software.
The Company used a loss-rate ("cohort") method to estimate the expected allowance
for credit losses ("ACL") for all loan pools.
The cohort method identifies and captures the balance of a pool of loans with similar
risk characteristics, as of a particular point
in time to form a cohort, then tracks the respective losses generated by that cohort of loans over
their remaining lives, or until the
loans are “exhausted” (i.e., have reached an acceptable point in time at which
a significant majority of all losses are
expected to have been recognized). The cohort method closely aligned
with the Company's incurred loss model. This allowed the
Company to take advantages of the efficiencies of processes and procedures already
in practice.
The Company began parallel processing with the existing allowance
for loan losses model during the first quarter of 2019
recalibrating inputs as necessary. The Company formulated changes to policies, procedures,
disclosures, and internal controls that
were necessary to transition to the new standard. A third-party completed validation of the completeness, accuracy, and
reasonableness of the model in the fourth quarter of 2021. Refer to
“Note 4: Loans and Allowance for Credit Losses” for
additional information regarding the policies, procedures, and credit
quality indicators used by the Company.
Impact of adoption
– The Company adopted ASU 2016-13 on January 1, 2022 using the modified retrospective approach. All
disclosures as of and for the three-
and six-month periods ended June 30, 2022 are presented in accordance
with ASC 326,
Financial Instruments-Credit Losses. The Company did not recast comparative
financial periods and has presented those
disclosures under previously applicable GAAP. Because the Company
chose the cohort method, the model must consider net
Notes to Condensed Consolidated Financial Statements
(unaudited)
12
deferred fees and costs. As a result, the Company transferred the previously disclosed unearned fees into the applicable loan
segments.
The Company used the prospective transition approach for AFS securities for which other-than-temporary-impairment
has been
recognized prior to January 1, 2022. As a result, the amortized cost basis remains the same before and after the effective date of
ASU 2016-13.
The following table illustrates the impact of adopting ASU 2016-13 and details how outstanding loan balances have been
reclassified because of changes made to the Company’s loan segments under
CECL:
January 1, 2022
As Reported under ASU
2016-13
Pre-ASU 2016-13
Impact of ASU 2016-13
Adoption
(Dollars in thousands)
Assets:
Loans (outstanding balance)
Commercial and Industrial
$
843,024
$
1,401,681
$
(558,657)
Commercial and Industrial lines of credit
617,398
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” for detail on the
loan segments.
Accounting Policies:
The Company updated the below accounting policies due to adoption of ASU 2016-13:
Notes to Condensed Consolidated Financial Statements
(unaudited)
13
Accrued Interest -
The Company made an accounting policy election to exclude accrued interest from
the amortized cost basis of loans. In addition,
the Company elected not to measure an allowance for credit losses for accrued
interest receivable, because a timely write-off
policy exists. The policy generally requires loans to be placed on non-accrual
when principal or interest is 90 days or more past
due unless the loan is well-secured and in the process of collection. A well-secured loan means that collateral or a guaranty has
sufficient value to pay off the loan in full. When a loan is placed on non-accrual, accrued
interest is reversed against interest
income.
The Company made a policy election to exclude accrued interest from
the amortized cost basis of AFS securities. AFS securities
are placed on non-accrual status when the Company no longer expects
to receive all contractual amounts due, which is generally
at 90 days past due. Accrued interest receivable is reversed against interest income when a security is placed on non-accrual
status. Accordingly, the Company did not recognize an allowance for credit loss against accrued interest receivable.
Available-for-sale Securities in an Unrealized Loss Position –
For AFS securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more
likely than not
that it will be required to sell the security before recovery of its amortized cost basis. If
either of the criteria regarding
intent or
requirement to sell is met, the securities’ amortized cost basis is written down to fair value through income. For AFS securities
that do not meet the criteria above, the Company evaluates whether the decline
in fair value has resulted from credit losses or
other factors. Management considers the extent to which fair value is less than amortized
cost, any changes to the rating of the
security by a rating agency, and adverse conditions specifically related to
the security, among other factors.
If this assessment indicates that a credit loss exists, the present value of cash flows
expected to be collected from the security is
compared to the amortized cost basis of the security. If the present value of
cash flows expected to be collected is less than the
amortized cost basis, a credit loss exists and an allowance for credit losses is recorded
for the credit loss, limited by the amount
that the fair value is less than amortized cost basis.
ASU 2016-02, Leases (Topic 842):
Background
– ASU 2016-02 and its subsequent amendments require lessees to recognize the assets and liabilities that arise
from
such leases. This represents a change from previous GAAP that did not require operating leases to be recognized on the lessees’
balance sheet. The purpose
of Topic 842 is to increase transparency and comparability between organizations
that enter into lease
agreements.
The update modifies lease disclosure requirements as well.
On the lease commencement date (or on the date of adoption), a lessee is required
to measure and record a lease liability equal to
the present value of the remaining lease payments, discounted using an appropriate
discount rate. In addition, a right-of-use asset
is recorded that consists of the initial measurement of the lease liability adjusted for
certain payments, including lease incentives
received and initial direct costs.
For operating leases, after lease commencement, the lease liability is reported
at the present value of the unpaid lease payments
discounted using the discount rate established at lease commencement. The
lease expense is calculated by summing all future
lease payments in the lease term and lease incentives not yet recognized. The sum is then
amortized on a straight-line basis over
the lease term. The right-of-use asset is amortized as the difference between
the straight-line expense and the amortizing lease
liability.
Implementation
– The Company’s lease agreements to which Topic 842 has been applied primarily relate
to branch real estate
properties located in the Kansas City, Missouri; Tulsa, Oklahoma; Dallas, Texas; Frisco, Texas; and Phoenix, Arizona markets.
The remaining lease terms range from two to twenty years with potential renewal
terms. The leases include various payment
Notes to Condensed Consolidated Financial Statements
(unaudited)
14
terms including fixed payments with annual increases to variable payments.
In addition, several of the leases include lease
incentives.
The discount rates were not readily determinable in the lease agreements. As a result, the Company used the incremental
borrowing rate in accordance with Topic 842. The Company used the Federal Home Loan Bank (“FHLB”)
yield curve as the
incremental borrowing rate.
The Company elected several practical expedients that are listed below:
Practical Expedient Elected
Impact to Lease Accounting Implementation
An entity need not reassess whether any expired
or existing contracts are or contain leases.
The Company was not required to re-evaluate previously identified leases,
including embedded leases, that existed as of the adoption date.
An entity need not reassess the lease classification
for an expired or existing leases.
The Company was not required to re-classify previously identified operating
leases that existed as of the adoption date. The Company did not have any
capital leases as of December 31, 2021.
An entity need not reassess initial direct costs for
any existing leases.
The Company was not required to review previously established lease
agreements as of the adoption date for initial direct costs. Initial direct costs
increase the right-of-use asset and do not impact the lease liability.
An entity may combine lease and non-lease
components.
If not elected, the Company would be required to allocate the total
consideration in a lease contract to lease and non-lease components based
on
their relative standalone price. The election results in higher right-of-use
assets and lease liabilities.
Short-term lease exemption.
The Company is not required to record a right-of-use asset and lease liability
for a lease whose term is 12 months or less and does not include a purchase
option that the lessee is reasonably certain to exercise.
Impact of Adoption
– The Company adopted ASU 2016-02 on January 1, 2022 using the modified retrospective approach. The
Company did not recast comparative financial periods and has presented
those disclosures under previously applicable GAAP.
The following table illustrates the impact of adopting ASU 2016-02 on the Company’s financial statements:
January 1, 2022
As Reported under ASU
2016-02
Pre-ASU 2016-02
Impact of ASU 2016-02
Adoption
(Dollars in thousands)
Assets:
Right-of-use asset
$
23,589
$
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.
Notes to Condensed Consolidated Financial Statements
(unaudited)
15
In addition, the update requires disclosure of current-period gross charge
-offs by year of origination for financing receivables.
For the Company, the amendments are effective as of January 1, 2023, but early
adoption is permitted and would be applied as of
the beginning of the fiscal year of adoption.
Impact of adoption
– The Company anticipates adopting ASU 2022-02 as of January 1, 2023. At this time, an estimate of the
impact cannot be established.
Note 2: Earnings Per Share
The following table presents the computation of basic and diluted earnings per
share:
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
(Dollars in thousands except per share data)
Earnings per Share
Net income available to common stockholders
$
15,545
$
15,577
$
32,373
$
27,612
Weighted average common shares
49,758,263
51,466,885
50,003,418
51,561,519
Earnings per share
$
0.31
$
0.30
$
0.65
$
0.54
Diluted Earnings per Share
Net income available to common stockholders
$
15,545
$
15,577
$
32,373
$
27,612
Weighted average common shares
49,758,263
51,466,885
50,003,418
51,561,519
Effect of dilutive shares
445,462
742,656
558,450
733,463
Weighted average dilutive common shares
50,203,725
52,209,541
50,561,868
52,294,982
Diluted earnings per share
$
0.31
$
0.30
$
0.64
$
0.53
Stock-based awards not included because to do so would be
antidilutive
711,375
417,950
450,541
639,887
Note 3: Securities
The amortized cost and approximate fair values, together with gross unrealized
gains and losses, of period end available-for-sale
securities consisted of the following:
June 30, 2022
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Approximate
Fair Value
(Dollars in thousands)
Available-for-sale securities
Mortgage-backed - GSE residential
$
179,119
$
2
$
18,352
$
160,769
Collateralized mortgage obligations - GSE residential
13,611
0
400
13,211
State and political subdivisions
566,726
2,199
52,236
516,689
Corporate bonds
5,118
32
172
4,978
Total available-for-sale securities
$
764,574
$
2,233
$
71,160
$
695,647
Notes to Condensed Consolidated Financial Statements
(unaudited)
16
December 31, 2021
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Approximate
Fair Value
(Dollars in thousands)
Available-for-sale securities
Mortgage-backed - GSE residential
$
161,675
$
1,809
$
1,774
$
161,710
Collateralized mortgage obligations - GSE residential
18,130
311
10
18,431
State and political subdivisions
532,906
29,329
767
561,468
Corporate bonds
4,241
119
0
4,360
Total available-for-sale securities
$
716,952
$
31,568
$
2,551
$
745,969
As of June 30, 2022, the available-for-sale securities had $
6
million of accrued interest, excluded from the amortized cost basis.
The amortized cost and fair value of available-for-sale securities at June 30,
2022, by contractual maturity, are shown below:
June 30, 2022
Within
After One to
After Five to
After
One Year
Five Years
Ten Years
Ten Years
Total
(Dollars in thousands)
Available-for-sale securities
Mortgage-backed - GSE residential
(1)
Amortized cost
$
-
$
24
$
117
$
178,978
$
179,119
Estimated fair value
$
-
$
24
$
117
$
160,628
$
160,769
Weighted average yield
(2)
-
%
4.71
%
4.03
%
2.00
%
2.00
%
Collateralized mortgage obligations -
GSE residential
(1)
Amortized cost
$
-
$
-
$
2,386
$
11,225
$
13,611
Estimated fair value
$
-
$
-
$
2,338
$
10,873
$
13,211
Weighted average yield
(2)
-
%
-
%
2.77
%
2.19
%
2.29
%
State and political subdivisions
Amortized cost
$
796
$
4,746
$
98,444
$
462,740
$
566,726
Estimated fair value
$
805
$
4,871
$
99,175
$
411,838
$
516,689
Weighted average yield
(2)
3.44
%
3.89
%
3.31
%
2.72
%
2.83
%
Corporate bonds
Amortized cost
$
-
$
499
$
4,619
$
-
$
5,118
Estimated fair value
$
-
$
524
$
4,454
$
-
$
4,978
Weighted average yield
(2)
-
%
6.63
%
4.29
%
-
%
4.52
%
Total available-for-sale securities
Amortized cost
$
796
$
5,269
$
105,566
$
652,943
$
764,574
Estimated fair value
$
805
$
5,419
$
106,084
$
583,339
$
695,647
Weighted average yield
(2)
3.44
%
4.15
%
3.34
%
2.51
%
2.64
%
(1)
Actual maturities may differ from contractual maturities because issuers may have
the rights to call or prepay obligations with or
without prepayment penalties.
(2)
Yields are calculated based on amortized cost.
Notes to Condensed Consolidated Financial Statements
(unaudited)
17
The following tables show the number of securities, unrealized loss, and fair value of
the Company’s investments with unrealized
losses, aggregated by investment class and length of time that individual
securities have been in a continuous unrealized loss position at
June 30, 2022 and December 31, 2021:
June 30, 2022
Less than 12 Months
12 Months or More
Total
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
Number of
Securities
(Dollars in thousands)
Available-for-sale
securities
Mortgage-backed -
GSE residential
$
124,609
$
11,678
45
$
34,332
$
6,674
7
$
158,941
$
18,352
52
Collateralized
mortgage obligations
- GSE residential
12,809
386
18
403
14
1
13,212
400
19
State and political
subdivisions
370,681
50,096
264
7,775
2,140
9
378,456
52,236
273
Corporate bonds
4,696
172
4
0
0
0
4,696
172
4
Total temporarily
impaired securities
$
512,795
$
62,332
331
$
42,510
$
8,828
17
$
555,305
$
71,160
348
December 31, 2021
Less than 12 Months
12 Months or More
Total
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
Number of
Securities
(Dollars in thousands)
Available-for-sale
securities
Mortgage-backed -
GSE residential
$
87,306
$
1,774
16
$
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
5
4
74,225
767
43
Corporate bonds
0
0
0
0
0
0
0
0
0
Total temporarily
impaired securities
$
161,024
$
2,546
57
$
1,310
$
5
4
$
162,334
$
2,551
61
Based on the Company’s evaluation at June 30, 2022, under the new
impairment model, an allowance for credit losses has
0
t
been recorded
0
r have unrealized losses been recognized into income. The issuers of the securities are of high
credit quality and have a
long history of no credit losses; management does not intend to sell and
it is likely that management will not be required to sell the
securities prior to their anticipated recovery;
and the decline in fair value is largely attributed to changes in interest rates and other
market conditions. The issuers continue to make timely principal and interest
payments.
Notes to Condensed Consolidated Financial Statements
(unaudited)
18
The following tables show the gross gains and losses on securities that matured
or were sold:
For the Three Months Ended
For the Six Months Ended
June 30, 2022
June 30, 2022
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Loss
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Loss
(Dollars in thousands)
Available-for-sale securities
$
2
$
(14)
$
(12)
$
3
$
(41)
$
(38)
For the Three Months Ended
For the Six Months Ended
June 30, 2021
June 30, 2021
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Loss
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Loss
(Dollars in thousands)
Available-for-sale securities
$
5
$
(18)
$
(13)
$
26
$
(29)
$
(3)
Equity Securities
Equity securities consist of a $
2
million investment in a Community Reinvestment Act (“CRA”) mutual fund and $
1
million in
three private equity funds. Equity securities are included in “other assets” on
the Consolidated Balance Sheets.
The Company elected a measurement alternative for the three private
equity funds that allows the securities to remain at cost until
an impairment is identified or an observable price change for an identical
or similar investment of the same issuer occurs. Impairment is
recorded when there is evidence that the expected fair value of the
investment has declined to below the recorded cost. No such events
occurred during the three or six-month periods ended June 30, 2022.
The following is a summary of the unrealized and realized gains and losses recognized
in net income on equity securities:
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
(Dollars in thousands)
Net gains (losses) recognized during the reporting period on equity securities
$
(71)
$
6
$
(174)
$
(33)
Less: net gains recognized during the reporting period on equity securities sold
during the reporting period
0
0
0
0
Unrealized gains (losses) recognized during the reporting period on equity
securities still held at the reporting date
$
(71)
$
6
$
(174)
$
(33)
Notes to Condensed Consolidated Financial Statements
(unaudited)
19
Note 4:
Loans and Allowance for Credit Losses
Loan Portfolio Segments
Categories of loans at June 30, 2022 and December 31, 2021 include:
June 30, 2022
December 31, 2021
(Dollars in thousands)
Commercial and industrial
$
812,411
$
843,024
Commercial and industrial lines of credit
787,664
617,398
Energy
233,000
278,579
Commercial real estate
1,435,893
1,278,479
Construction and land development
584,415
574,852
Residential real estate
371,337
360,046
Multifamily real estate
249,641
240,230
Consumer
53,873
63,605
Loans, net of unearned fees
4,528,234
4,256,213
Less: allowance for credit losses
(1)
55,817
58,375
Loans, net
$
4,472,417
$
4,197,838
(1)
As of December 31, 2021, this line represents the allowance for loan and lease losses. See
further discussion in "Note 1: Nature of
Operations and Summary of Significant Accounting Policies.”
Accrued interest of $
12
million and $
10
million at June 30, 2022 and December 31, 2021, respectively, presented
in “other
assets” on the Consolidated Balance Sheets is excluded from the amortized cost basis disclosed
in the above table.
The Company aggregates the loan portfolio by similar credit risk characteristics. The
loan segments are described in additional
detail below:
●
Commercial and Industrial
- The category includes loans to commercial and industrial customers for use in property,
plant, and equipment purchases and expansions. Loan terms typically require
principal and interest payments that
decrease the outstanding loan balance.
Repayment is primarily from the cash flow of a borrower’s principal business
operation. Credit risk is driven by creditworthiness of a borrower and
the economic conditions that impact the cash flow
stability from business operations.
The category also includes the remaining PPP loans outstanding. These loans were established by the
Coronavirus Aid,
Relief, and Economic Security Act which authorized forgivable loans to small businesses to pay their employees during
the COVID-19 pandemic. The loans are
100
percent guaranteed by the Small Business Administration (“SBA”) and
repayment is primarily dependent on the borrower’s cash flow or SBA repayment approval.
●
Commercial and Industrial Lines of Credit
– The category includes lines of credit to commercial and industrial
customers for working capital needs. The loan terms typically require interest-only
payments, mature in one year, and
require the full balance paid-off at maturity. Lines of credit allow the borrower
to drawdown and repay the line of credit
based on the customer’s cash flow needs. Repayment is primarily from the operating
cash flow of the business. Credit
risk is driven by creditworthiness of a borrower and the economic conditions that impact
the cash flow stability from
business operations.
●
Energy
- The category includes loans to oil and natural gas customers for use in financing working
capital needs,
exploration and production activities, and acquisitions. The loans are repaid primarily
from the conversion of crude oil
and natural gas to cash. Credit risk is driven by creditworthiness of a borrower and the
economic conditions that impact
the cash flow stability from business operations. Energy loans are typically collateralized
with the underlying oil and gas
reserves.
Notes to Condensed Consolidated Financial Statements
(unaudited)
20
●
Commercial Real Estate
- The category includes loans that typically involve larger principal amounts and repayment
of
these loans is generally dependent on the successful operations of the property
securing the loan or the business
conducted on the property securing the loan. These are viewed primarily as cash flow loans and
secondarily as loans
secured by real estate. Credit risk may be impacted by the creditworthiness of
a borrower, property values and the local
economies in the borrower’s market areas.
●
Construction and Land Development
- The category includes loans that are usually based upon estimates of costs and
estimated value of the completed project and include independent appraisal reviews
and a financial analysis of the
developers and property owners. Sources of repayment include permanent
loans, sales of developed property or an
interim loan commitment from the Company until permanent financing
is obtained. These loans are higher risk than
other real estate loans due to their ultimate repayment being sensitive to interest rate changes,
general economic
conditions and the availability of long-term financing. Credit risk may
be impacted by the creditworthiness of a
borrower, property values and the local economies in the borrower’s market
areas.
●
Residential Real Estate
- The category includes loans that are generally secured by owner-occupied
1-4 family
residences.
Repayment of these loans is primarily dependent on the personal income and
credit rating of the borrowers.
Credit risk in these loans can be impacted by economic conditions within or outside
the borrower’s market areas that
might impact either property values or a borrower’s personal income.
●
Multifamily Real Estate -
The category includes loans that are generally secured by multifamily properties.
Repayment
of these loans is primarily dependent on occupancy rates and the personal
income of the tenants. Credit risk in these
loans can be impacted by economic conditions within or outside the
borrower’s market areas that might impact either
property values or the tenants’ personal income.
●
Consumer
- The category includes revolving lines of credit and various term loans such
as automobile loans and loans
for other personal purposes. Repayment is primarily dependent on
the personal income and credit rating of the
borrowers. Credit risk is driven by consumer economic factors (such as unemployment
and general economic conditions
in the borrower’s market area) and the creditworthiness of a borrower.
Allowance for Credit Losses
The Company established a CECL committee that meets at least quarterly to oversee the ACL methodology. The committee
estimates the ACL using relevant available information, from internal and external sources, relating to past events, current conditions,
and reasonable and supportable forecasts. The ACL represents the Company’s current estimate of lifetime credit losses inherent in the
loan portfolio at the balance sheet date. The ACL is adjusted for expected prepayments when appropriate and excludes expected
extensions, renewals, and modifications.
The ACL is the sum of three components: (i) asset specific / individual loan reserves; (ii) quantitative (formulaic or pooled)
reserves; and (iii) qualitative (judgmental) reserves.
Asset Specific -
When unique qualities cause a loan’s exposure to loss to be inconsistent with the
pool segments, the loan is
individually evaluated. Individual reserves are calculated for loans
that are risk-rated substandard and on non-accrual and loans that are
risk-rated doubtful or loss that are greater than a defined dollar threshold.
In addition, TDRs are also individually evaluated. Reserves on
asset specific loans may be based on collateral, for collateral-dependent
loans, or on quantitative and qualitative factors, including
expected cash flow, market sentiment, and guarantor support.
Quantitative
- The Company used the cohort method, which identifies and captures the balance of a pool of loans with
similar
risk characteristics as of a particular time to form a cohort. For example, the
outstanding commercial and industrial loans and
commercial and industrial lines of credit loan segments as of quarter
-end are considered cohorts. The cohort is then tracked for losses
over the remaining life of loans or until the pool is exhausted. The Company used a lookback
period of approximately six-years to
establish the cohort population. By using the historical data timeframe,
the Company can establish a historical loss factor for each of its
loan segments and adjust the losses with qualitative and forecast factors.
Qualitative
– The Company uses qualitative factors to adjust the historical loss factors for current conditions. The Company
primarily uses the following qualitative factors:
Notes to Condensed Consolidated Financial Statements
(unaudited)
21
◾
The nature and volume of changes in risk ratings;
◾
The volume and severity of past due loans;
◾
The volume of non-accrual loans;
◾
The nature and volume of the loan portfolio, including the existence, growth,
and effect of any concentrations of credit;
◾
Changes in the Institute of Supply Management’s Purchasing Manager Indices
(“PMI”) for services and manufacturing;
◾
Changes in collateral values;
◾
Changes in lending policies, procedures, and quality of loan reviews;
◾
Changes in lending staff; and
◾
Changes in competition, legal and regulatory environments
In addition to the current condition qualitative adjustments, the Company uses the
Federal Reserve’s unemployment forecast to
adjust the ACL based on forward looking guidance. The Federal Reserve’s unemployment forecast extends three-years and is eventually
reverted to the mean of six percent by year 10.
Drivers of Change in the ACL
The ACL increased by $
586
thousand during the three-month period ended June 30, 2022 driven by
an increase of $
3.8
million
related to loan growth, performance and economic factors, partially
offset by $
1.1
million in net charge-offs and a reduction of $
2.2
million in reserves on impaired loans. The ACL declined by $
2.6
million between January 1, 2022 and June 30, 2022 driven by $
2.2
million in net charge-offs and a reduction of $
5.2
million in reserves on impaired loans which were partially offset
by an increase of $
4.9
million related to loan growth, performance and economic factors.
Credit Quality Indicators
Internal Credit Risk Ratings
The Company uses a weighted average risk rating factor to adjust the historical
loss factors for current events. Risk ratings
incorporate the criteria utilized by regulatory authorities to describe criticized
assets, but separate various levels of risk concentrated
within the regulatory “Pass” category. Risk ratings are established for
loans at origination and are monitored on an ongoing basis. The
rating assigned to a loan reflects the risks posed by the borrower’s expected performance
and the transaction’s structure. Performance
metrics used to determine a risk rating include, but are not limited to, cash flow
adequacy, liquidity, and collateral. A description of the
loan risk ratings follows:
Loan Grades
●
Pass (risk rating 1-4)
- The category includes loans that are considered satisfactory. The category includes borrowers
that generally maintain good liquidity and financial condition or
the credit is currently protected with sales trends
remaining flat or declining. Most ratios compare favorably with industry
norms and Company policies. Debt is
programmed and timely repayment is expected.
●
Special Mention (risk rating 5)
- The category includes borrowers that generally exhibit adverse trends in operations or
an imbalanced position in their balance sheet that has not reached a point where repayment
is jeopardized. Credits are
currently protected but, if left uncorrected, the potential weaknesses may
result in deterioration of the repayment
prospects for the credit or in the Company’s credit or lien position at a future date. These credits are
not adversely
classified and do not expose the Company to enough risk to warrant adverse classification.
●
Substandard (risk rating 6)
- The category includes borrowers that generally exhibit well-defined weakness(es) that
jeopardize repayment. Credits are inadequately protected by the current worth
and paying capacity of the obligor or of
the collateral pledged. A distinct possibility exists that the Company will sustain some loss if deficiencies are not
corrected. Loss potential, while existing in the aggregate amount of substandard assets, does
not have to exist in
individual assets classified substandard. Substandard loans include
both performing and non-performing loans and are
broken out in the table below.
Notes to Condensed Consolidated Financial Statements
(unaudited)
22
●
Doubtful (risk rating 7)
- The category includes borrowers that exhibit weaknesses inherent in a substandard credit and
characteristics that these weaknesses make collection or liquidation in full highly
questionable or improbable based on
existing facts, conditions and values. Because of reasonably specific pending
factors, which may work to the advantage
and strengthening of the assets, classification as a loss is deferred until its more
exact status may be determined.
●
Loss (risk rating 8)
- Credits which are considered uncollectible or of such little value that their continuance
as a
bankable asset is not warranted.
Notes to Condensed Consolidated Financial Statements (unaudited)
23
The following tables present the credit risk profile of the Company’s loan portfolio
based on internal rating categories and loan segments:
As of June 30, 2022
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
Loans
Revolving
Loans
converted to
Term Loans
Total
(Dollars in thousands)
Commercial and industrial
Pass
$
197,451
$
330,830
$
76,610
$
58,648
$
59,121
$
22,720
$
0
$
22,166
$
767,546
Special mention
721
0
14,488
1,060
313
69
0
3,414
20,065
Substandard - accrual
0
0
0
2,290
766
49
0
16,677
19,782
Substandard - non-
accrual
0
994
0
21
1,397
738
0
1,868
5,018
Doubtful
0
0
0
0
0
0
0
0
0
Total
$
198,172
$
331,824
$
91,098
$
62,019
$
61,597
$
23,576
$
0
$
44,125
$
812,411
Commercial and industrial
lines of credit
Pass
$
0
$
0
$
0
$
0
$
0
$
0
$
734,130
$
0
$
734,130
Special mention
0
0
0
0
0
0
35,139
0
35,139
Substandard - accrual
0
0
0
0
0
0
8,790
0
8,790
Substandard - non-
accrual
0
0
0
0
0
0
9,605
0
9,605
Doubtful
0
0
0
0
0
0
0
0
0
Total
$
0
$
0
$
0
$
0
$
0
$
0
$
787,664
$
0
$
787,664
Energy
Pass
$
7,445
$
900
$
264
$
44
$
0
$
0
$
198,257
$
210
$
207,120
Special mention
0
1,469
0
0
0
0
12,494
0
13,963
Substandard - accrual
0
0
0
0
10
0
6,013
0
6,023
Substandard - non-
accrual
0
0
0
0
0
0
3,750
0
3,750
Doubtful
0
0
0
0
0
0
2,144
0
2,144
Total
$
7,445
$
2,369
$
264
$
44
$
10
$
0
$
222,658
$
210
$
233,000
Notes to Condensed Consolidated Financial Statements (unaudited)
24
As of June 30, 2022
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
Loans
Revolving
Loans
converted to
Term Loans
Total
(Dollars in thousands)
Commercial real estate
Pass
$
219,481
$
273,536
$
152,920
$
114,384
$
71,024
$
83,540
$
330,625
$
100,089
$
1,345,599
Special mention
464
29,688
0
425
7,499
292
0
33,294
71,662
Substandard - accrual
10,681
0
0
0
0
0
0
992
11,673
Substandard - non-
accrual
0
2,498
292
0
77
1,109
0
2,983
6,959
Doubtful
0
0
0
0
0
0
0
0
0
Total
$
230,626
$
305,722
$
153,212
$
114,809
$
78,600
$
84,941
$
330,625
$
137,358
$
1,435,893
Construction and land development
Pass
$
122,363
$
249,651
$
131,909
$
51,139
$
3,751
$
4,503
$
13,164
$
0
$
576,480
Special mention
0
7,935
0
0
0
0
0
0
7,935
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
$
122,363
$
257,586
$
131,909
$
51,139
$
3,751
$
4,503
$
13,164
$
0
$
584,415
Residential real estate
Pass
$
38,134
$
79,391
$
121,547
$
47,354
$
40,803
$
36,793
$
626
$
0
$
364,648
Special mention
0
0
0
0
0
0
0
0
0
Substandard - accrual
0
3,308
3,183
0
0
0
0
0
6,491
Substandard - non-
accrual
0
0
0
0
0
0
0
198
198
Doubtful
0
0
0
0
0
0
0
0
0
Total
$
38,134
$
82,699
$
124,730
$
47,354
$
40,803
$
36,793
$
626
$
198
$
371,337
Notes to Condensed Consolidated Financial Statements (unaudited)
25
As of June 30, 2022
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
Loans
Revolving
Loans
converted to
Term Loans
Total
(Dollars in thousands)
Multifamily real estate
Pass
$
58,346
$
28,407
$
5,424
$
12,070
$
3,115
$
1,901
$
123,802
$
16,538
$
249,603
Special mention
0
0
0
0
0
0
0
38
38
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
$
58,346
$
28,407
$
5,424
$
12,070
$
3,115
$
1,901
$
123,802
$
16,576
$
249,641
Consumer
Pass
$
1,811
$
2,691
$
1,975
$
233
$
114
$
10
$
47,039
$
0
$
53,873
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
$
1,811
$
2,691
$
1,975
$
233
$
114
$
10
$
47,039
$
0
$
53,873
Total
Pass
$
645,031
$
965,406
$
490,649
$
283,872
$
177,928
$
149,467
$
1,447,643
$
139,003
$
4,298,999
Special mention
1,185
39,092
14,488
1,485
7,812
361
47,633
36,746
148,802
Substandard - accrual
10,681
3,308
3,183
2,290
776
49
14,803
17,669
52,759
Substandard - non-
accrual
0
3,492
292
21
1,474
1,847
13,355
5,049
25,530
Doubtful
0
0
0
0
0
0
2,144
0
2,144
Total
$
656,897
$
1,011,298
$
508,612
$
287,668
$
187,990
$
151,724
$
1,525,578
$
198,467
$
4,528,234
Notes to Condensed Consolidated Financial Statements (unaudited)
26
Loan Portfolio Aging Analysis
The following tables present the Company’s loan portfolio aging analysis as of
June 30, 2022:
As of June 30, 2022
Amortized Cost Basis by Origination Year and Past Due Status
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
loans
Revolving
loans
converted to
term loans
Total
(Dollars in thousands)
Commercial and industrial
30-59 days
$
0
$
0
$
7
$
88
$
0
$
0
$
0
$
126
$
221
60-89 days
0
0
0
0
0
74
0
0
74
Greater than 90 days
0
104
3
10
1,383
655
0
0
2,155
Total past due
0
104
10
98
1,383
729
0
126
2,450
Current
198,172
331,720
91,088
61,921
60,214
22,847
0
43,999
809,961
Total
$
198,172
$
331,824
$
91,098
$
62,019
$
61,597
$
23,576
$
0
$
44,125
$
812,411
Greater than 90 days
and accruing
$
0
$
0
$
3
$
0
$
0
$
0
$
0
$
0
$
3
Commercial and industrial lines of credit
30-59 days
$
0
$
0
$
0
$
0
$
0
$
0
$
2,086
$
0
$
2,086
60-89 days
0
0
0
0
0
0
784
0
784
Greater than 90 days
0
0
0
0
0
0
11,765
0
11,765
Total past due
0
0
0
0
0
0
14,635
0
14,635
Current
0
0
0
0
0
0
773,029
0
773,029
Total
$
0
$
0
$
0
$
0
$
0
$
0
$
787,664
$
0
$
787,664
Greater than 90 days
and accruing
$
0
$
0
$
0
$
0
$
0
$
0
$
2,160
$
0
$
2,160
Energy
30-59 days
$
0
$
1,469
$
0
$
0
$
0
$
0
$
0
$
0
$
1,469
60-89 days
0
0
0
0
0
0
0
0
0
Greater than 90 days
0
0
0
0
0
0
5,894
0
5,894
Total past due
0
1,469
0
0
0
0
5,894
0
7,363
Current
7,445
900
264
44
10
0
216,764
210
225,637
Total
$
7,445
$
2,369
$
264
$
44
$
10
$
0
$
222,658
$
210
$
233,000
Greater than 90 days
and accruing
$
0
$
0
$
0
$
0
$
0
$
0
$
0
$
0
$
0
Notes to Condensed Consolidated Financial Statements (unaudited)
27
As of June 30, 2022
Amortized Cost Basis by Origination Year and Past Due Status
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
loans
Revolving
loans
converted to
term loans
Total
(Dollars in thousands)
Commercial real estate
30-59 days
$
0
$
9,662
$
0
$
0
$
0
$
0
$
0
$
0
$
9,662
60-89 days
0
0
0
0
77
0
0
0
77
Greater than 90 days
0
0
0
0
0
0
0
2,983
2,983
Total past due
0
9,662
0
0
77
0
0
2,983
12,722
Current
230,626
296,060
153,212
114,809
78,523
84,941
330,625
134,375
1,423,171
Total
$
230,626
$
305,722
$
153,212
$
114,809
$
78,600
$
84,941
$
330,625
$
137,358
$
1,435,893
Greater than 90 days
and accruing
$
0
$
0
$
0
$
0
$
0
$
0
$
0
$
0
$
0
Construction and land development
30-59 days
$
0
$
0
$
0
$
2,097
$
0
$
0
$
0
$
0
$
2,097
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
2,097
0
0
0
0
2,097
Current
122,363
257,586
131,909
49,042
3,751
4,503
13,164
0
582,318
Total
$
122,363
$
257,586
$
131,909
$
51,139
$
3,751
$
4,503
$
13,164
$
0
$
584,415
Greater than 90 days
and accruing
$
0
$
0
$
0
$
0
$
0
$
0
$
0
$
0
$
0
Residential real estate
30-59 days
$
0
$
121
$
0
$
0
$
0
$
0
$
0
$
0
$
121
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
121
0
0
0
0
0
0
121
Current
38,134
82,578
124,730
47,354
40,803
36,793
626
198
371,216
Total
$
38,134
$
82,699
$
124,730
$
47,354
$
40,803
$
36,793
$
626
$
198
$
371,337
Greater than 90 days
and accruing
$
0
$
0
$
0
$
0
$
0
$
0
$
0
$
0
$
0
Notes to Condensed Consolidated Financial Statements (unaudited)
28
As of June 30, 2022
Amortized Cost Basis by Origination Year and Past Due Status
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
loans
Revolving
loans
converted to
term loans
Total
(Dollars in thousands)
Multifamily real estate
30-59 days
$
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
58,346
28,407
5,424
12,070
3,115
1,901
123,802
16,576
249,641
Total
$
58,346
$
28,407
$
5,424
$
12,070
$
3,115
$
1,901
$
123,802
$
16,576
$
249,641
Greater than 90 days
and accruing
$
0
$
0
$
0
$
0
$
0
$
0
$
0
$
0
$
0
Consumer
30-59 days
$
0
$
44
$
0
$
0
$
0
$
0
$
0
$
0
$
44
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
44
0
0
0
0
0
0
44
Current
1,811
2,647
1,975
233
114
10
47,039
0
53,829
Total
$
1,811
$
2,691
$
1,975
$
233
$
114
$
10
$
47,039
$
0
$
53,873
Greater than 90 days
and accruing
$
0
$
0
$
0
$
0
$
0
$
0
$
0
$
0
$
0
Total
30-59 days
$
0
$
11,296
$
7
$
2,185
$
0
$
0
$
2,086
$
126
$
15,700
60-89 days
0
0
0
0
77
74
784
0
935
Greater than 90 days
0
104
3
10
1,383
655
17,659
2,983
22,797
Total past due
0
11,400
10
2,195
1,460
729
20,529
3,109
39,432
Current
656,897
999,898
508,602
285,473
186,530
150,995
1,505,049
195,358
4,488,802
Total
$
656,897
$
1,011,298
$
508,612
$
287,668
$
187,990
$
151,724
$
1,525,578
$
198,467
$
4,528,234
Greater than 90 days
and accruing
$
0
$
0
$
3
$
0
$
0
$
0
$
2,160
$
0
$
2,163
Notes to Condensed Consolidated Financial Statements (unaudited)
29
Non-accrual Loan Analysis
Non-accrual loans are loans for which the Company does not record interest
income. The accrual of interest on loans is discontinued at the time the loan is 90 days past due
unless the credit is well secured and in process of collection. Past due status is based on
contractual terms of the loan. In all cases, loans are placed on non-accrual or
charged off at
an earlier date, if collection of principal or interest is considered doubtful. Loans
are returned to accrual status when all the principal and interest amounts contractually due
are
brought current and future payments are reasonably assured. The following
table presents the Company’s non-accrual
loans by loan segments:
As of June 30, 2022
Amortized Cost Basis by Origination Year and On Non-accrual
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
loans
Revolving
loans
converted
to term
loans
Total Non-
accrual
Loans
Non-accrual
Loans with no
related
Allowance
(Dollars in thousands)
Commercial and industrial
$
0
$
994
$
0
$
21
$
1,397
$
738
$
0
$
1,868
$
5,018
$
4,906
Commercial and industrial
lines of credit
0
0
0
0
0
0
9,605
0
9,605
9,605
Energy
0
0
0
0
0
0
5,894
0
5,894
698
Commercial real estate
0
2,498
292
0
77
1,109
0
2,983
6,959
6,882
Construction and land
development
0
0
0
0
0
0
0
0
0
0
Residential real estate
0
0
0
0
0
0
0
198
198
198
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
$
0
$
3,492
$
292
$
21
$
1,474
$
1,847
$
15,499
$
5,049
$
27,674
$
22,289
Interest income recognized on non-accrual loans was $
259
thousand and $
418
thousand for the three- and six-month periods ended June 30, 2022, respectively.
Notes to Condensed Consolidated Financial Statements (unaudited)
30
Allowance for Credit Losses
The following table presents the activity in the allowance for credit losses and
allowance for credit losses on off-balance sheet credit exposures by portfolio
segment for the
three-month period ended June 30, 2022:
For the Three Months Ended June 30, 2022
Commercial
and Industrial
Commercial
and
Industrial
Lines of
Credit
Energy
Commercial
Real Estate
Construction
and Land
Development
Residential
Real Estate
Multifamily
Real Estate
Consumer
Total
(Dollars in thousands)
Allowance for Credit Losses:
Beginning balance
$
9,981
$
9,361
$
7,507
$
18,628
$
3,678
$
3,089
$
2,342
$
645
$
55,231
Charge-offs
(581)
(750)
(2,900)
0
0
(217)
0
0
(4,448)
Recoveries
0
1,758
0
1,585
0
0
0
1
3,344
Provision (credit)
1,520
898
1,821
(3,171)
240
262
85
35
1,690
Ending balance
$
10,920
$
11,267
$
6,428
$
17,042
$
3,918
$
3,134
$
2,427
$
681
$
55,817
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures:
Beginning balance
$
66
$
153
$
258
$
753
$
3,514
$
4
$
116
$
11
$
4,875
Provision (credit)
(3)
(153)
212
(96)
502
0
(7)
(10)
445
Ending balance
$
63
$
0
$
470
$
657
$
4,016
$
4
$
109
$
1
$
5,320
Notes to Condensed Consolidated Financial Statements (unaudited)
31
For the Six Months Ended June 30, 2022
Commercial and
Industrial
(1)
Commercial
and
Industrial
Lines of
Credit
(1)
Energy
Commercial
Real Estate
Construction
and Land
Development
Residential
Real
Estate
(2)
Multifamily
Real
Estate
(2)
Consumer
Total
(Dollars in thousands)
Allowance for Credit Losses:
Beginning balance, prior to
adoption of ASU 2016-13
$
20,352
$
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
(790)
(1,971)
(3,967)
(1,102)
0
(217)
0
(13)
(8,060)
Recoveries
755
1,779
1,754
1,585
0
0
0
2
5,875
Provision (credit)
816
2,593
(549)
(2,374)
252
305
(38)
369
1,374
Ending balance
$
10,920
$
11,267
$
6,428
$
17,042
$
3,918
$
3,134
$
2,427
$
681
$
55,817
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures:
Beginning balance, prior to
adoption of ASU 2016-13
$
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)
(44)
(44)
205
(54)
102
(1)
(28)
0
136
Ending balance
$
63
$
0
$
470
$
657
$
4,016
$
4
$
109
$
1
$
5,320
(1)
Prior to the adoption of ASU 2016-13, the Commercial and industrial and Commercial and industrial lines of credit
were consolidated under the Commercial and industrial
segment.
(2)
Prior to the adoption of ASU 2016-13, the Residential real estate and Multifamily real estate segments were consolidated
under the Residential and Multifamily Real Estate
segment.
Notes to Condensed Consolidated Financial Statements
(unaudited)
32
Collateral Dependent Loans:
Collateral dependent loans are loans for which the repayment is expected to be provided
substantially through the operation or
sale of the collateral and the borrower is experiencing financial difficulty. The following
table presents the amortized cost balance of
loans considered collateral dependent by loan segment and collateral type
as of June 30, 2022:
As of June 30, 2022
Loan Segment and Collateral Description
Amortized Cost of
Collateral Dependent
Loans
Related Allowance for
Credit Losses
Amortized Cost of
Collateral Dependent
Loans with no related
Allowance
(Dollars in thousands)
Commercial and Industrial
All business assets
$
5,010
$
103
$
4,906
Commercial and Industrial Lines of Credit
All business assets
9,626
0
9,626
Energy
Oil and natural gas properties
5,894
0
5,894
Commercial Real Estate
Commercial real estate properties
3,978
77
3,901
$
24,508
$
180
$
24,327
Troubled Debt Restructurings
TDRs are those extended to borrowers who are experiencing financial
difficulty and who have been granted a concession,
excluding loan modifications as a result of the COVID-19 pandemic.
The modification of terms typically includes the extension of
maturity, reduction or deferment of monthly payment, or reduction of the
stated interest rate.
For the six-month period ended June 30, 2022 and 2021,
0
loans were restructured under the TDR guidance. The outstanding
balance of TDRs was $
35
million and $
40
million as of June 30, 2022 and December 31, 2021, respectively.
Notes to Condensed Consolidated Financial Statements
(unaudited)
33
Disclosures under Previously Applicable
GAAP
The following disclosures are presented under previously applicable GAAP. The description
of the general characteristics of the
loan rating categories is as described above. The following table presents
the credit risk profile of the Company’s loan portfolio based on
an internal rating category and portfolio segment as of December 31, 2021:
As of December 31, 2021
Pass
Special
Mention
Substandard
Performing
Substandard
Non-
performing
Doubtful
Loss
Total
(Dollars in thousands)
Commercial and
industrial
$
1,356,883
$
16,201
$
23,739
$
4,858
$
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
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
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
Notes to Condensed Consolidated Financial Statements
(unaudited)
34
The following table presents the Company’s loans on non-accrual as of
December 31, 2021:
December 31, 2021
(Dollars in thousands)
Commercial and industrial
$
4,858
Energy
16,148
Commercial real estate
10,222
Construction and land development
0
Residential and multifamily real estate
204
PPP
0
Consumer
0
Total non-accrual loans
$
31,432
The following table presents the allowance for loan losses by portfolio segment
and disaggregated based on the Company’s
impairment methodology:
As of December 31, 2021
Commercial
and
Industrial
Energy
Commercial
Real Estate
Construction
and Land
Development
Residential
and
Multifamily
Real Estate
PPP
Consumer
Total
(Dollars in thousands)
Period end allowance for loan losses allocated to:
Individually
evaluated for
impairment
$
333
$
2,100
$
3,164
$
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)
35
A loan is considered impaired when based on current information and events, it is probable the Company will be unable to
collect
all amounts due from the borrower in accordance with the contractual terms
of the loan. Impaired loans include non-performing loans
but also include loans modified in TDRs where concessions have been granted to borrowers experiencing
financial difficulties. The
intent of concessions is to maximize collection. The following table presents loans
individually evaluated for impairment:
As of December 31, 2021
Recorded Balance
Unpaid Principal Balance
Specific Allowance
(Dollars in thousands)
Loans without a specific valuation
Commercial and industrial
$
4,659
$
4,740
$
-
Energy
3,509
7,322
-
Commercial real estate
1,729
1,729
-
Construction and land development
0
0
-
Residential and multifamily real estate
3,387
3,387
-
PPP
0
0
-
Consumer
0
0
-
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
0
0
0
Residential and multifamily real estate
0
0
-
PPP
0
0
0
Consumer
0
0
0
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
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 and six-month periods
ended June 30, 2021 for impaired loans was $
615
thousand and $
1
million, respectively. The three- and six-month average balance of impaired loans for the period ended
June 30, 2021
was $
108
million and $
109
million, respectively.
Notes to Condensed Consolidated Financial Statements
(unaudited)
36
The following table presents the activity in the allowance for loan losses by portfolio
segment for the three-
and six-month
periods ended June 30, 2021:
Three Months Ended June 30, 2021
Commercial
and
Industrial
Energy
Commercial
Real Estate
Construction
and Land
Development
Residential
and
Multifamily
Real Estate
PPP
Consumer
Total
(Dollars in thousands)
Allowance for loan losses:
Beginning
balance
$
23,464
$
20,292
$
20,609
$
3,837
$
6,056
$
0
$
293
$
74,551
Provision
7,532
(2,443)
(1,428)
48
(230)
0
21
3,500
Charge-offs
(2,566)
0
0
0
0
0
0
(2,566)
Recoveries
3
0
0
0
0
0
5
8
Ending balance
$
28,433
$
17,849
$
19,181
$
3,885
$
5,826
$
0
$
319
$
75,493
Six Months Ended June 30, 2021
Commercial
and
Industrial
Energy
Commercial
Real Estate
Construction
and Land
Development
Residential
and
Multifamily
Real Estate
PPP
Consumer
Total
(Dollars in thousands)
Allowance for loan losses:
Beginning
balance
$
24,693
$
18,341
$
22,354
$
3,612
$
5,842
$
0
$
453
$
75,295
Provision
14,547
(492)
(3,173)
273
(16)
0
(139)
11,000
Charge-offs
(10,832)
0
0
0
0
0
0
(10,832)
Recoveries
25
0
0
0
0
0
5
30
Ending balance
$
28,433
$
17,849
$
19,181
$
3,885
$
5,826
$
0
$
319
$
75,493
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
The Company estimates expected credit losses for off-balance sheet credit
exposures unless the obligation is unconditionally
cancellable by the Company. The ACL on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The
estimate is calculated for each loan segment and includes consideration of the
likelihood that funding will occur and an estimate of the
expected credit losses on commitments expected to be funded over its estimated life.
For each pool of contractual obligations expected
to be funded, the Company uses the reserve rate established for the related
loan pools. The $
5
million allowance for credit losses on off
balance sheet credit exposures at June 30, 2022 is included in “interest payable
and other liabilities” on the balance sheet.
The following categories of off-balance sheet credit exposures have been
identified:
Loan commitments – include revolving lines of credit, non-revolving lines
of credit, and loans approved that are not yet funded.
Risks inherent to revolving lines of credit often are related to the susceptibility of
an individual or business experiencing
unpredictable cash flow or financial troubles, thus leading to payment default.
The primary risk associated with non-revolving
lines of credit is the diversion of funds for other expenditures.
Letters of credit – are primarily established to provide assurance to the beneficiary
that the applicant will perform certain
obligations arising out of a separate transaction between the beneficiary and
applicant. If the obligation is not met, it gives the
beneficiary the right to draw on the letter of credit.
Notes to Condensed Consolidated Financial Statements
(unaudited)
37
Note 5:
Derivatives and Hedging
The Company is exposed to certain risks arising from both its business operations and
economic conditions, including interest
rate, liquidity, and
credit risk. The Company uses derivative financial instruments as part of its risk management
activities to manage
exposures that arise from business activities that result in the receipt or payment
of future known and uncertain cash amounts, the value
of which are determined by interest rates.
Cash Flow Hedges of Interest Rate Risk
The Company uses interest rate derivatives to add stability to interest expense
and to manage its exposure to interest rate
movements. Interest rate swaps designated as cash flow hedges involve
the receipt of variable amounts from a counterparty in exchange
for the Company making fixed-rate payments over the life of the agreements
without exchange of the underlying notional amount.
During 2021, the Company entered into forward-looking
derivatives that will be used to hedge variable cash flows associated with
variable-rate funding. These
5
swaps had an aggregate notional amount of $
100
million at June 30, 2022 and December 31, 2021. The
derivatives have various maturities ranging from August 2025 to May 2029.
For derivatives designated and that qualify as cash flow hedges of interest rate
risk, the gain or loss on the derivative is recorded
in Accumulated Other Comprehensive Income (Loss) (“AOCI”) and subsequently reclassified into interest expense
in the same period(s)
during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest
expense as interest payments are made on the Company’s related, variable
-rate debt. During the next twelve months, the Company
estimates that no amount will be reclassified as a reduction to interest expense.
The Company’s derivative financial instruments have different effective
dates with the first derivative effective in August 2023.
As a result, the derivative financial instruments did not impact the Condensed
Consolidated Statements of Income for the three-
and six-
month periods
ended June 30, 2022.
Non-designated Hedges
Derivatives not designated as hedges are not speculative and result from
a service provided to clients. The Company executes
interest rate swaps with customers to facilitate their respective risk management
strategies. Those interest rate swaps are simultaneously
hedged by offsetting derivatives that the Company executes with a third-party,
such that the Company minimizes its net risk exposure
resulting from such transactions. Interest rate derivatives associated
with this program do not meet the strict hedge accounting
requirements and changes in the fair value of both the customer derivatives
and the offsetting derivatives are recognized directly in
earnings.
Swap fees earned upon origination and credit valuation adjustments that represent
the risk of a counterparty’s default are reported
on the Consolidated Statements of Income as swap fee income, net. The effect of the
Company’s derivative financial instruments gain
(loss) are reported on the Consolidated Statements of Cash Flows within “other
assets” and “other liabilities”.
These
52
and
54
swaps had an aggregate notional amount of $
521
million and $
535
million at June 30, 2022 and December 31,
2021, respectively.
Notes to Condensed Consolidated Financial Statements
(unaudited)
38
Fair Values
of Derivative Instruments on the Consolidated Balance Sheets
The table below presents the fair value of the Company’s derivative financial
instruments and their classification on the
Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021:
Asset Derivatives
Liability Derivatives
Balance Sheet
June 30,
December 31,
Balance Sheet
June 30,
December 31,
Location
2022
2021
Location
2022
2021
(Dollars in thousands)
Interest rate products:
Derivatives not
designated as hedging
instruments
Other assets
$
5,873
$
11,305
Interest payable
and other
liabilities
$
5,875
$
11,322
Derivatives
designated as hedging
instruments
Other assets
3,475
3
Interest payable
and other
liabilities
0
565
Total
$
9,348
$
11,308
$
5,875
$
11,887
The table below presents the effect of cash flow hedge accounting on Accumulated Other Comprehensive Income
as of June 30,
2022. The Company had no cash flow hedges for the six-months ended June 30, 2021.
June 30, 2022
Gain or
(Loss)
Recognized
in OCI on
Derivative
Gain or
(Loss)
Recognized
in OCI
Included
Component
Gain or
(Loss)
Recognized
in OCI
Excluded
Component
Location of
Gain or (Loss)
Recognized
from
Accumulated
Other
Comprehensive
Income into
Income
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Income
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Income
Included
Component
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Income
Excluded
Component
(Dollars in thousands)
Derivatives in Cash Flow Hedging Relationships
Interest Rate Products
$
3,475
$
3,475
$
0
Interest expense
$
0
$
0
$
0
Notes to Condensed Consolidated Financial Statements
(unaudited)
39
Note 6:
Time Deposits and Borrowings
The scheduled maturities, excluding interest, of the Company’s borrowings at
June 30, 2022 were as follows:
June 30, 2022
Within One
Year
One to Two
Years
Two to
Three Years
Three to
Four Years
Four to Five
Years
After Five
Years
Total
(Dollars in thousands)
Time deposits
$
654,313
$
68,804
$
5,310
$
1,806
$
2,838
$
0
$
733,071
Fed funds purchased &
repurchase agreements
6
0
0
0
0
0
6
FHLB borrowings
41,500
0
0
5,100
0
110,000
156,600
FHLB line of credit
140,000
0
0
0
0
0
140,000
Trust preferred securities
(1)
0
0
0
0
0
1,035
1,035
$
835,819
$
68,804
$
5,310
$
6,906
$
2,838
$
111,035
$
1,030,712
(1)
The contract value of the trust preferred securities is $
2.6
million and is currently being accreted to the maturity date of 2035.
Note 7:
Change in Accumulated Other Comprehensive Income (Loss)
Amounts reclassified from AOCI and the affected line items in the Condensed Consolidated Statements of Income
during the
three-
and six-month periods ended June 30, 2022 and 2021, were as follows:
Three Months Ended
Six Months Ended
June 30,
June 30,
Affected Line Item in the
2022
2021
2022
2021
Statements of Income
(Dollars in thousands)
Unrealized losses on available-for-sale
securities
$
(12)
$
(13)
$
(38)
$
(3)
Loss on sale of available-for-sale
securities
Less: tax benefit effect
(3)
(3)
(9)
(1)
Income tax benefit
Net reclassified amount
$
(9)
$
(10)
$
(29)
$
(2)
Note 8:
Regulatory Matters
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory
and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on the Company’s consolidated
financial statements. Management believes that,
as of June 30, 2022, the Company and the Bank met all capital adequacy requirements
to which they are subject.
The capital rules require the Company to maintain a
2.5
% capital conservation buffer with respect to Common Equity Tier I
capital, Tier I capital to risk-weighted assets, and total capital to risk-weighted assets, which
is included in the column “Minimum
Capital Required - Basel III” within the table below. A financial institution with a conservation buffer of less than the required amount is
subject to limitations on capital distributions, including dividend payments and
stock repurchases, as well as certain discretionary bonus
payments to executive officers.
The Company and the Bank opted to exclude AOCI from the regulatory capital calculations. As a result, change in AOCI,
including the recent decrease in the available-for-sale securities portfolio, net
of tax, did not impact the Company’s or Bank’s capital
ratios.
Notes to Condensed Consolidated Financial Statements
(unaudited)
40
The Company’s and the Bank’s actual capital amounts and ratios as of June 30,
2022 and December 31, 2021 are presented in the
following table:
Actual
Minimum Capital
Required - Basel III
Required to be Considered
Well Capitalized
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
June 30, 2022
Total Capital to Risk-Weighted Assets
Consolidated
$
719,226
12.6
%
$
599,382
10.5
%
N/A
N/A
Bank
692,815
12.2
598,125
10.5
$
569,643
10.0
%
Tier I Capital to Risk-Weighted Assets
Consolidated
658,089
11.5
485,214
8.5
N/A
N/A
Bank
631,679
11.1
484,197
8.5
455,715
8.0
Common Equity Tier 1 to Risk-Weighted Assets
Consolidated
657,055
11.5
399,588
7.0
N/A
N/A
Bank
631,679
11.1
398,750
7.0
370,268
6.5
Tier I Capital to Average Assets
Consolidated
658,089
11.8
223,736
4.0
N/A
N/A
Bank
$
631,679
11.3
%
$
223,728
4.0
%
$
279,660
5.0
%
December 31, 2021
Total Capital to Risk-Weighted Assets
Consolidated
$
704,544
13.6
%
$
544,060
10.5
%
N/A
N/A
Bank
681,980
13.2
543,708
10.5
$
517,817
10.0
%
Tier I Capital to Risk-Weighted Assets
Consolidated
646,169
12.5
440,430
8.5
N/A
N/A
Bank
623,605
12.0
440,144
8.5
414,253
8.0
Common Equity Tier 1 to Risk-Weighted Assets
Consolidated
645,160
12.5
362,707
7.0
N/A
N/A
Bank
623,605
12.0
362,472
7.0
336,581
6.5
Tier I Capital to Average Assets
Consolidated
646,169
11.8
218,510
4.0
N/A
N/A
Bank
$
623,605
11.4
%
$
218,366
4.0
%
$
272,958
5.0
%
Note 9:
Stock-Based Compensation
The Company issues stock-based compensation in the form of
non-vested restricted stock and stock appreciation rights under the
2018 Omnibus Equity Incentive Plan (as amended, the “Omnibus Plan”). The Omnibus
Plan will expire on the tenth anniversary of its
effective date. In addition, the Company has an Employee Stock Purchase
Plan that was reinstated during the third quarter of 2020. The
aggregate number of shares authorized for future issuance under the Omnibus
Plan is
1,486,152
shares as of June 30, 2022.
The table below summarizes the stock-based compensation for the
three- and six-month periods ended June 30, 2022 and 2021:
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
(Dollars in thousands)
Stock appreciation rights
$
88
$
198
$
187
$
434
Performance-based stock awards
200
528
411
262
Restricted stock units and awards
795
834
1,573
1,499
Employee stock purchase plan
37
15
64
29
Total stock-based compensation
$
1,120
$
1,575
$
2,235
$
2,224
Notes to Condensed Consolidated Financial Statements
(unaudited)
41
Performance-Based Restricted Stock Units
The Company awards performance-based restricted stock units (“PBRSUs”) to
key officers of the Company. The performance-
based shares typically cliff-vest at the end of
three years
based on attainment of certain performance metrics developed by the
Compensation Committee. The ultimate number of shares issuable under each performance
award is the product of the award target and
the award payout percentage given the level of achievement. The award payout percentages
by level of achievement range between
0
%
of target and
150
% of target.
During the six-month period ended June 30, 2022, the Company granted
66,667
PBRSUs. The performance metrics include
three-year
cumulative, adjusted earnings per share and relative total shareholder return.
The following table summarizes the status of and changes in the performance
-based awards:
Performance-Based Restricted
Stock Unit Awards
Number of Shares
Weighted-Average
Grant Date Fair Value
Unvested, January 1, 2022
98,352
$
13.59
Granted
66,667
16.04
Vested
0
0
Forfeited
(24,944)
15.03
Unvested, June 30, 2022
140,075
$
14.50
Unrecognized stock-based compensation related to the performance
awards issued through June 30, 2022 was $
2
million and is
expected to be recognized over
2.3
years.
Restricted Stock Units and Restricted Stock
Awards
The Company issues time-based restricted stock units (“RSUs”) and
restricted stock awards (“RSAs”) to provide incentives to
key officers, employees, and non-employee directors. Awards are typically granted annually as determined by
the Compensation
Committee. The service-based RSUs typically vest in equal amounts over three years. The service-based
RSAs typically cliff-vest after
one year
.
The following table summarizes the status of and changes in the RSUs and RSAs:
Restricted Stock Units and Awards
Number of Shares
Weighted-Average
Grant Date Fair Value
Unvested, January 1, 2022
383,630
$
13.52
Granted
238,127
15.09
Vested
(193,350)
13.83
Forfeited
(16,433)
13.95
Unvested, June 30, 2022
411,974
$
14.26
Unrecognized stock-based compensation related to the RSUs and RSAs issued through
June 30, 2022 was $
5
million and is
expected to be recognized over
2.0
years.
Notes to Condensed Consolidated Financial Statements
(unaudited)
42
Note 10:
Income Tax
An income tax expense reconciliation at the statutory rate to the Company’s
actual income tax expense is shown below:
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
(Dollars in thousands)
Computed at the statutory rate (
21
%)
$
4,110
$
3,957
$
8,523
$
7,095
Increase (decrease) resulting from
Tax-exempt income
(890)
(1,212)
(1,744)
(2,002)
Non-deductible expenses
111
40
193
90
State income taxes
728
682
1,424
1,178
Equity based compensation
15
(131)
(154)
(117)
Other adjustments
(47)
(73)
(27)
(73)
Actual tax expense
$
4,027
$
3,263
$
8,215
$
6,171
The tax effects of temporary differences related to deferred taxes located
in “other assets” on the Condensed Consolidated
Balance Sheets are presented below:
June 30, 2022
December 31, 2021
(Dollars in thousands)
Deferred tax assets
Net unrealized loss on securities available-for-sale
$
16,020
$
0
Allowance for credit losses
14,716
14,051
Lease incentive
481
508
Loan fees
3,302
3,227
Accrued expenses
1,705
2,735
Deferred compensation
1,749
2,418
State tax credit
273
1,033
Other
764
2,057
Total deferred tax asset
39,010
26,029
Deferred tax liability
Net unrealized gain on securities available-for-sale
0
(6,967)
FHLB stock basis
(722)
(757)
Premises and equipment
(2,341)
(2,602)
Other
(1,041)
(1,229)
Total deferred tax liability
(4,104)
(11,555)
Net deferred tax asset
$
34,906
$
14,474
Note 11:
Disclosures about Fair Value of Financial Instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between
market participants at the measurement date. Fair value measurements must maximize
the use of observable inputs and minimize the use
of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair
value:
Level 1
Quoted prices in active markets for identical assets or liabilities.
Level 2
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted
prices in
markets that are not active; or other inputs that are observable or can be corroborated
by observable market data for
substantially the full term of the assets or liabilities.
Level 3
Unobservable inputs supported by little or no market activity and significant to
the fair value of the assets or liabilities.
Notes to Condensed Consolidated Financial Statements
(unaudited)
43
Recurring Measurements
The following list presents the assets and liabilities recognized in the accompanying
Condensed Consolidated Balance Sheets
measured at fair value on a recurring basis and the level within the fair value
hierarchy in which the fair value measurements fall at
June 30, 2022 and December 31, 2021:
Fair Value Description
Valuation
Hierarchy
Level
Where Fair
Value Balance
Can Be Found
Available-for-
Sale Securities and
CRA Equity Security
Where quoted market prices are available in an active market, securities are
classified within Level 1 of the valuation hierarchy. If quoted market prices
are not available, then fair values are estimated by using quoted prices
of
securities with similar characteristics or independent asset pricing services
and pricing models, the inputs of which are market-based or independently
sourced market parameters, including, but not limited to, yield curves,
interest rates, volatilities, prepayments, defaults, cumulative loss projections
and cash flows.
Level 2
Note 3:
Securities
Derivatives
Fair value of the interest rate swaps is obtained from independent pricing
services based on quoted market prices for similar derivative contracts.
Level 2
Note 5:
Derivatives and
Hedging
Non-recurring Measurements
The following tables present assets measured at fair value on a non-recurring
basis and the level within the fair value hierarchy in
which the fair value measurements fall at June 30, 2022 and December
31, 2021:
June 30, 2022
Fair Value Measurements Using
Fair Value
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
(Dollars in thousands)
Collateral-dependent loans
$
24,328
$
0
$
0
$
24,328
Foreclosed assets held-for-sale
$
1,588
$
0
$
0
$
1,588
December 31, 2021
Fair Value Measurements Using
Fair Value
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
(Dollars in thousands)
Collateral-dependent impaired loans
$
38,046
$
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 non-recurring
basis and recognized in the accompanying Condensed Consolidated Balance Sheets.
Collateral-Dependent Loans, Net of ACL
The estimated fair value of collateral-dependent loans is based on the appraised
fair value of the collateral, less estimated cost to
sell. If the fair value of the collateral is below the loan’s amortized cost, the ACL is netted against the loan balance. Collateral-dependent
loans are classified within Level 3 of the fair value hierarchy.
Notes to Condensed Consolidated Financial Statements
(unaudited)
44
The Company considers the appraisal or evaluation as the starting point for determining
fair value and then considers other
factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral dependent
loans are
obtained when the loan is determined to be collateral dependent and subsequently
as deemed necessary by the Office of the Chief Credit
Officer.
Appraisals are reviewed for accuracy and consistency by management. Appraisers are selected from the list of approved
appraisers maintained by management. The appraised values are reduced by discounts to
consider lack of marketability and estimated
cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts
and estimates are developed
by the Office of the Chief Credit Officer by comparison to historical results.
Foreclosed Assets Held-for-Sale
The fair value of foreclosed assets-held-for-sale is based on the appraised fair value of
the collateral, less estimated cost to sell.
Unobservable (Level 3) Inputs
The following tables present quantitative information about unobservabl
e
inputs used in non-recurring Level 3 fair value
measurements at June 30, 2022 and December 31, 2021:
June 30, 2022
Fair Value
Valuation Techniques
Unobservable
Inputs
Range
(Weighted Average)
(Dollars in thousands)
$
Market comparable
properties
Marketability
discount
0
%
-
100
%
Collateral dependent loans
24,328
(
22
)%
$
Market comparable
properties
Marketability
discount
Foreclosed assets held-for-sale
1,588
(
11
)%
December 31, 2021
Fair Value
Valuation Techniques
Unobservable
Inputs
Range
(Weighted Average)
(Dollars in thousands)
$
Market comparable
properties
Marketability
discount
7
%
-
100
%
Collateral-dependent impaired loans
38,046
(
26
)%
$
Market comparable
properties
Marketability
discount
Foreclosed assets held-for-sale
1,148
(
10
)%
Notes to Condensed Consolidated Financial Statements
(unaudited)
45
The following tables present the estimated fair values of the Company’s financial
instruments at June 30, 2022 and December 31,
2021:
June 30, 2022
Carrying
Fair Value Measurements
Amount
Level 1
Level 2
Level 3
Total
(Dollars in thousands)
Financial Assets
Cash and cash equivalents
$
277,678
$
277,678
$
0
$
0
$
277,678
Available-for-sale securities
695,647
0
695,647
0
695,647
Loans, net of allowance for credit losses
4,472,417
0
0
4,451,704
4,451,704
Restricted equity securities
14,946
0
0
14,946
14,946
Interest receivable
17,909
0
17,909
0
17,909
Equity securities
3,513
0
2,047
1,466
3,513
Derivative assets
9,348
0
9,348
0
9,348
$
5,491,458
$
277,678
$
724,951
$
4,468,116
$
5,470,745
Financial Liabilities
Deposits
$
4,744,420
$
1,163,462
$
0
$
3,453,569
$
4,617,031
Federal Home Loan Bank line of credit
140,000
0
140,000
0
140,000
Federal Home Loan Bank advances
156,600
0
153,781
0
153,781
Other borrowings
1,041
0
2,028
0
2,028
Interest payable
1,249
0
1,249
0
1,249
Derivative liabilities
5,875
0
5,875
0
5,875
$
5,049,185
$
1,163,462
$
302,933
$
3,453,569
$
4,919,964
December 31, 2021
Carrying
Fair Value Measurements
Amount
Level 1
Level 2
Level 3
Total
(Dollars in thousands)
Financial Assets
Cash and cash equivalents
$
482,727
$
482,727
$
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)
46
Note 12:
Commitments and Credit Risk
Commitments
The Company had the following commitments at June 30, 2022 and December
31, 2021:
June 30, 2022
December 31, 2021
(Dollars in thousands)
Commitments to originate loans
$
274,647
$
118,651
Standby letters of credit
57,797
51,114
Lines of credit
1,949,860
1,768,231
Future lease commitments
0
11,100
Commitments related to investment fund
4,534
2,067
$
2,286,838
$
1,951,163
Note 13:
Legal and Regulatory Proceedings
We accrue estimates for resolution of any legal and other contingencies when
losses are probable and reasonably estimable in
accordance with ASC 450,
Contingencies
("ASC 450"). No less than quarterly, and as facts and circumstances change, we review
the
status of each significant matter underlying a legal proceeding or claim and
assess our potential financial exposure. The Company
establishes reserves for litigation-related matters when it is probable
that a loss associated with a claim or proceeding has been incurred
and the amount of the loss can be reasonably estimated. If the assessment indicates
that a potentially material loss contingency is not
probable, but is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an
estimate of the range of possible loss if determinable and material, would
be disclosed. Loss contingencies considered remote are
generally not disclosed unless they involve guarantees, in which case the nature
of the guarantee would be disclosed.
Significant
judgment is required in both the determination of probability and the determination
as to whether the amount of an exposure is
reasonably estimable, and accruals are based only on the information available
to our management at the time the judgment is made,
which may prove to be incomplete or inaccurate or unanticipated events
and circumstances may occur that might cause us to change
those estimates and assumptions. Furthermore, the outcome of legal proceedings
is inherently uncertain, and we may incur substantial
defense costs and expenses defending any of these matters. Should any one or
a combination of more than one of these proceedings be
successful, or should we determine to settle any one or a combination of these
matters, we may be required to pay substantial sums,
become subject to the entry of an injunction or be forced to change the manner in
which we operate our business, which could have a
material adverse impact on our business, results of operations, cash flows or financial
condition.
The Company paid $
2.3
million in employee separation costs. The Company’s insurance carriers agreed
to cover $
1.2
million of
these settlement costs. The remaining $
1.1
million was expensed during the three-month period ended June 30, 2022. The
reimbursement receivable is located in “Other assets” on the Condensed
Consolidated Balance Sheet for the period ended June 30, 2022.
The Company is subject to various other legal proceedings and claims that arise
primarily in the ordinary course of business. At
this time, we do not believe the range of potential losses will have a material
adverse effect on the consolidated financial position,
results of operations and cash flows of the Company.
Note 14:
Leases
The Company’s leases primarily include bank branches located in
Kansas City, Missouri; Tulsa, Oklahoma; Dallas, Texas; Frisco,
Texas; and Phoenix, Arizona. The remaining lease terms on these branch leases range from less than
one year
to
twenty years
with
certain options to renew. Renewal terms can extend the lease term between
five years
and
twenty years
. The exercise of lease renewal
options is at the Company’s sole discretion. When it is reasonably certain that the Company
will exercise its option to renew or extend
the lease term, that option is included in the estimated value of the right of use
(“ROU”) asset and lease liability. The Company’s lease
agreements do not contain any material residual value guarantees or material
restrictive covenants.
As of June 30, 2022, the Company
recognized one finance lease and the remaining Company leases are classified as operating
leases.
Notes to Condensed Consolidated Financial Statements
(unaudited)
47
Under ASC 842, a modified retrospective transition approach is required, applying the new standard to all leases existing at
the
date of initial application. The Company chose to use the adoption date of January 1, 2022, for ASC 842. As such, all periods presented
after January 1, 2022, are under ASC 842 whereas periods presented prior to January 1, 2022, are in accordance with prior
lease
accounting of ASC 840. Financial information was not updated and the disclosures required under ASC 842 were not provided for dates
and periods before January 1, 2022.
The Company’s right to use an asset over the life of a lease is recorded as an ROU asset, is included
in “Other assets” on the
Condensed Consolidated Balance Sheets, and was $
30
million at June 30, 2022. Certain adjustments to the ROU asset may be required
for items such as initial direct costs paid or incentives received. The lease liability is located in
“Interest payable and other liabilities” on
the Condensed Consolidated Balance Sheets of $
33
million at June 30, 2022.
The Company was unable to determine the implicit rate in the leases and used the incremental borrowing
rate instead. The
Company used the FHLB yield curve on the lease commencement date and
selected the rate closest to the remaining lease term. The
remaining weighted-average lease term is
12.4
years and the weighted-average discount rate was
2.39
% as of June 30, 2022.
The following table presents components of operating lease expense
in the accompanying Condensed Consolidated Statements of
Income for the three- and six-month periods ended June 30, 2022:
For the Three Months Ended
June 30, 2022
For the Six Months Ended
June 30, 2022
(Dollars in thousands)
Finance lease amortization of right-of-use asset
$
92
$
92
Finance lease interest on lease liability
46
46
Operating lease expense
603
1,329
Variable lease expense
345
558
Short-term lease expense
5
10
Total lease expense
$
1,091
$
2,035
Future minimum commitments due under these lease agreements as of June
30, 2022 are as follows:
Operating Leases
Finance Lease
(Dollars in thousands)
Remainder of 2022
$
1,502
$
245
2023
3,070
490
2024
2,793
490
2025
2,804
490
2026
2,836
490
Thereafter
15,243
8,823
Total lease payments
$
28,248
$
11,028
Less imputed interest
3,362
3,302
Total
$
24,886
$
7,726
Supplemental cash flow information –
Operating cash flows paid for operating lease amounts included in the measurement
of
lease liabilities was $
699
thousand and $
1.4
million for the three- and six-months ended June 30, 2022, respectively. Operating
cash
flows paid for finance lease amounts included in the measurement of lease liabilities
was $
123
thousand for the three- and six-month
periods ended June 30, 2022. During the three- and six-months ended
June 30 2022, the Company did
0
t record any ROU assets that
were exchanged for operating lease liabilities.
Notes to Condensed Consolidated Financial Statements
(unaudited)
48
Note 15:
Stock Warrants
During the six-month period ended June 30, 2022,
33,500
warrants were exercised at a strike price of $
5.00
per share and
33,500
common shares were issued.
The Company had
80,000
and
113,500
outstanding, fully vested warrants to purchase common stock at a strike price
of $
5.00
per
share as of June 30, 2022 and December 31, 2021, respectively.
The
80,000
warrants expire on April 26, 2023.
49
ITEM 2. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the consolidated financial statements and related notes
and with the statistical information and financial data appearing in this report
as well as in the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2021 filed with the Securities and Exchange
Commission (“SEC”) on February 28, 2022 (the
“2021 Form 10-K”). Results of operations for the three-
and six-month periods ended June 30, 2022 are not necessarily indicative of
results to be attained for any other period. Certain statements in this report
contain forward-looking statements regarding our plans,
objectives, beliefs, expectations, representations,
and projections. See “Forward-Looking Information” which is incorporated herein by
reference.
Second Quarter 2022 Highlights
During the second quarter ended June 30, 2022, we accomplished the following:
•
Announced on June 13, 2022, an agreement under which CrossFirst Bank
will acquire Central Bancorp, Inc.’s bank
subsidiary, Farmers & Stockmens Bank (collectively, Farmers & Stockmens Bank
and Central Bancorp, Inc. are herein
referred as “Central”), in an all-cash transaction;
•
$5.7 billion of assets with basic earnings per share of $0.31 and $0.65
for the three-
and six-month periods ended June 30,
2022, respectively an increase of $0.01 and $0.11 from the same periods
in the prior year, respectively;
•
$179 million or 4% of total loan growth from the previous quarter and $272 million or 6%
loan growth from December 31,
2021;
•
Continued improvement in credit quality during the second quarter of 2022
as evidenced by the decrease in non-performing
assets to total assets ratio from 0.64% at March 31, 2022 to 0.54% at June 30, 2022;
•
Return on Average Assets of 1.12% and a Return on Equity of 10.15% for the quarter ended June 30, 2022;
•
Net Interest Margin (Fully Tax-Equivalent)
(1)
of 3.52% for the quarter ended June 30, 2022, compared to 3.14% for the
same
quarter last year
(1)
The Company modified the yield calculation. Refer to the section “Update to Net Interest Margin Methodology” below for additional information.
Central Acquisition Update
As noted above, the Company has entered into an agreement to acquire
Farmers & Stockmens Bank for approximately $75
million, subject to approval by Central Bancorp, Inc. shareholders and
bank regulatory authorities, as well as the satisfaction of other
customary closing conditions. The Company believes the acquisition will advance
its expansion strategy with access to Colorado and
New Mexico while deploying a portion of the Bank’s capital. The Company expects
Central to increase core deposits and enhance the
Company’s SBA lending and mortgage operations. The Company anticipates the acquisition will close in the second
half of 2022 with
system integration occurring in the first half of 2023.
Interest Rate Risk Management
The Company is monitoring interest rate sensitivity closely as $3.5 billion or 63%
of earning assets mature or reprice within
twelve months, including $2.9 billion that reprices in the first month. $3.7
million of interest-bearing liabilities mature or reprice over
the same twelve-month period. The Company is reviewing options to manage balance
sheet sensitivity in the event interest rates decline
in late 2023.
Credit Quality
Credit quality metrics generally improved during the second quarter of
2022. Non-performing assets declined from $36 million at
March 31, 2022 to $31 million at June 30, 2022. Net charge-offs for the three-month
period ended June 30, 2022 were $1 million, or
0.10% of average loans.
50
The Company continues to monitor the U.S. economic indicators, including
the inflation rate, commodity prices, interest rates,
and potential supply chain disruptions and the impact it may have on the
Company’s markets, clients, and prospects. The Company is
monitoring the impact of a rising interest rate environment on the commercial
real estate market and enterprise and leverage loans that is
currently mitigated by low debt-to-equity ratios.
As of June 30, 2022, the Company did not identify any systemic issues within its loan
portfolio that would significantly affect the credit quality of the loan portfolio.
Update to Net Interest Margin Methodology
The Company modified the yield calculation on the available-for-sale security
portfolio to better conform to peer disclosures in
the first quarter of 2022. All earning-asset yields and net interest margins presented were retroactively updated
for the change in
methodology. The following changes were made:
◾
The average unrealized gain (loss) on available-for-sale securities balance was removed
from the security lines and placed in
other non-interest earning assets.
◾
The annualization method was changed from Actual/Actual to 30/360 for the security yields.
The Company believes the new calculation provides better insight into
why the security yields and net interest margin changed
period-to-period.
Impact to Yield
For the Quarter Ended
For the Six Months
Ended
June 30,
March 31,
December 31,
September 30,
June 30,
June 30,
June 30,
Lines Impacted
2022
2022
2021
2021
2021
2022
2021
Previous calculation
Yield on securities - taxable
2.77
%
2.20
%
2.11
%
1.96
%
1.96
%
2.36
%
1.83
%
Yield on securities - tax-exempt
(1)
3.46
3.31
3.17
3.20
3.34
3.44
3.38
Total securities yield
(1)
3.29
3.00
2.89
2.87
2.93
3.14
2.91
Yield on interest-earning assets
(1)
4.01
3.64
3.70
3.62
3.57
3.83
3.53
Net interest spread
(1)
3.51
3.25
3.22
3.16
3.08
3.39
3.08
Net interest margin
(1)
3.55
3.29
3.28
3.20
3.12
3.42
3.12
As calculated going forward
Yield on securities - taxable
2.35
2.15
2.14
2.01
1.99
2.26
1.86
Yield on securities - tax-exempt
(1)
3.36
3.35
3.35
3.43
3.54
3.35
3.57
Total securities yield
(1)
3.07
3.00
3.02
3.04
3.07
3.04
3.04
Yield on interest-earning assets
(1)
3.98
3.64
3.72
3.64
3.59
3.81
3.55
Net interest spread
(1)
3.48
3.25
3.24
3.18
3.10
3.37
3.03
Net interest margin
(1)
3.52
3.29
3.30
3.23
3.14
3.41
3.07
Change
Yield on securities - taxable
(0.42)
(0.05)
0.03
0.05
0.03
(0.10)
0.03
Yield on securities - tax-exempt
(1)
(0.10)
0.04
0.18
0.23
0.20
(0.09)
0.19
Total securities yield
(1)
(0.22)
-
0.13
0.17
0.14
(0.10)
0.13
Yield on interest-earning assets
(1)
(0.03)
-
0.02
0.02
0.02
(0.02)
0.02
Net interest spread
(1)
(0.03)
-
0.02
0.02
0.02
(0.02)
(0.05)
Net interest margin
(1)
(0.03)
%
-
%
0.02
%
0.03
%
0.02
%
(0.01)
%
(0.05)
%
(1)
Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are
exempt from Federal income taxes. The
incremental tax rate used is 21.0%.
Update to Customer and Industry Concentrations
As of June 30, 2022, the Company’s
top 20 customer relationships represented approximately 23% or $1.1
billion of total
deposits. The Company believes that there are sufficient funding
sources, including on-balance sheet liquid assets and wholesale deposit
options, so that an immediate reduction in these deposit balances would
not be expected to have a material, detrimental effect on the
Company’s financial position
or operations.
51
Performance Measures
As of or For the Quarter Ended
As of or For the Six Months Ended
June 30,
March 31,
December 31,
September 30,
June 30,
June 30,
June 30,
2022
2022
2021
2021
2021
2022
2021
(Dollars in thousands, except per share data)
Return on average assets
(1)
1.12
%
1.23
%
1.50
%
1.54
%
1.10
%
1.18
%
0.97
%
Return on average equity
(1)
10.15
%
10.44
%
12.57
%
12.92
%
9.86
%
10.30
%
8.84
%
Earnings per share
$
0.31
$
0.33
$
0.41
$
0.41
$
0.30
$
0.65
$
0.54
Diluted earnings per share
$
0.31
$
0.33
$
0.40
$
0.41
$
0.30
$
0.64
$
0.53
Efficiency
(2)
57.36
%
57.57
%
55.38
%
59.06
%
53.61
%
57.46
%
52.06
%
Ratio of equity to assets
10.65
%
11.29
%
11.88
%
12.08
%
12.00
%
10.65
%
12.00
%
(1)
Interim periods annualized
(2)
We calculate efficiency ratio as non-interest expense
divided by the sum of net interest income and
non-interest income.
Results of Operations
Net Interest Income
Net interest income is presented on a tax-equivalent basis below. A tax-equivalent basis makes all income taxable at the same rate. For example, $100 of tax-exempt
income
would be presented as $126.58, an amount that if taxed at the statutory federal income
tax rate of 21% would yield $100. We believe a tax-equivalent basis provides for improved
comparability between the various earning assets.
For the Quarter Ended
For the Six Months Ended
June 30,
March 31,
December 31,
September 30,
June 30,
June 30,
June 30,
2022
2022
2021
2021
2021
2022
2021
Yield on securities - tax-equivalent
(1)
3.07
%
3.00
%
3.02
%
3.04
%
3.07
%
3.04
%
3.04
%
Yield on loans
4.28
4.00
4.17
4.00
3.99
4.14
3.96
Yield on earning assets - tax-equivalent
(1)
3.98
3.64
3.72
3.64
3.59
3.81
3.55
Cost of interest-bearing deposits
0.56
0.41
0.43
0.47
0.50
0.48
0.53
Cost of total deposits
0.42
0.31
0.33
0.38
0.41
0.36
0.45
Cost of FHLB and short-term borrowings
1.66
1.95
3.03
1.82
1.79
1.78
1.79
Cost of funds
0.50
0.39
0.48
0.46
0.49
0.44
0.52
Net interest margin - tax-equivalent
(1)
3.52
%
3.29
%
3.30
%
3.23
%
3.14
%
3.41
%
3.07
%
(1)
Tax-exempt income is calculated on a tax-equivalent
basis. Tax-free municipal securities are exempt
from Federal income taxes. The incremental
tax rate used is 21%.
52
The following tables present, for the periods indicated, average balance
sheet information, interest income, interest expense and the corresponding
average yield and rates
paid:
Three Months Ended
June 30, 2022
June 30, 2021
Average Balance
Interest Income /
Expense
Average Yield /
Rate
(1)
Average Balance
Interest Income /
Expense
Average Yield /
Rate
(1)
(Dollars in thousands)
Interest-earning assets:
Securities - taxable
$
220,763
$
1,299
2.35
%
$
207,835
$
1,031
1.99
%
Securities - tax-exempt
(2)
553,960
4,653
3.36
478,334
4,231
3.54
Interest-bearing deposits in other banks
198,210
369
0.75
407,801
110
0.11
Gross loans, net of unearned income
(3)(4)
4,437,917
47,327
4.28
4,409,280
43,846
3.99
Total interest-earning assets
(2)
5,410,850
$
53,648
3.98
%
5,503,250
$
49,218
3.59
%
Allowance for credit losses
(56,732)
(76,741)
Other non-interest-earning assets
191,539
247,129
Total assets
$
5,545,657
$
5,673,638
Interest-bearing liabilities
Transaction deposits
$
508,403
$
374
0.29
%
$
664,552
$
313
0.19
%
Savings and money market deposits
2,334,103
2,869
0.49
2,385,074
2,107
0.35
Time deposits
559,708
1,489
1.07
869,176
2,430
1.12
Total interest-bearing deposits
3,402,214
4,732
0.56
3,918,802
4,850
0.50
FHLB and short-term borrowings
330,064
1,368
1.66
287,904
1,282
1.79
Trust preferred securities, net of fair value adjustments
1,024
29
11.94
976
24
9.82
Non-interest-bearing deposits
1,149,654
-
-
801,591
-
-
Cost of funds
4,882,956
$
6,129
0.50
%
5,009,273
$
6,156
0.49
%
Other liabilities
48,160
30,948
Stockholders’ equity
614,541
633,417
Total liabilities and stockholders’ equity
$
5,545,657
$
5,673,638
Net interest income - tax-equivalent
(2)
$
47,519
$
43,062
Net interest spread - tax-equivalent
(2)
3.48
%
3.10
%
Net interest margin - tax-equivalent
(2)
3.52
%
3.14
%
(1)
Actual unrounded values are used to calculate the reported yield or rate. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same amounts.
(2)
Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal income taxes. The incremental tax rate used is 21.0%.
(3)
Loans, net of unearned income include non-accrual loans of $28 million and $55 million as of June 30, 2022 and 2021, respectively.
(4)
Loan interest income includes loan fees of $3 million and $5 million for the three months ended June 30, 2022 and 2021, respectively.
53
Six Months Ended
June 30, 2022
June 30, 2021
Average Balance
Interest Income /
Expense
Average Yield /
Rate
(1)
Average Balance
Interest Income /
Expense
Average Yield /
Rate
(1)
(Dollars in thousands)
Interest-earning assets:
Securities - taxable
$
220,783
$
2,487
2.26
%
$
209,730
$
1,947
1.86
%
Securities - tax-exempt
(2)
543,873
9,120
3.35
464,208
8,286
3.57
Interest-bearing deposits in other banks
253,771
521
0.41
429,930
238
0.11
Gross loans, net of unearned income
(3)(4)
4,385,664
90,055
4.14
4,457,792
87,604
3.96
Total interest-earning assets
(2)
5,404,091
$
102,183
3.81
%
5,561,660
$
98,075
3.55
%
Allowance for credit losses
(57,324)
(77,552)
Other non-interest-earning assets
207,881
251,450
Total assets
$
5,554,648
$
5,735,558
Interest-bearing liabilities
Transaction deposits
$
546,982
$
596
0.22
%
$
690,514
$
677
0.20
%
Savings and money market deposits
2,318,415
4,716
0.41
2,403,318
4,495
0.38
Time deposits
573,503
2,931
1.03
920,307
5,406
1.18
Total interest-bearing deposits
3,438,900
8,243
0.48
4,014,139
10,578
0.53
FHLB and short-term borrowings
280,883
2,477
1.78
289,039
2,566
1.79
Trust preferred securities, net of fair value adjustments
1,018
56
11.11
971
48
9.89
Non-interest-bearing deposits
1,153,499
-
-
766,725
-
-
Cost of funds
4,874,300
$
10,776
0.44
%
5,070,874
$
13,192
0.52
%
Other liabilities
46,312
35,017
Stockholders’ equity
634,036
629,667
Total liabilities and stockholders’ equity
$
5,554,648
$
5,735,558
Net interest income - tax-equivalent
(2)
$
91,407
$
84,883
Net interest spread - tax-equivalent
(2)
3.37
%
3.03
%
Net interest margin - tax-equivalent
(2)
3.41
%
3.07
%
(1)
Actual unrounded values are used to calculate the reported yield or rate. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same amounts.
(2)
Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal income taxes. The incremental tax rate used is 21.0%.
(3)
Loans, net of unearned income include non-accrual loans of $28 million and $55 million as of June 30, 2022 and 2021, respectively.
(4)
Loan interest income includes loan fees of $7 million and $9 million for the six months ended June 30, 2022 and 2021, respectively.
54
Changes in interest income and interest expense result from changes in average
balances (volume) of interest earning assets and interest-bearing
liabilities, as well as changes
in average interest rates. The following table sets forth the effects of changing rates and volumes
on our net interest income during the periods shown. Information is provided
with
respect to: (i) changes in volume (change in volume times old rate); (ii) changes
in rates (change in rate times old volume); and (iii) changes in rate/volume (change
in rate times the
change in volume).
Three Months Ended
Six Months Ended
June 30, 2022 over 2021
June 30, 2022 over 2021
Average Volume
Yield/Rate
Net Change
(1)
Average Volume
Yield/Rate
Net Change
(1)
(Dollars in thousands)
Interest Income
Securities - taxable
$
67
$
201
$
268
$
107
$
433
$
540
Securities - tax-exempt
(2)
643
(221)
422
987
(153)
834
Interest-bearing deposits in other banks
(84)
343
259
(132)
415
283
Gross loans, net of unearned income
287
3,194
3,481
(1,434)
3,885
2,451
Total interest income
(2)
$
913
$
3,517
$
4,430
$
(472)
$
4,580
$
4,108
Interest Expense
Transaction deposits
$
(86)
$
147
$
61
$
(151)
$
70
$
(81)
Savings and money market deposits
(46)
808
762
(163)
384
221
Time deposits
(827)
(114)
(941)
(1,840)
(635)
(2,475)
Total interest-bearing deposits
(959)
841
(118)
(2,154)
(181)
(2,335)
FHLB and short-term borrowings
179
(93)
86
(71)
(18)
(89)
Trust preferred securities, net of fair value adjustments
1
4
5
2
6
8
Total interest expense
(779)
752
(27)
(2,223)
(193)
(2,416)
Net interest income
(2)
$
1,692
$
2,765
$
4,457
$
1,751
$
4,773
$
6,524
(1)
The change in interest not due solely to volume or rate has been allocated in proportion to the respective absolute dollar amounts of the change in volume or rate.
(2)
Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal income taxes. The incremental tax rate used is 21.0%.
Interest income -
Interest income increased for the three-
and six-month periods ended June 30, 2022 compared to the same periods
in 2021 driven by higher interest rates. The yield
on taxable securities benefited from a slowdown in mortgage-backed
securities (“MBS”) prepayments
that reduced the premium amortization on MBS by $265 thousand
and $509
thousand for the three-
and six-month periods ended June 30, 2022, respectively.
The loan yield for the three-month period ended June 30, 2022, benefited from
$492 thousand in
interest income related to recoveries of interest income and loans placed
back on accrual status. Loan yields for the three- and six-month periods ended June 30,
2022 compared to
the corresponding periods in 2021 were partially offset by lower PPP loan fees of $1.7 million and $3.2 million,
respectively.
Average earning assets totaled $5.4 billion for the three- and six-month
periods ended June 30, 2022, a decrease of $92 million or 2% and $158 million or 3%, respectively
from the
same periods in 2021. The decrease was driven by a reduction of $210 million and $176
million in average interest-bearing deposits in other banks for the three-
and six-month
periods ended June 30, 2022 compared to the corresponding periods in
2021.
55
Interest expense
- Interest expense declined for the three-
and six-month periods ended June 30, 2022 compared to the same periods
in 2021 as higher-rate time deposits continued
to mature,
decreasing the cost of time deposits. In addition, the Company was able to lag
the rising interest rate environment with a limited impact to liquidity.
Average interest-bearing
deposits for the three-
and six-month periods ending June 30, 2022 decreased $517 million or 13% and $575 million
or 14% compared to the same period in
the prior year, respectively.
The decline was partially offset by a $348 million or 43% and $387
million or 50% increase in non-interest-bearing deposits for the three-
and six-month
periods ended June 30, 2022 compared to the corresponding periods in
2021.
Net interest income
- Net interest income increased for the three-
and six-month periods ended June 30, 2022 compared to the same periods in 2021 driven by interest-earning
assets
repricing quicker than the cost of interest-bearing liabilities as variable
rate loans tied to 30-day London Interbank Offered Rate (“LIBOR”) and Secured
Overnight Financing Rate
(“SOFR”) rates were rising faster than the Company’s deposit rates that are typically
adjusted when the federal funds rate changes.
The Company currently anticipates net interest
margin to stay in the upper end of the range that the Company has experienced
in 2022 because of the Company’s variable-rate assets and the rising rate environment,
although
deposit migration and remaining pressure on loan pricing are expected
to be headwinds.
Impact of Transition Away from LIBOR
The Company had $897 million in loans tied to LIBOR at June 30, 2022. Starting
in October 2021, the Company began limiting loans originated using the LIBOR index.
For
current borrowers, the Company is modifying loan document language
to account for the transition away from LIBOR as loans renew or originate. The Company
plans to replace
LIBOR-based loans with the Secured Overnight Financing Rate (“SOFR”). At June 30, 2022, the Company
had approximately $537 million in loans tied to SOFR. The Company
adopted Accounting Standards Update (“ASU”) 2020-04 “Reference Rate Reform (Topic 848): Facilitation
of the Effects of Reference Rate Reform on Financial Reporting” in 2020.
The ASU allows the Company to recognize the modification related to LIBOR as a continuation of the old contract,
rather than a cancellation of the old contract resulting in a write-
off of unamortized fees and creation of a new contract.
Non-Interest Income
For the Quarter Ended
For the Six Months Ended
June 30,
March 31,
December 31,
September 30,
June 30,
June 30,
June 30,
2022
2022
2021
2021
2021
2022
2021
(Dollars in thousands)
Total non-interest income (expense)
$
4,201
$
4,942
$
4,796
$
(1,105)
$
5,825
$
9,143
$
9,969
Non-interest income (expense) to average assets
(1)
0.30
%
0.36
%
0.34
%
(0.08)
%
0.41
%
0.33
%
0.35
%
(1)
Interim periods annualized.
56
The components of non-interest income were as follows for the periods
shown:
Three Months Ended
Six Months Ended
June 30,
June 30,
Change
Change
2022
2021
$
%
2022
2021
$
%
(Dollars in thousands)
Service charges and fees on customer accounts
$
1,546
$
1,177
$
369
31
%
$
2,954
$
2,134
$
820
38
%
Realized losses on available-for-sale securities
(12)
(13)
1
(8)
(38)
(3)
(35)
1,167
Unrealized gains (losses), net on equity securities
(71)
6
(77)
(1,283)
(174)
(33)
(141)
427
Income from bank-owned life insurance
407
2,245
(1,838)
(82)
795
2,661
(1,866)
(70)
Swap fees and credit valuation adjustments, net
12
(30)
42
(140)
130
125
5
4
ATM and credit card interchange income
1,521
1,506
15
1
4,185
3,834
351
9
Other non-interest income
798
934
(136)
(15)
1,291
1,251
40
3
Total non-interest income
$
4,201
$
5,825
$
(1,624)
(28)
%
$
9,143
$
9,969
$
(826)
(8)
%
The changes in non-interest income were driven primarily by the following:
Service charges and fees on customer accounts
- This category includes account analysis fees offset by a customer rebate program. The
increase for the three-
and six-month
periods ended June 30, 2022 compared to the corresponding periods
in 2021 was driven primarily by a $352 thousand and $783 thousand increase, respectively,
in account analysis
fees due to customer growth, an increase in outstanding balances,
and adjustments to the Company’s fee structure.
Income from bank-owned life insurance (“BOLI”)
– The decline in BOLI income related to the recognition of $1.8 million in tax-free death benefits from
a BOLI policy during
the quarter ended June 30, 2021 compared to $0 such proceeds for the three-
and six-month periods ended June 30, 2022.
ATM and credit card interchange income
- The increase in ATM and credit card interchange income for the three- and six-month periods ended June 30, 2022 compared
to the
same periods
in 2021 was driven by customer growth, partially offset by a $334 thousand
and $331 thousand decrease in credit card interest income,
respectively, associated with
customers that mobilized their workforce during the COVID-19 pandemic
in 2021.
Other non-interest income
– The decrease in other non-interest income for the three-month period
ended June 30, 2022 compared to the same period in 2021 was primarily related
to $120 thousand in multiple state employment incentives received in
the second quarter of 2022 compared
to $243 thousand in the second quarter of 2021. For the six-month
periods ended June 30, 2022 and 2021, multiple state employment
incentives recognized were $246 thousand and $243 thousand, respectively.
57
Non-Interest Expense
For the Quarter Ended
For the Six Months Ended
June 30,
March 31,
December 31,
September 30,
June 30,
June 30,
June 30,
2022
2022
2021
2021
2021
2022
2020
(1)
(Dollars in thousands)
Total non-interest expense
$
29,203
$
27,666
$
26,715
$
24,036
$
25,813
$
56,869
$
48,631
Non-interest expense to average assets
(1)
2.11
%
2.02
%
1.93
%
1.76
%
1.82
%
2.06
%
1.71
%
(1)
Interim periods annualized.
The components of non-interest expense were as follows for the periods indicated:
Quarter Ended
Six Months Ended
June 30,
June 30,
Change
Change
2022
2021
$
%
2022
2021
$
%
(Dollars in thousands)
Salary and employee benefits
$
17,095
$
15,660
$
1,435
9
%
$
35,036
$
29,213
$
5,823
20
%
Occupancy
2,622
2,397
225
9
5,115
4,891
224
5
Professional fees
1,068
1,138
(70)
(6)
1,873
1,920
(47)
(2)
Deposit insurance premiums
713
917
(204)
(22)
1,450
2,068
(618)
(30)
Data processing
1,160
720
440
61
1,972
1,436
536
37
Advertising
757
435
322
74
1,449
738
711
96
Software and communication
1,198
1,034
164
16
2,468
2,099
369
18
Foreclosed assets, net
15
665
(650)
(98)
(38)
715
(753)
(105)
Other non-interest expense
4,575
2,847
1,728
61
7,544
5,551
1,993
36
Total non-interest expense
$
29,203
$
25,813
$
3,390
13
%
$
56,869
$
48,631
$
8,238
17
%
The changes in non-interest expense were driven primarily by the following:
Salary and Employee Benefits
- Salary and employee benefit costs increased for the three-
and six-month periods ended June 30, 2022 compared to the same periods in 2021
primarily due to the impact of continued hiring for production talent in a competitive
environment, annual merit increases, and an increase related to a change in the maximum
401(k) plan match from 3.5% in 2021 to 5.0% in 2022.
For three-month period ended June 30, 2022 compared to the same period
in 2021, the increase was partially offset by a $465 thousand decline
in stock-based compensation.
For the six-month period ended June 30, 2022 compared to the same period in
2021, the increase included larger expected payouts on performance
-based awards and higher taxes
and benefits due to incentive payouts.
Occupancy
– The increase in occupancy costs was driven by the Company’s
expansion into Arizona in July 2021 and the addition of a second location in Dallas, Texas.
58
Deposit Insurance Premiums
- The FDIC uses a risk-based premium system to calculate the quarterly fee. Our premium costs decreased
for the three- and six-month periods ended
June 30, 2022 compared to the same periods
in 2021 as a result of asset balance changes,
changes in asset quality and changes in capital ratios. We currently anticipate deposit
insurance premiums will increase over the next quarter because of
expected loan growth and the common stock repurchase program.
Data Processing
– The increase in data processing costs was driven primarily by increased costs associated with
the Company's digital client interface conversion.
Advertising
- The increase in advertising costs was driven by increased in-person events for the
three- and six-month periods ended June 30, 2022 compared to the same periods in
2021 because of COVID-19 pandemic restrictions being lifted.
Software and Communication
- The increase was driven by our continued strategy to invest in technologies that allow us
to cover beginning-to-end loan originations, provide
customers with a suite of online tools and analyze operational trends. In
addition to the growing number of technologies implemented, a portion of the increase in
costs was due to
our growth. We currently
anticipate our software and communication costs to continue to increase in 2022
as we continue adding and implementing new software products that
improve our customers’
experience.
Foreclosed Assets, net
– The decrease was due to a $630 thousand write-down in value of a commercial
use facility foreclosed upon in 2020 during the three-month period ended
June 30, 2021.
Other Non-interest Expense
- Other non-interest expense increased for the three-
and six-month periods ended June 30, 2022 compared to the same periods
in 2021 driven by $1.1
million in employee separation costs. In addition, commercial card costs
increased $225 thousand for the six-month period ended June 30, 2022
compared to the same period in 2021
as a result of increased use by current customers and customer growth.
Income Taxes
For the Quarter Ended
For the Six Months Ended
June 30,
March 31,
December 31,
September 30,
June 30,
June 30,
June 30,
2022
2022
2021
2021
2021
2022
2021
(Dollars in thousands)
Income tax expense
$
4,027
$
4,188
$
5,725
$
5,660
$
3,263
$
8,215
$
6,171
Income before income taxes
19,572
21,016
26,526
26,660
18,840
40,588
33,783
Effective tax rate
21
%
20
%
22
%
21
%
17
%
20
%
18
%
Our income tax expense differs from the amount that would be calculated
using the federal statutory tax rate, primarily from investments in tax advantaged
assets, including
BOLI and tax-exempt municipal securities;
state tax credits;
and permanent tax differences from equity-based compensation. Refer to
“Note 10: Income Tax” within the Notes to
Condensed Consolidated Financial Statements (unaudited) for a reconciliation
of the statutory rate to the Company’s
actual income tax expense.
During the three- and six-month periods
ended June 30, 2022, the Company’s effective tax rate benefited from permanent tax differences
related to tax-exempt interest.
During the three- and six-month periods
ended June 30, 2021, the Company benefited from permanent tax differences related to tax-exempt
interest and $2 million in BOLI
settlement benefits that reduced income taxes by $387 thousand and reduced
the effective tax rate by approximately 2%.
We currently anticipate the Company’s effective tax rate to remain within
the 20% to 23% range in the near term.
59
Analysis of Financial Condition
Securities Portfolio
The securities portfolio is maintained to serve as a contingent, on-balance
sheet source of liquidity. The objective of the
investment portfolio is to optimize earnings, manage credit and interest rate
risk, ensure adequate liquidity, and meet pledging and
regulatory capital requirements. As of June 30, 2022, available-for-sale investments totaled $696 million, a decrease
of $50 million from
December 31, 2021.
The decline in the securities portfolio was driven by a $98 million decline in the unrealized
gain (loss) on available-for-sale
securities. The decline was partially offset by the purchase of $41 million in tax-exempt
municipal securities and $31 million in
mortgage-backed securities.
The Company currently anticipates continuing to grow the securities
portfolio in proportion to the growth
of the balance sheet. For additional information, see “Note 3: Securities” in the Notes to
Condensed Consolidated Financial Statements
(unaudited).
60
Loan Portfolio
Refer to “Note 4: Loans and Allowance for Credit Losses” within the Notes to Condensed Consolidated Financial Statements (unaudited)
for additional information
regarding the Company’s loan portfolio. As of June 30, 2022, gross loans, net of unearned fees increased $272
million or 6% from December 31, 2021 and was driven by the
following:
Commercial and Industrial
- The $31 million or 5% decline in commercial loans was driven by $49 million of PPP forgiveness.
As of June 30, 2022, $14 million of PPP loans
remained outstanding.
Commercial and Industrial Lines of Credit
- The $170 million or 28% increase in commercial lines of credit was driven by approximately
$126 million in loan originations and an
increase in the line of credit utilization rates from 44% to 47%.
Energy
- Our energy portfolio decreased $46 million or 16% from December
31, 2021 primarily due to $43 million in loans paying off.
Commercial Real Estate
- The $157 million or 12% increase was driven by $312 million in loan originations, partially
offset by $145 million in payoffs.
The following table shows the contractual maturities of our gross loans and
sensitivity to interest rate changes:
As of June 30, 2022
Due in One Year or Less
Due in One Year through
Five Years
Due in Five Year through
Fifteen Years
Due after Fifteen Years
Fixed Rate
Adjustable
Rate
Fixed Rate
Adjustable
Rate
Fixed Rate
Adjustable
Rate
Fixed Rate
Adjustable
Rate
Total
(Dollars in thousands)
Commercial and industrial
$
15,571
$
29,527
$
283,848
$
352,124
$
42,930
$
68,742
$
19,669
$
-
$
812,411
Commercial and industrial
lines of credit
52,195
303,078
19,620
396,523
15,368
880
-
-
787,664
Energy
33
52,364
9,905
170,698
-
-
-
-
233,000
Commercial real estate
43,562
216,978
413,908
378,706
165,949
202,118
-
14,672
1,435,893
Construction and land
development
16,308
38,083
54,881
403,022
16,905
21,255
1,293
32,668
584,415
Residential real estate
2,685
198
12,105
1,608
81,011
2,016
1,357
270,357
371,337
Multifamily real estate
18,999
74,304
45,958
98,137
5,021
7,222
-
-
249,641
Consumer
5,534
19,437
3,002
4,081
-
20,062
-
1,757
53,873
Total
$
154,887
$
733,969
$
843,227
$
1,804,899
$
327,184
$
322,295
$
22,319
$
319,454
$
4,528,234
Provision and Allowance for
Credit Losses
The Company implemented the CECL model as of January 1, 2022. Refer to “Note 1: Nature of Operations and
Summary of Significant Accounting Policies” and “Note 4:
Loans and Allowance for Credit Losses” within the Notes to Condensed Consolidated Financial Statements (unaudited)
for details regarding the transition, including the impact to
61
the financial statements. The CECL model compared to the incurred loss model may accelerate the provision for
credit losses if the Company’s loan portfolio continues to grow. In
addition, positive (negative) forward-looking indicators may decrease
(increase) the required provision for credit losses.
The ACL at June 30, 2022 represents our best estimate of the expected credit losses in the Company’s loan portfolio and off-balance sheet
commitments, measured over the
contractual life of the underlying instrument.
For the Quarter Ended
For the Six Months Ended
June 30,
March 31,
December 31,
September 30,
June 30,
June 30,
June 30,
2022
2022
2021
2021
2021
2022
2021
(Dollars in thousands)
Provision for credit losses
(1)
- loans
$
1,690
$
(316)
$
(5,000)
$
(10,000)
$
3,500
$
1,374
$
11,000
Provision for credit losses
(1)
- off-balance sheet
445
(309)
N/A
N/A
N/A
136
N/A
Allowance for credit losses
(2)
- loans
55,817
55,231
58,375
64,152
75,493
55,817
75,493
Allowance for credit losses
(2)
- off-balance sheet
5,320
4,875
N/A
N/A
N/A
5,320
N/A
Net charge-offs
$
1,104
$
1,081
$
777
$
1,341
$
2,558
$
2,185
$
10,802
(1)
Prior to March 31, 2022, this line represents the provision for loan losses
(2)
Prior to March 31, 2022, this line represents the allowance for loan
and lease losses
January 1, 2022, the adoption date, is presented below instead of December
31, 2021 for comparability purposes. The allocation in one portfolio segment does
not preclude its
availability to absorb losses in other segments. The table below presents the allocation of
the allowance for credit losses as of the dates indicated:
62
June 30, 2022
January 1, 2022
ACL
Amount
Percent of
ACL to
Total ACL
Percent of
Loans to
Total Loans
ACL
Amount
Percent of
ACL to
Total ACL
Percent of
Loans to
Total Loans
Loans
Off-
Balance
Sheet
Total
Loans
Off-
Balance
Sheet
Total
(Dollars in thousands)
Commercial and industrial
$
10,920
$
63
$
10,983
18
%
18
%
$
10,139
$
107
$
10,246
17
%
20
%
Commercial and industrial
lines of credit
11,267
-
11,267
19
17
8,866
44
8,910
14
14
Energy
6,428
470
6,898
11
5
9,190
265
9,455
15
7
Commercial real estate
17,042
657
17,699
29
32
18,933
711
19,644
32
30
Construction and land
development
3,918
4,016
7,934
13
13
3,666
3,914
7,580
12
14
Residential real estate
3,134
4
3,138
5
8
3,046
5
3,051
5
8
Multifamily real estate
2,427
109
2,536
4
6
2,465
137
2,602
4
6
Consumer
681
1
682
1
1
323
1
324
1
1
Total
$
55,817
$
5,320
$
61,137
100
%
100
%
$
56,628
$
5,184
$
61,812
100
%
100
%
Refer to “Note 4: Loans and Allowance for Credit Losses” within the Notes to the Condensed Consolidated Financial
Statements (unaudited) for a summary of the changes in
the ACL. Provided below is additional information regarding changes to the ACL:
Impaired Loans:
For the three-
and six-month periods ended June 30, 2022, the impaired loan reserve decreased $2.2
million and $5.2 million, respectively.
The decrease included a previously
restructured commercial real estate loan with improved cash flow metrics
that resulted in a $1 million reduction in the required reserve and two energy
loans that were partially
charged-off that decreased the required reserve by $790 thousand. For the
six-month period ended June 30, 2022, the change included a commercial
real estate loan with an improved
collateral valuation that resulted in a $1 million reduction in the required reserve,
a $628 thousand decline related to a commercial real estate loan charged down and
two energy
loans that paid down their outstanding balance, resulting in a $1 million
decrease to the required reserve.
Charge-offs and Recoveries:
Net charge-offs were $1 million and $2 million for the three- and six-month periods
ended June 30, 2022, respectively. For the three-month period ended June
30, 2022
charge-offs included $2.9 million related to two collateral-dependent
energy loans, $750 thousand related to a collateral-dependent medical practice,
$582 thousand related to a
commercial and industrial, SBA loan originated in 2018, and $217 thousand related to a junior lien on a residential
real estate loan. Recoveries included $1.6 million related to a
commercial real estate loan charged-off in 2020 and $1.7 million related to
a commercial and industrial line of credit charged-off in 2020.
For the six-month period ended June 30, 2022, charge-offs also included
$1.2 million related to a commercial and industrial line of credit that originated in 2018
and started to
deteriorate at the end of 2021, a $1 million charge-off related to an energy loan originated
in 2016 that was significantly impacted by lower oil prices over the past few years, and a
63
$750 thousand charge-off on a commercial real estate project that originated in
2017 and started to deteriorate in 2020. Charge-offs were partially offset primarily
by a $1.8 million
recovery on an energy loan that was charged-off in 2020.
During the three months ended June 30, 2021, charge-offs primarily related
to a commercial and industrial borrower. The $3 million charged-off was greater than the reserved
balance in the Allowance for Loan and Lease Loss at December 31, 2020 resulting in a $2 million increase in the provision during
the three- and six-month periods ended June 30,
2021.
During the three-months ended March 31, 2021, charge-offs primarily
related to two commercial and industrial borrowers that were unable to support their debt obligations.
The $8 million charged-off was greater than the reserved balance in the allowance
for loan losses at December 31, 2020 resulting in a $5 million increase in the provision
during the
quarter ended March 31, 2021.
The below table provides the ratio of net charge-offs (recoveries) to average
loans outstanding based on our loan categories for the periods indicated:
For the Quarter Ended
For the Six Months Ended
June 30,
March 31,
December 31,
September 30,
June 30,
June 30,
June 30,
2022
2022
2021
2021
2021
2022
2021
Commercial and industrial
0.28
%
(0.27)
%
0.27
%
0.04
%
-
%
0.01
%
0.02
%
Commercial and industrial lines of credit
(0.56)
0.76
0.04
0.62
2.20
0.06
4.57
Energy
4.77
(1.02)
0.68
0.64
-
1.72
-
Commercial real estate
(0.45)
0.34
-
-
-
(0.07)
-
Construction and land development
-
-
-
-
-
-
-
Residential real estate
0.21
-
(0.32)
-
-
0.11
-
Multifamily real estate
-
-
(0.06)
(0.01)
-
-
-
Consumer
-
0.05
(0.01)
(0.03)
(0.04)
0.03
0.11
Total net charge-offs to average loans
0.10
%
0.10
%
0.07
%
0.13
%
0.23
%
0.10
%
0.49
%
Non-performing Assets and
Other Asset Quality Metrics
Non-performing assets include: (i) non-performing loans - includes
non-accrual loans, loans past due 90 days or more and still accruing interest, and loans modified
under
TDRs that are not performing in accordance with their modified terms; (ii) foreclosed
assets held for sale; (iii) repossessed assets; and (iv) impaired debt securities.
Non-performing assets decreased to $31 million as of June 30, 2022
due to a $5 million decrease in non-accrual loans. The decline was driven by $4 million in charge
-offs on
non-accrual loans.
Improvements in credit metrics continue to be driven by upgrades in COVID-19
impacted segments and the energy portfolio.
Non-performing assets increased slightly to $36 million or 0.64% of
total assets as of March 31, 2022
primarily due to an $11 million, previously identified substandard
commercial and industrial line of credit. The increase was partially offset by a $7 million
decline in non-accrual energy loans due to $1 million in charge-offs, $3 million
in payoffs
and $3 million in loans placed back on accrual status. As of March 31, 2022, 25% of non-performing assets remained
in the energy sector.
During 2021, non-performing assets continued to decrease due primarily
to upgrades and pay offs in the commercial and industrial and energy
portfolios. As of December 31,
2021, 49% of non-performing assets related to energy credits that were
significantly impacted by lower oil prices over the past few years.
64
Credit quality metrics were generally stable during the second quarter of 2022,
reflecting consistency with the prior quarter and significant improvement over the prior
year.
The table below summarizes our non-performing assets and related ratios as of
the dates indicated:
For the Quarter Ended
June 30,
March 31,
December 31,
September 30,
June 30,
2022
2022
2021
2021
2021
(Dollars in thousands)
Non-accrual loans
$
27,698
$
33,071
$
31,432
$
48,147
$
54,652
Loans past due 90 days or more and still accruing
2,163
1,534
90
342
1,776
Total non-performing loans
29,861
34,605
31,522
48,489
56,428
Foreclosed assets held for sale
973
973
1,148
1,148
1,718
Total non-performing assets
$
30,834
$
35,578
$
32,670
$
49,637
$
58,146
ACL to total loans
1.23
%
1.27
%
1.37
%
1.51
%
1.78
%
ACL + RUC to total loans
(1)
1.35
1.38
N/A
N/A
N/A
ACL to non-accrual loans
202
167
186
133
138
ACL to non-performing loans
187
160
185
132
134
Non-accrual loans to total loans
0.61
0.76
0.74
1.13
1.29
Non-performing loans to total loans
0.66
0.79
0.74
1.15
1.33
Non-performing assets to total assets
0.54
%
0.64
%
0.58
%
0.92
%
1.09
%
(1)
Includes the ACL on off-balance sheet credit exposure that resulted from CECL adoption on January 1, 2022.
Other asset quality metrics management reviews include loans past due
30 - 89 days and classified, gross loans. The Company defines classified loans as loans categorized
as
substandard - performing, substandard – non-performing,
doubtful, or loss. The definitions of substandard, doubtful and loss are provided in “Note 4: Loans and Allowance for
Credit Losses” in the Notes to Condensed Consolidated Financial Statements (unaudited).
The following table summarizes our loans past due 30 - 89 days, classified assets,
and
related ratios as of the dates indicated:
65
June 30,
March 31,
December 31,
September 30,
June 30,
2022
2022
2021
2021
2021
(Dollars in thousands)
Loans Past Due Detail
30 - 59 days past due
$
15,700
$
14,815
$
1,671
$
3,072
$
18,758
60 - 89 days past due
935
1,135
1,858
34,528
10
Total loans 30 - 89 days past due
$
16,635
$
15,950
$
3,529
$
37,600
$
18,768
Loans 30 - 89 days past due / loans
0.37
%
0.37
%
0.08
%
0.89
%
0.44
%
Classified Loans
Substandard - performing
$
52,759
$
40,257
$
47,275
$
75,999
$
116,078
Substandard - non-performing
25,530
30,619
28,879
45,063
49,300
Doubtful
2,144
2,451
2,554
3,084
5,352
Loss
-
-
-
-
-
Total classified loans
80,433
73,327
78,708
124,146
170,730
Foreclosed assets held for sale
973
973
1,148
1,148
1,718
Total classified assets
$
81,406
$
74,300
$
79,856
$
125,294
$
172,448
Classified loans / (total capital + ACL)
12.1
%
10.8
%
10.8
%
17.3
%
24.0
%
Classified loans / (total capital + ACL + RUC)
(1)
12.0
10.7
N/A
N/A
N/A
Classified assets / (total capital + ACL)
12.3
%
11.0
%
11.0
%
17.5
%
24.2
%
(1)
Includes the ACL on off-balance sheet credit exposure that resulted from CECL adoption on January 1, 2022.
The increase in loans past due between 30 and 89 days as of June 30, 2022 was primarily
driven by the 4% loan growth from the previous quarter.
Loans past due between 30
and 89 days to loans remained at 0.37% compared to the prior quarter. Classified loans increased
slightly during the second quarter attributable to downgrades
in the commercial and
industrial portfolio,
but remained in an acceptable range at 12.1% of total capital plus the allowance for
credit losses.
The increase in loans past due between 30 and 89 days as of March 31, 2022
was primarily driven by an $11 million commercial and industrial line of credit. In
the first
quarter of 2022, we experienced improvement in our classified loan totals as classified
loans decreased 7% during the quarter to $73 million. Classified totals in
the energy portfolio
decreased 24% to $16 million compared to the prior quarter and represent
ed 22% of total classified loans.
66
Deposits and Other Borrowings
The following table sets forth the maturity of time deposits as of June 30, 2022:
As of June 30, 2022
Three Months
or Less
Three to Six Months
Six to Twelve
Months
After Twelve Months
Total
(Dollars in thousands)
Time deposits in excess of FDIC insurance limit
$
88,627
$
39,662
$
35,927
$
16,959
$
181,175
Time deposits below FDIC insurance limit
214,311
144,247
131,539
61,799
551,896
Total
$
302,938
$
183,909
$
167,466
$
78,758
$
733,071
At June 30, 2022, our deposits totaled approximately $5 billion, an
increase of $61 million or 1% from December 31, 2021. The increase included $109 million
in time deposits,
partially offset by a decrease of $48 million in money market, NOW and
savings deposits. The increase in time deposits was the result of $221 million in wholesale
funding to support
current and expected loan growth through the end of 2022. The wholesale deposits have
an average term of five months. The decrease in money market, NOW,
and savings deposits
was driven by a decline in business money market deposits due to competition.
Other borrowings include Federal Home Loan Bank (“FHLB”) advances and our
trust preferred security. At June
30, 2022, other borrowings totaled $298 million, a $60 million
or 25% increase from December 31, 2021. During the six-month period
ended June 30, 2022, $15 million of FHLB advances matured and $65 million was converted
into a drawdown
on the FHLB line of credit. The Company withdrew an additional $75 million on the
FHLB line of credit to support loan growth and changes in deposits, resulting in $140 million on
the FHLB line of credit at June 30, 2022.
As of June 30, 2022, the Company had approximately $2.3 billion of uninsured
deposits, which is an estimated amount based on the same methodologies and assumptions
used
for the Bank’s regulatory
requirements. The Company believes that its current capital ratios and liquidity are sufficient
to mitigate the risks of uninsured deposits.
67
Liquidity and Capital Resources
Contractual Obligations and Off-Balance Sheet
Arrangements
The Company is subject to contractual obligations made in the ordinary
course of business. The obligations include deposit
liabilities, other borrowed funds, and operating leases. Refer to “Note 6: Time
Deposits and Other Borrowings” within the Notes to
Condensed Consolidated Financial Statements (unaudited) for
a listing of the Company’s significant contractual
cash obligations. Refer
to “Note 14: Leases” within the Notes to Condensed Consolidated Financial Statements
(unaudited) for the Company’s contractual
obligations to third parties on lease obligations.
As a financial services provider, the Company
is a party to various financial instruments with off-balance sheet risks, such
as
commitments to extend credit. Off-balance sheet arrangements represent
the Company’s future cash requirements.
However, a portion
of these commitments may expire without being drawn upon. Refer to
“Note 12: Commitments and Credit Risk” within the Notes to
Condensed Consolidated Financial Statements (unaudited) for
a listing of the Company’s off
-balance sheet arrangements.
The Company’s short-term and long
-term contractual obligations, including off-balance
sheet obligations, may be satisfied
through the Company’s on-balance
sheet and off-balance sheet liquidity discussed below.
Liquidity
The Company’s liquidity strategy is to maintain adequate, but not excessive,
liquidity to meet the daily cash flow needs of its
clients while attempting to achieve adequate earnings for its stockholders. The liquidity
position is monitored continuously by the
Company’s finance department. The Company's short-term and long-term liquidity
requirements are primarily met through cash flow
from operations, redeployment of prepaying and maturing balances in our
loan portfolio and security portfolio, increases in client
deposits and wholesale deposits. Liquidity resources can be derived
from two sources: (i) on-balance sheet liquidity resources, which
represent funds currently on the balance sheet and (ii) off-balance sheet liquidity
resources, which represent funds available from third-
party sources. The Company’s on-balance sheet and off-balance sheet liquidity
resources consisted of the following as of the dates
indicated:
June 30, 2022
December 31, 2021
(Dollars in thousands)
Total on-balance sheet liquidity
$
971,874
$
1,224,253
Total off-balance sheet liquidity
740,131
732,748
Total liquidity
$
1,712,005
$
1,957,001
On-balance sheet liquidity as a percent of assets
17
%
22
%
Total liquidity as a percent of assets
30
%
35
%
For the six-months ended June 30, 2022, the Company’s cash and cash equivalents
declined $205
million from December 31,
2021 to $278 million, representing 5% of total assets. During the six-month
period ended June 30, 2022, the Company increased the
AFS securities portfolio on an amortized cost basis by $48 million, net
of paydowns,
maturities, and amortization, to improve the yield
on interest-earning assets. In addition, the Company increased loan funding
by $274 million, net of payoffs and charge-offs during the
six-month period ended June 30, 2022 that reduced cash and cash equivalents.
The Company’s time deposits increased by $109 million primarily from
wholesale funding. The increase in time deposits was
partially offset by a $48 million reduction in non-interest-bearing
deposits, savings, and money market deposits as the Company’s larger
depositors re-allocated their investments and made tax payments. Other borrowings
increased $60 million during the six-month period
ended June 30, 2022, as $15 million of FHLB advances matured and $75
million was drawn down on the FHLB line of credit.
The Company continued its repurchase program, purchasing $20
million of common stock during the first six months of 2022. As
of June 30, 2022, $31 million remains available for repurchase under
our share repurchase programs. We will continue to repurchase
shares under our share repurchase program, but the amount and timing
of such repurchases will be dependent on a number of factors,
68
including the price of our common stock and other cash flow needs. There is no assurance that we will repurchase
up to the full amount
remaining under our program.
The Company believes that its current liquidity will be sufficient to meet anticipated
cash requirements for the next 12 months
and thereafter. The Company has several on and off-balance sheet options to ensure any
resulting reductions in cash and cash
equivalents are appropriately offset to ensure appropriate liquidity.
Capital Requirements
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies.
The regulatory capital requirements involve quantitative
measures of the Company’s assets, liabilities, select off-balance sheet items and
equity. Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the Company’s
consolidated financial statements. Refer to “Note 8:
Regulatory Matters” in the Notes to Condensed Consolidated Financial Statements
(unaudited) for additional information. Management
believes that as of June 30, 2022, the Company and the Bank met all capital adequacy
requirements to which they are subject.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance
with GAAP and with general practices within the financial
services industry. Application of these principles requires management to make complex and subjective estimates and
assumptions that
affect the amounts reported in the financial statements and accompanying
notes. The Company bases estimates on historical experience
and on various other assumptions that it believes
to be reasonable under current circumstances. These assumptions form the basis for
management judgments about the carrying values of assets and liabilities that are
not readily available from independent, objective
sources. The Company evaluates estimates on an ongoing basis. Use of alternative assumptions
may have resulted in significantly
different estimates. Actual results may differ from these estimates.
A discussion of these policies can be found in the section captioned “Critical Accounting Policies and Estimates” in
Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2021 Form
10-K.
On January 1, 2022, the Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326):
Measurement of
Credit Losses on Financial Instruments. Refer to “Note 1: Nature of
Operations and Summary of Significant Accounting Policies” and
“Note 4: Loans and Allowance for Credit Losses” within the Notes to Condensed Consolidated Financial Statements (unaudited)
for
information regarding the Company’s ACL implementation and the ACL process. Determining the appropriateness of the ACL
is
complex and requires judgment by management about the effect of matters that
are inherently uncertain. These critical estimates include
significant use of the Company’s historical data and complex methods to interpret
them.
It is difficult to estimate how potential changes in any one input might affect the
overall ACL because inputs may change at
different rates and may not be consistent across the loan segments. In addition,
changes in inputs may be directionally
inconsistent such
that one factor may offset deterioration in others. The Company identified the following
estimates and assumptions as the main drivers
in the required ACL for loans and the reserve for off-balance sheet commitments:
◾
Fully exhausted loan pool
– The historical loss factor is calculated by identifying a group of loans at a point in time (a
“cohort”) and tracking the cohort’s charge-offs, net of recoveries, over
a 10-year period (known as the estimated
economic life). A charge-off rate for each cohort is calculated based on charge-offs, net of recoveries over the initial loan
balance. The charge-off rate for a specific cohort is not included in the weighted
average historical loss rate until “fully
exhausted.”
A cohort balance declines due to modifications, renewals, and paydowns. The Company requires the remaining
cohort
balance to be less than 15% of its original cohort balance before being included
in the historical loss factor. The 15%
represents the exhaustion rate. Changes to the assumed exhaustion rate could
increase or decrease the historical loss rates
69
based on the timing of charge-offs, net of recoveries. For example, an
exhaustion rate of 50% on the commercial and
industrial segment would have reduced the required ACL by approximately $3 million for the three-month period ended
June 30, 2022.
◾
Forward looking factors
– The Company uses the Federal Reserve Bank’s unemployment rate forecast to adjust
expected losses based on an economic outlook. The Company’s current methodology
increases the ACL one basis point
for each 1% increase in the average unemployment rate forecast. As of June 30, 2022, a 1% increase in the average
unemployment rate would increase the ACL by approximately $453 thousand.
◾
Changes in the assumed utilization rate of off-balance sheet commitments
– The Company uses a 12-month
historical utilization rate for all loan segments, excluding construction and
development loans that use a higher
utilization rate. An ACL
on off-balance sheet commitments is required if the end of period utilization
rate is less than the
12-month historical utilization rate. For example, a 1% decrease in the utilization
rate of commercial and industrial lines
of credit at June 30, 2022 would not impact the required ACL, because the utilization rate would remain above the
average utilization rate. However, if the utilization rate decreased 3% it would
increase the required ACL by $236
thousand.
Besides the ACL methodology mentioned above, there have been no additional changes in the Company’s application of critical
accounting policies and estimates since December 31, 2021.
Recent Accounting Pronouncements
Refer to “Note 1: Nature of Operations and Summary of Significant Accounting Policies” included in the Notes to Condensed
Consolidated Financial Statements (unaudited) included elsewhere in this Form
10-Q.
70
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Interest Rate Risk
A primary component of market risk is interest rate volatility. Interest rate risk management is a key element of the Company’s
balance sheet management. Interest rate risk is the risk that net interest margins
will erode over time due to changing market conditions.
Many factors can cause margins to erode: (i) lower loan demand; (ii) increased
competition for funds; (iii) weak pricing policies; (iv)
balance sheet mismatches; and (v) changing liquidity demands. The objective
is to maximize income while minimizing interest rate risk.
The Company manages its sensitivity position using its interest rate risk policy. The management
of interest rate risk is a three-step
process and involves: (i) measuring the interest rate risk position; (ii) policy
constraints; and (iii) strategic review and implementation.
Our exposure to interest rate risk is managed by the Funds Management
Committee (“FMC”). The FMC uses a combination of
three systems to measure the balance sheet’s interest rate risk position. The three systems in
combination are expected to provide a better
overall result than a single system alone. The three systems include: (i) gap reports; (ii)
earnings simulation; and (iii) economic value of
equity. The FMC’s primary tools to change the interest rate risk position are: (i) investment portfolio
duration; (ii) deposit and borrowing
mix; and (iii) on balance sheet derivatives.
The FMC evaluates interest rate risk using a rate shock method and rate ramp method.
In a rate shock analysis, rates change
immediately,
and the change is sustained over the time horizon. In a rate ramp analysis, rate changes
occur gradually over time. The
following tables summarize the simulated changes in net interest income and fair
value of equity
over a 12-month horizon using a rate
shock and rate ramp method as of the dates indicated:
Hypothetical Change in Interest Rate - Rate Shock
June 30, 2022
June 30, 2021
Change in Interest
Rate (Basis Points)
Percent change in net
interest income
Percent change in fair
value of equity
Percent change in net
interest income
Percent change in fair
value of equity
+300
6.4
%
(9.2)
%
2.9
%
(10.0)
%
+200
4.1
(5.8)
1.4
(6.5)
+100
2.0
(3.0)
0.1
(3.3)
Base
-
%
-
%
-
%
-
%
-100
(2.7)
2.7
NA
(1)
NA
(1)
(1)
The Company decided to exclude the down rate environment from its analysis due to the already low interest rate environment.
Hypothetical Change in Interest Rate - Rate Ramp
June 30, 2022
June 30, 2021
Change in Interest Rate
(Basis Points)
Percent change in net interest
income
Percent change in net interest
income
+300
3.1
%
0.9
%
+200
2.0
0.2
+100
1.0
(0.3)
Base
-
%
-
%
-100
(1.1)
NA
(1)
(1)
The Company decided to exclude the down rate environment from its analysis due to the already low interest rate environment.
71
The Company’s position is slightly asset sensitive as of June 30, 2022. The hypothetical
positive change in net interest income as
of June 30, 2022 in an up 100 basis point shock is mainly due to approximately
$3.5 billion of the Company’s earning assets repricing or
maturing within the first year, with $2.9 billion of that being in the first 90 days
.
In addition, $871 million of the Company’s time
deposits and other borrowings mature or reprice within that same 12-month
period. Due to rising interest rates a significant portion of
loans with floors have moved above the floor rate. The Company currently anticipates
that overall cost of funds will lag interest rate
increases and will result in an increase to net interest income in all upward
rate ramp and shock scenarios. In down rate scenarios,
income is predicted to decrease. The Company is monitoring longer term interest rate
expectations and is evaluating options to reduce
the impact of any downward rate adjustments, including the use of hedges.
The models the Company uses include assumptions regarding interest rates
while balances remain unchanged. These assumptions
are inherently uncertain and, as a result, the model cannot precisely estimate net interest income
or precisely predict the impact of higher
or lower interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude,
and frequency
of interest rate changes as well as changes in market conditions, customer behavior
and management strategies, among other factors.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive
Officer and Chief Financial Officer, has
evaluated the effectiveness of the Company’s disclosure controls and procedures
(as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934 (“Exchange Act”)) as of June 30, 2022. Based on that evaluation, the Company’s Chief Executive Officer and
Chief Financial Officer concluded that the Company’s disclosure controls
and procedures were effective as of June 30, 2022.
Changes in Internal Control over Financial Reporting
The Company implemented internal controls to ensure the Company adequately
calculated changes due to, and properly assessed
the impact of, the accounting standard updates related to the adoption of ASC 326 on January 1, 2022. There were no significant
changes to our internal control over financial reporting due to the adoption of
the new standard.
No change in the Company’s internal control over financial reporting (as such term
is defined in Rule 13a-15(f) under the
Exchange Act) that occurred during the second quarter of 2022 has materially affected, or is reasonably
likely to materially affect, the
Company’s internal control over financial reporting.
PART II –- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the normal course of business, we are named or threatened to be named
as a defendant in various lawsuits. Management,
following consultation with legal counsel, does not expect the ultimate disposition
of any or a combination of these matters to have a
material adverse effect on our business, financial condition, results of operations,
cash flows or growth prospects. However, given the
nature, scope and complexity of the extensive legal and regulatory landscape
applicable to our business (including laws and regulations
governing consumer protection, fair lending, fair labor, privacy, information
security and anti-money laundering and anti-terrorism
laws), we, like all banking organizations, are subject to heightened legal
and regulatory compliance and litigation risk.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully
consider the factors discussed in Part I, "Item 1A.
Risk Factors" in our 2021 Form 10-K, which could materially affect
our business, financial condition or results of operations in future
periods.
There were no material changes from the risk factors disclosed in the 2021 Form
10-K.
72
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS
(a)
None.
(b)
Not applicable.
(c)
Share Repurchase Program
The following table summarizes our repurchases of our common shares
for the three-months ended June 30, 2022:
Calendar Month
Total Number of
Shares
Repurchased
Average Price
Paid per
Share
Total Number of Shares
Purchased as Part of
Publicly Announced Plans
or Programs
(1)
Approximate Dollar Value of Shares that
may yet be Purchased as Part of
Publicly Announced Plans or
Programs
(1)
April 1 - 30
82,580
$
15.76
82,580
$
3,587,329
May 1 - 31
-
$
-
-
$
33,587,329
June 1 - 30
155,413
$
13.41
155,413
$
31,499,143
Total
237,993
$
14.23
237,993
(1)
On October 18, 2021, the Company announced that its Board of Directors approved
a share repurchase program under which the
Company may repurchase up to $30 million of its common stock. On May 10, 2022,
the Company announced that its Board of
Directors approved a second share repurchase program under which the Company
may repurchase up to $30 million of its common
stock. As of June 30, 2022, $31 million remains available for repurchase under our share repurchase programs.
Repurchases under
the programs
may be made in the open market or privately negotiated transactions in compliance
with SEC Rule 10b-18, subject to
market conditions, applicable legal requirements and other relevant factors. The program
s
do not obligate the Company to acquire
any amount of common stock and may be suspended at any time at the Company's discretion.
No time limit has been set for
completion of the programs.
73
ITEM 6. EXHIBITS
 
The exhibits listed in the exhibit index below are filed with this Amendment No. 1 to Quarterly Report on Form 10-
Q/A.
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 herewithHerewith
**
Furnished Herewith
†
Indicates a compensatory plan
 
74
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its
behalf by the undersigned thereunto duly authorized.
CrossFirst Bankshares, Inc.
April 12,August 3, 2022
/s/ Benjamin R. Clouse
 
Benjamin R. Clouse
 
Chief Financial Officer
 
(Principal Financial Officer and Principal Accounting Officer)