CrossFirst Bankshares 10Q 2022 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE

COMMISSION

WASHINGTON, DC 20549

FORM

10-Q

☒

QUARTERLY REPORT PURSUANT

TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

June 30, 2022

☐

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

For the transition period from ______ to

______

Commission file number

001-39028

CROSSFIRST BANKSHARES, INC.

(Exact Name of Registrant as Specified in its Charter)

Kansas

26-3212879

(State or other jurisdiction of incorporation or organization)

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

11440 Tomahawk Creek Parkway

Leawood

66211

(Address of principal executive offices)

(Zip Code)

(

913

)

754-9704

(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

☒

☐

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

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated

filer, a non-accelerated filer, a smaller reporting

company, or an emerging growth company. See the definitions of

“large accelerated filer,” “accelerated filer,” “smaller reporting

company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not

to use the extended transition period for

complying with any new or revised financial accounting standards provided

pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined

in Rule 12b-2 of the Exchange Act). Yes

☐

☒

As of August 1, 2022, the registrant had

49,310,909

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

CrossFirst Bankshares, Inc.

Form 10-Q for the Quarter Ended June 30, 2022

Index

Part I. Financial Information

Item 1. Condensed Consolidated Financial Statements

Forward-Looking Information

Condensed Consolidated Balance Sheets - Unaudited

Condensed Consolidated Statements of Income - Unaudited

Condensed Consolidated Statements of Comprehensive Income (Loss) - Unaudited

Condensed Consolidated Statements of Stockholders’ Equity - Unaudited

Condensed Consolidated Statements of Cash Flows - Unaudited

Notes to Condensed Consolidated Financial Statements (unaudited)

Note 1: Nature of Operations and Summary of Significant Accounting Policies

Note 2: Earnings Per Share

Note 3: Securities

Note 4: Loans and Allowance for Credit Losses

Note 5: Derivatives and Hedging

Note 6: Time Deposits and Borrowings

Note 7: Change in Accumulated Other Comprehensive Income (Loss)

Note 8: Regulatory Matters

Note 9: Stock-Based Compensation

Note 10: Income Tax

Note 11: Disclosures about Fair Value of Financial Instruments

Note 12: Commitments and Credit Risk

Note 13: Legal and Regulatory Proceedings

Note 14: Leases

Note 15: Warrants

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

Second Quarter 2022 Highlights

Results of Operations

Analysis of Financial Condition

Securities Portfolio

Loan Portfolio

Provision and Allowance for Credit Losses

Non-performing Assets and Other Asset Quality Metrics

Deposits and Other Borrowings

Liquidity and Capital Resources

Critical Accounting Policies and Estimates

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Item 4. Controls and Procedures

Part II. Other Information

Item 1. Legal Proceedings

Item 1A. Risk Factors

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

Item 6. Exhibit Index

Signature

Table of Contents

Forward-Looking Information

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 December 31, 2021, filed with the Securities and Exchange Commission (“SEC”)

on 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.

��

Table of Contents

See Notes to Condensed Consolidated Financial Statements (unaudited)

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, respectively

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).

Table of Contents

See Notes to Condensed Consolidated Financial Statements (unaudited)

CROSSFIRST BANKSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED

Three Months Ended

Six Months Ended

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

Federal Home Loan Bank Advances

1,294

1,280

2,403

2,563

Other borrowings

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)

(174)

(33)

Income from bank-owned life insurance

407

2,245

795

2,661

Swap fees and credit valuation adjustments, net

(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

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).

Table of Contents

See Notes to Condensed Consolidated Financial Statements (unaudited)

CROSSFIRST BANKSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - UNAUDITED

Three Months Ended

Six Months Ended

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)

(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

4,040

Less: income tax expense

339

992

Unrealized gain on cash flow hedges, net of income tax

1,046

3,048

Other comprehensive income (loss)

(28,417)

4,183

(70,918)

(2,674)

Comprehensive Income (Loss)

(12,872)

19,760

(38,545)

24,938

Table of Contents

See Notes to Condensed Consolidated Financial Statements (unaudited)

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

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

15,577

Change in unrealized appreciation on

available-for-sale securities

4,183

Issuance of shares from equity-based awards

155,707

(94)

(92)

Open market common share repurchases

(875,696)

(12,887)

Stock-based compensation

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

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

15,545

Other comprehensive loss

(28,417)

Issuance of shares from equity-based awards

45,689

(40)

Open market common share repurchases

(237,993)

(3,392)

Stock-based compensation

1,120

Balance June 30, 2022

49,535,949

529

(48,501)

528,548

176,868

(49,429)

608,015

Table of Contents

See Notes to Condensed Consolidated Financial Statements (unaudited)

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

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

27,612

Change in unrealized depreciation of available-

for-sale securities

(2,674)

Issuance of shares from equity-based awards

243,357

(498)

(496)

Open market common share repurchases

(964,193)

(13,939)

Employee receivables from sale of stock

Stock-based compensation

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

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)

(2,610)

Net income

32,373

Change in unrealized depreciation of available-

for-sale securities

(70,918)

Issuance of shares from equity-based awards

348,729

(660)

(657)

Open market common share repurchases

(1,296,325)

(20,154)

Employee receivables from sale of stock

Stock-based compensation

2,235

Exercise of warrants

33,500

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.

Table of Contents

See Notes to Condensed Consolidated Financial Statements (unaudited)

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

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

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

Purchase of premises and equipment

(1,135)

(152)

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

108

Purchase of restricted equity securities

(4,208)

Proceeds from sale of restricted equity securities

1,544

2,539

Proceeds from death benefit on bank owned life insurance

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

(2,306)

Proceeds from Federal Home Loan Bank advances

50,000

Repayment of Federal Home Loan Bank advances

(130,000)

(10,000)

Net proceeds of Federal Home Loan Bank line of credit

140,000

Issuance of common shares, net of issuance cost

170

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

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.

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1: Nature of Operations and Summary of Significant Accounting Policies

Organization and Nature of Operations

CrossFirst Bankshares, Inc. (the “Company”) is a bank holding company whose principal activities

are the ownership and

management of its wholly-owned subsidiary, CrossFirst Bank (the

“Bank”). In addition, the Bank has

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 approximately $

million in cash. Central has branches in Colorado and New Mexico. The transaction is

currently expected to close in the second 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 United States

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

the Bank, CFI, CFBSA I, LLC and CFBSA II,

LLC. All significant intercompany accounts and transactions have been eliminated in consolidation.

The condensed consolidated interim financial statements are unaudited.

Certain information and footnote disclosures presented in

accordance with GAAP have been condensed or omitted and should be read in conjunction with the Company’s

consolidated financial

statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December

31, 2021 (the “2021

Form 10-K”), filed with the Securities and Exchange Commission (the “SEC”) on

February 28, 2022.

In the opinion of management, the interim financial statements include all adjustments

which are of a normal, recurring nature

necessary for the fair presentation of the financial position, results of operations,

and cash flows of the Company. 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.

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 Company identified accounting policies and estimates that, due

to the difficult, subjective or complex judgments and

assumptions inherent in those policies and estimates and the potential sensitivity

of the Company’s financial statements to those

judgments and assumptions, are critical to an understanding of the

Company’s financial condition and results of operations. Actual

results could differ from those estimates. The allowance for credit losses, deferred

tax asset, and fair value of financial instruments are

particularly susceptible to significant change.

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

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

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

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

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

PPP

64,805

(64,805)

Consumer

63,605

Gross Loans

4,256,213

4,269,620

(13,407)

Net deferred loan fees and costs

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

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:

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

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

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

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

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

Liabilities:

Lease incentive

2,125

(2,125)

Accrued rent payable

904

(904)

Lease liability

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.

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

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

Three Months Ended

Six Months Ended

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

18,352

160,769

Collateralized mortgage obligations - GSE residential

13,611

400

13,211

State and political subdivisions

566,726

2,199

52,236

516,689

Corporate bonds

5,118

172

4,978

Total available-for-sale securities

764,574

2,233

71,160

695,647

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Notes to Condensed Consolidated Financial Statements

(unaudited)

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

18,431

State and political subdivisions

532,906

29,329

767

561,468

Corporate bonds

4,241

119

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 $

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

Total

(Dollars in thousands)

Available-for-sale securities

Mortgage-backed - GSE residential

(1)

Amortized cost

117

178,978

179,119

Estimated fair value

117

160,628

160,769

Weighted average yield

(2)

4.71

4.03

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.

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

The following tables show the number of securities, unrealized loss, and fair value of

the Company’s investments with unrealized

losses, 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

34,332

6,674

158,941

18,352

Collateralized

mortgage obligations

- GSE residential

12,809

386

403

13,212

400

State and political

subdivisions

370,681

50,096

264

7,775

2,140

378,456

52,236

273

Corporate bonds

4,696

172

4,696

172

Total temporarily

impaired securities

512,795

62,332

331

42,510

8,828

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

87,306

1,774

Collateralized

mortgage obligations

- GSE residential

803

State and political

subdivisions

72,915

762

1,310

74,225

767

Corporate bonds

Total temporarily

impaired securities

161,024

2,546

1,310

162,334

2,551

Based on the Company’s evaluation at June 30, 2022, under the new

impairment model, an allowance for credit losses has

been recorded

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.

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

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

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

(14)

(12)

(41)

(38)

For the Three Months Ended

For the Six Months Ended

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

(18)

(13)

(29)

(3)

Equity Securities

Equity securities consist of a $

million investment in a Community Reinvestment Act (“CRA”) mutual fund and $

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,

2022

2021

2022

2021

(Dollars in thousands)

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

(71)

(174)

(33)

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

during the reporting period

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

securities still held at the reporting date

(71)

(174)

(33)

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Notes to Condensed Consolidated Financial Statements

(unaudited)

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 $

million and $

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.

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Notes to Condensed Consolidated Financial Statements

(unaudited)

●

Commercial Real Estate

- The category includes loans that typically involve larger principal amounts and repayment

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:

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

◾

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.

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

●

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.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

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

22,166

767,546

Special mention

721

14,488

1,060

313

3,414

20,065

Substandard - accrual

2,290

766

16,677

19,782

Substandard - non-

accrual

994

1,397

738

1,868

5,018

Doubtful

Total

198,172

331,824

91,098

62,019

61,597

23,576

44,125

812,411

Commercial and industrial

lines of credit

Pass

734,130

Special mention

35,139

Substandard - accrual

8,790

Substandard - non-

accrual

9,605

Doubtful

Total

787,664

Energy

Pass

7,445

900

264

198,257

210

207,120

Special mention

1,469

12,494

13,963

Substandard - accrual

6,013

6,023

Substandard - non-

accrual

3,750

Doubtful

2,144

Total

7,445

2,369

264

222,658

210

233,000

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

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

425

7,499

292

33,294

71,662

Substandard - accrual

10,681

992

11,673

Substandard - non-

accrual

2,498

292

1,109

2,983

6,959

Doubtful

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

576,480

Special mention

7,935

Substandard - accrual

Substandard - non-

accrual

Doubtful

Total

122,363

257,586

131,909

51,139

3,751

4,503

13,164

584,415

Residential real estate

Pass

38,134

79,391

121,547

47,354

40,803

36,793

626

364,648

Special mention

Substandard - accrual

3,308

3,183

6,491

Substandard - non-

accrual

198

Doubtful

Total

38,134

82,699

124,730

47,354

40,803

36,793

626

198

371,337

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

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

Substandard - accrual

Substandard - non-

accrual

Doubtful

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

47,039

53,873

Special mention

Substandard - accrual

Substandard - non-

accrual

Doubtful

Total

1,811

2,691

1,975

233

114

47,039

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

14,803

17,669

52,759

Substandard - non-

accrual

3,492

292

1,474

1,847

13,355

5,049

25,530

Doubtful

2,144

Total

656,897

1,011,298

508,612

287,668

187,990

151,724

1,525,578

198,467

4,528,234

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

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

126

221

60-89 days

Greater than 90 days

104

1,383

655

2,155

Total past due

104

1,383

729

126

2,450

Current

198,172

331,720

91,088

61,921

60,214

22,847

43,999

809,961

Total

198,172

331,824

91,098

62,019

61,597

23,576

44,125

812,411

Greater than 90 days

and accruing

Commercial and industrial lines of credit

30-59 days

2,086

60-89 days

784

Greater than 90 days

11,765

Total past due

14,635

Current

773,029

Total

787,664

Greater than 90 days

and accruing

2,160

Energy

30-59 days

1,469

60-89 days

Greater than 90 days

5,894

Total past due

1,469

5,894

7,363

Current

7,445

900

264

216,764

210

225,637

Total

7,445

2,369

264

222,658

210

233,000

Greater than 90 days

and accruing

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

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

9,662

60-89 days

Greater than 90 days

2,983

Total past due

9,662

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

Construction and land development

30-59 days

2,097

60-89 days

Greater than 90 days

Total past due

2,097

Current

122,363

257,586

131,909

49,042

3,751

4,503

13,164

582,318

Total

122,363

257,586

131,909

51,139

3,751

4,503

13,164

584,415

Greater than 90 days

and accruing

Residential real estate

30-59 days

121

60-89 days

Greater than 90 days

Total past due

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

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

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

60-89 days

Greater than 90 days

Total past due

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

Consumer

30-59 days

60-89 days

Greater than 90 days

Total past due

Current

1,811

2,647

1,975

233

114

47,039

53,829

Total

1,811

2,691

1,975

233

114

47,039

53,873

Greater than 90 days

and accruing

Total

30-59 days

11,296

2,185

2,086

126

15,700

60-89 days

784

935

Greater than 90 days

104

1,383

655

17,659

2,983

22,797

Total past due

11,400

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

2,160

2,163

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

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

Allowance

(Dollars in thousands)

Commercial and industrial

994

1,397

738

1,868

5,018

4,906

Commercial and industrial

lines of credit

9,605

Energy

5,894

698

Commercial real estate

2,498

292

1,109

2,983

6,959

6,882

Construction and land

development

Residential real estate

198

Multifamily real estate

Consumer

Total

3,492

292

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.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

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)

(217)

(4,448)

Recoveries

1,758

1,585

3,344

Provision (credit)

1,520

898

1,821

(3,171)

240

262

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

153

258

753

3,514

116

4,875

Provision (credit)

(3)

(153)

212

(96)

502

(7)

(10)

445

Ending balance

470

657

4,016

109

5,320

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

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

9,229

19,119

3,749

5,598

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)

(217)

(13)

(8,060)

Recoveries

755

1,779

1,754

1,585

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

Impact of ASU 2016-13

adoption

107

265

711

3,914

137

5,184

Provision (credit)

(44)

205

(54)

102

(1)

(28)

136

Ending balance

470

657

4,016

109

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.

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

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

Energy

Oil and natural gas properties

5,894

Commercial Real Estate

Commercial real estate properties

3,978

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,

loans were restructured under the TDR guidance. The outstanding

balance of TDRs was $

million and $

million as of June 30, 2022 and December 31, 2021, respectively.

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

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

1,401,681

Energy

184,269

73,196

5,246

13,595

2,554

278,860

Commercial real

estate

1,172,323

86,768

11,782

10,222

1,281,095

Construction and

land development

578,758

Residential and

multifamily real

estate

593,847

257

6,508

204

600,816

PPP

64,805

Consumer

63,605

4,014,490

176,422

47,275

28,879

2,554

4,269,620

The following table presents the Company’s loan portfolio aging analysis of the

recorded investment in loans as of December 31,

2021:

As of December 31, 2021

30-59 Days

Past Due

60-89 Days

Past Due

90 Days or

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

Energy

4,644

274,216

278,860

Commercial real estate

992

1,077

1,280,018

1,281,095

Construction and land

development

966

117

1,083

577,675

578,758

Residential and multifamily

real estate

437

151

588

600,228

600,816

PPP

64,805

Consumer

63,506

63,605

1,671

1,858

5,681

9,210

4,260,410

4,269,620

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

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

Residential and multifamily real estate

204

PPP

Consumer

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

5,597

Collectively

evaluated for

impairment

20,019

7,129

15,955

3,749

5,598

328

52,778

Ending

balance

20,352

9,229

19,119

3,749

5,598

328

58,375

Allocated to loans:

Individually

evaluated for

impairment

5,739

16,204

31,597

3,387

56,927

Collectively

evaluated for

impairment

1,395,942

262,656

1,249,498

578,758

597,429

64,805

63,605

4,212,693

Ending

balance

1,401,681

278,860

1,281,095

578,758

600,816

64,805

63,605

4,269,620

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

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

Construction and land development

Residential and multifamily real estate

3,387

PPP

Consumer

Loans with a specific valuation

Commercial and industrial

1,080

333

Energy

12,695

17,977

2,100

Commercial real estate

29,868

30,854

3,164

Construction and land development

Residential and multifamily real estate

PPP

Consumer

Total

Commercial and industrial

5,739

5,820

333

Energy

16,204

25,299

2,100

Commercial real estate

31,597

32,583

3,164

Construction and land development

Residential and multifamily real estate

3,387

PPP

Consumer

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 $

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.

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

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

293

74,551

Provision

7,532

(2,443)

(1,428)

(230)

3,500

Charge-offs

(2,566)

Recoveries

Ending balance

28,433

17,849

19,181

3,885

5,826

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

453

75,295

Provision

14,547

(492)

(3,173)

273

(16)

(139)

11,000

Charge-offs

(10,832)

Recoveries

Ending balance

28,433

17,849

19,181

3,885

5,826

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 $

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.

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

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

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

and

swaps had an aggregate notional amount of $

521

million and $

535

million at June 30, 2022 and December 31,

2021, respectively.

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

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

Interest payable

and other

liabilities

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

Interest expense

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

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

733,071

Fed funds purchased &

repurchase agreements

FHLB borrowings

41,500

5,100

110,000

156,600

FHLB line of credit

140,000

Trust preferred securities

(1)

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,

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)

(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.

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

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

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

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

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

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

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

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

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

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,

2022

2021

2022

2021

(Dollars in thousands)

Stock appreciation rights

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

Total stock-based compensation

1,120

1,575

2,235

2,224

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

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

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

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 $

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 $

million and is

expected to be recognized over

2.0

years.

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

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,

2022

2021

2022

2021

(Dollars in thousands)

Computed at the statutory rate (

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

193

State income taxes

728

682

1,424

1,178

Equity based compensation

(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

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

(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.

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

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

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

Foreclosed assets held-for-sale

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

Foreclosed assets held-for-sale

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.

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Company considers the appraisal or evaluation as the starting point for determining

fair value and then considers other

factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral dependent

loans are

obtained when the loan is determined to be collateral dependent and subsequently

as deemed necessary by the Office of the Chief Credit

Officer.

Appraisals are reviewed for accuracy and consistency by 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

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

100

Collateral dependent loans

24,328

(

Market comparable

properties

Marketability

discount

Foreclosed assets held-for-sale

1,588

(

December 31, 2021

Fair Value

Valuation Techniques

Unobservable

Inputs

Range

(Weighted Average)

(Dollars in thousands)

Market comparable

properties

Marketability

discount

100

Collateral-dependent impaired loans

38,046

(

Market comparable

properties

Marketability

discount

Foreclosed assets held-for-sale

1,148

(

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

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

Available-for-sale securities

695,647

Loans, net of allowance for credit losses

4,472,417

4,451,704

Restricted equity securities

14,946

Interest receivable

17,909

Equity securities

3,513

2,047

1,466

3,513

Derivative assets

9,348

5,491,458

277,678

724,951

4,468,116

5,470,745

Financial Liabilities

Deposits

4,744,420

1,163,462

3,453,569

4,617,031

Federal Home Loan Bank line of credit

140,000

Federal Home Loan Bank advances

156,600

153,781

Other borrowings

1,041

2,028

Interest payable

1,249

Derivative liabilities

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

Available-for-sale securities

745,969

Loans, net of allowance for loan losses

4,197,838

4,178,268

Restricted equity securities

11,927

Interest receivable

16,023

Equity securities

2,642

2,209

433

2,642

Derivative assets

11,308

5,468,434

482,727

775,509

4,190,628

5,448,864

Financial Liabilities

Deposits

4,683,597

1,163,224

3,482,218

4,645,442

Federal Home Loan Bank advances

236,600

241,981

Other borrowings

1,009

2,318

Interest payable

1,336

Derivative liabilities

11,887

4,934,429

1,163,224

257,522

3,482,218

4,902,964

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

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

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

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.

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Notes to Condensed Consolidated Financial Statements

(unaudited)

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 $

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 $

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

Finance lease interest on lease liability

Operating lease expense

603

1,329

Variable lease expense

345

558

Short-term lease expense

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

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

t record any ROU assets that

were exchanged for operating lease liabilities.

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Notes to Condensed Consolidated Financial Statements

(unaudited)

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.

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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.

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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,

Lines Impacted

2022

2021

2022

2021

Previous calculation

Yield on securities - taxable

2.77

2.20

2.11

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

3.43

3.54

3.35

3.57

Total securities yield

(1)

3.07

3.00

3.02

3.04

3.07

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

Net interest spread

(1)

(0.03)

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.

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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,

2022

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

0.30

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,

2022

2021

2022

2021

Yield on securities - tax-equivalent

(1)

3.07

3.00

3.02

3.04

3.07

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%.

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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

11.94

976

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.

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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

11.11

971

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.

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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

Average Volume

Yield/Rate

Net Change

(1)

Average Volume

Yield/Rate

Net Change

(1)

(Dollars in thousands)

Interest Income

Securities - taxable

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

(151)

(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)

(71)

(18)

(89)

Trust preferred securities, net of fair value adjustments

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.

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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,

2022

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.

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

shown:

Three Months Ended

Six Months Ended

June 30,

Change

2022

2021

2022

2021

(Dollars in thousands)

Service charges and fees on customer accounts

1,546

1,177

369

2,954

2,134

820

Realized losses on available-for-sale securities

(12)

(13)

(8)

(38)

(3)

(35)

1,167

Unrealized gains (losses), net on equity securities

(71)

(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

(30)

(140)

130

125

ATM and credit card interchange income

1,521

1,506

4,185

3,834

351

Other non-interest income

798

934

(136)

(15)

1,291

1,251

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.

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Non-Interest Expense

For the Quarter Ended

For the Six Months Ended

June 30,

March 31,

December 31,

September 30,

June 30,

2022

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,

Change

2022

2021

2022

2021

(Dollars in thousands)

Salary and employee benefits

17,095

15,660

1,435

35,036

29,213

5,823

Occupancy

2,622

2,397

225

5,115

4,891

224

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

1,972

1,436

536

Advertising

757

435

322

1,449

738

711

Software and communication

1,198

1,034

164

2,468

2,099

369

Foreclosed assets, net

665

(650)

(98)

(38)

715

(753)

(105)

Other non-interest expense

4,575

2,847

1,728

7,544

5,551

1,993

Total non-interest expense

29,203

25,813

3,390

56,869

48,631

8,238

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.

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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,

2022

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

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.

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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).

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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

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

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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,

2022

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

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

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:

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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

10,983

10,139

107

10,246

Commercial and industrial

lines of credit

11,267

8,866

8,910

Energy

6,428

470

6,898

9,190

265

9,455

Commercial real estate

17,042

657

17,699

18,933

711

19,644

Construction and land

development

3,918

4,016

7,934

3,666

3,914

7,580

Residential real estate

3,134

3,138

3,046

3,051

Multifamily real estate

2,427

109

2,536

2,465

137

2,602

Consumer

681

682

323

324

Total

55,817

5,320

61,137

100

56,628

5,184

61,812

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

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$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,

2022

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

0.07

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.

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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

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

342

1,776

Total non-performing loans

29,861

34,605

31,522

48,489

56,428

Foreclosed assets held for sale

973

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

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

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:

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June 30,

March 31,

December 31,

September 30,

June 30,

2022

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

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

0.08

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

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

17.3

24.0

Classified loans / (total capital + ACL + RUC)

(1)

12.0

10.7

N/A

Classified assets / (total capital + ACL)

12.3

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.

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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.

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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

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

Total liquidity as a percent of assets

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,

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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

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

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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.

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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

(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)

(1)

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

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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.

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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

Repurchased

Average Price

Paid per

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

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.

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ITEM 6. EXHIBITS

Exhibit

Number

Exhibit Description

3.1

Articles of Incorporation of CrossFirst Bankshares, Inc. (incorporated by reference to Exhibit 3.1 to the Company's

Registration Statement on Form S-1 as filed with the SEC on July 18, 2019, File No. 333 -232704).

3.2

Amendment to Articles of Incorporation of CrossFirst Bankshares, Inc. (incorporated by reference to Exhibit 3.2 to the

Company’s Registration Statement on Form S-1 as filed with the SEC on July 18, 2019, File No. 333-232704).

3.3

Bylaws of CrossFirst Bankshares, Inc. (incorporated by reference to Exhibit 3.3 to the Company's Registration

Statement on Form S-1 as filed with the SEC on July 18, 2019, File No. 333-232704).

10.1

†

Amended and Restated Employment Agreement with W. Randall Rapp, effective July 1, 2022

31.1

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

Section 302 of the Sarbanes-Oxley Act of 2002

31.2

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

Section 302 of the Sarbanes-Oxley Act of 2002

32.1

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

2002

101.INS*

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags

are embedded within the Inline XBRL document

101.SCH*

XBRL Taxonomy Extension Schema Document

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document

104*

Cover Page Interactive Data File (formation in Inline XBRL and contained in Exhibit 101)

Filed Herewith

Furnished Herewith

†

Indicates a compensatory plan

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on

its

behalf by the undersigned thereunto duly authorized.

CrossFirst Bankshares, Inc.

August 3, 2022

/s/ Benjamin R. Clouse

Benjamin R. Clouse

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

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