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As filed with the Securities and Exchange Commission on July 18, 2019.

Registration No. 333-         

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

CROSSFIRST BANKSHARES, INC.
(Exact name of registrant as specified in its charter)

Kansas
(State or other jurisdiction of
incorporation or organization)
6022
(Primary Standard Industrial
Classification Code Number)
11440 Tomahawk Creek Parkway
Leawood, Kansas 66211
(913) 312-6822
26-3212879
(I.R.S. Employer
Identification Number)

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Aisha Reynolds
General Counsel & Corporate Secretary
CrossFirst Bankshares, Inc.
11440 Tomahawk Creek Parkway
Leawood, Kansas 66211
(913) 312-6822

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

C. Robert Monroe
James S. Swenson
B. Scott Gootee
Stinson LLP
1201 Walnut Street, Suite 2900
Kansas City, Missouri 64106
(816) 842-8600
(816) 412-1017 (facsimile)
David O’Toole
Chief Financial Officer
CrossFirst Bankshares, Inc.
11440 Tomahawk Creek Parkway
Leawood, Kansas 66211
(913) 312-6822
(913) 754-9701 (facsimile)
Peter G. Weinstock
Beth A. Whitaker
Hunton Andrews Kurth LLP
1445 Ross Avenue, Suite 3700
Dallas, Texas 75202
(214) 979-3000
(214) 880-0011 (facsimile)

Approximate date of commencement of proposed sale to the public:

As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

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  o
Accelerated filer  o
Non-accelerated filer ☒
Smaller reporting company  o
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 7(a)(2)(B) of the Securities Act.  o

CALCULATION OF REGISTRATION FEE

Title of Each Class of
Securities to Be Registered
Proposed Maximum
Aggregate
Offering Price(1)(2)
Amount of
Registration Fee
Common Stock, par value $0.01 per share
$
100,000,000
 
$
12,120
 

(1)Includes shares of common stock that the underwriters have the option to purchase from the registrant.
(2)Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended, based upon an estimate of the maximum aggregate offering price.

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

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The information in this preliminary prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the Registration Statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED JULY 18, 2019

PROSPECTUS

         Shares

 
   

Common Stock

This is the initial public offering of CrossFirst Bankshares, Inc. We are offering          shares of our common stock and the selling stockholders are offering          shares of our common stock. We will not receive any proceeds from the sales of shares by the selling stockholders.

Prior to this offering, there has been no established public market for our common stock. We anticipate that the public offering price of our common stock will be between $   and $   per share. We have applied to list our common stock on the Nasdaq Global Select Market under the symbol “CFB.”

We intend to use the net proceeds of this offering for general corporate purposes, including maintenance of required regulatory capital and to support our future growth. See “Use of Proceeds.”

Investing in our common stock involves risk. See “Risk Factors” beginning on page 20.

We are an “emerging growth company” under the federal securities laws and will be subject to reduced public company reporting requirements.

 
Per Share
Total
Public offering price
$
         
 
$
         
 
Underwriting discounts(1)
 
 
 
 
 
 
Proceeds to us, before expenses
 
 
 
 
 
 
Proceeds to the selling stockholders, before expenses
 
 
 
 
 
 
(1)See “Underwriting” for additional information regarding underwriting compensation.

The underwriters have an option to purchase up to an additional          shares from us at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

Shares of our common stock are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

The shares of common stock will be ready for delivery on or about         , 2019.

Keefe, Bruyette & Woods
RAYMOND JAMES
Stephens Inc.
A Stifel Company
 
 
 
Sandler O’Neill + Partners, L.P.
 

The date of this prospectus is         , 2019.

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*Kansas City branch will be relocated to a new location (as depicted in picture). Planned to open in 2020.

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Page
PROSPECTUS SUMMARY
1
THE OFFERING
11
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
13
GAAP RECONCILIATION AND MANAGEMENT EXPLANATION OF NON-GAAP FINANCIAL MEASURES
16
RISK FACTORS
20
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
46
USE OF PROCEEDS
48
CAPITALIZATION
49
DILUTION
50
MARKET PRICE OF COMMON STOCK
52
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
53
BUSINESS
99
SUPERVISION AND REGULATION
117
MANAGEMENT
133
EXECUTIVE COMPENSATION
147
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
164
PRINCIPAL AND SELLING STOCKHOLDERS
167
DESCRIPTION OF CAPITAL STOCK
170
DESCRIPTION OF CERTAIN INDEBTEDNESS
177
SHARES ELIGIBLE FOR FUTURE SALE
179
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
181
UNDERWRITING
185
LEGAL MATTERS
189
EXPERTS
189
WHERE YOU CAN FIND MORE INFORMATION
189
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1

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About this Prospectus

You should rely only on the information contained in this prospectus or in any free writing prospectus that we authorize to be delivered to you. We, the selling stockholders and the underwriters have not authorized anyone to provide you with different or additional information. We, the selling stockholders and the underwriters are not making an offer of these securities in any jurisdiction where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

Unless we state otherwise or the context otherwise requires, references in this prospectus to “we,” “our,” “us,” “ourselves,” “our company,” and the “Company” refer to CrossFirst Bankshares, Inc., a Kansas corporation, its predecessors and its consolidated subsidiaries. References in this prospectus to “CrossFirst Bank” and the “Bank” refer to CrossFirst Bank, a Kansas chartered bank and our wholly-owned consolidated subsidiary.

This prospectus describes the specific details regarding this offering and the terms and conditions of our common stock being offered hereby and the risks of investing in our common stock. For additional information, please see the section entitled “Where You Can Find More Information.”

You should not interpret the contents of this prospectus to be legal, business, investment or tax advice. You should consult with your own advisors for that type of advice and consult with them about the legal, tax, business, financial and other issues that you should consider before investing in our common stock.

Unless otherwise stated, all information in this prospectus gives effect to a two-for-one stock split of our common stock effected in the form of a stock dividend, whereby each holder of our common stock received one additional share of common stock for each share owned as of the record date of December 19, 2018, which was distributed on December 21, 2018. The effect of the stock dividend on outstanding shares and per share figures has been retroactively applied to all periods presented in this prospectus.

Unless otherwise stated, all information in this prospectus assumes that the underwriters have not exercised their option to purchase additional shares of our common stock from us.

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Market and Industry Data

Within this prospectus, we reference certain market, industry and demographic data, forecasts and other statistical information. We have obtained this data, forecasts and information from various independent, third party industry sources and publications. Nothing in the data, forecasts or information used or derived from third party sources should be construed as advice. Some data and other information are also based on our good faith estimates, which are derived from our review of industry publications and surveys and independent sources. We believe that these sources and estimates are reliable but have not independently verified them. Statements as to our market position are based on market data currently available to us. Although we are not aware of any misstatements regarding the economic, employment, industry and other market data presented herein, these estimates involve inherent risks and uncertainties and are based on assumptions that are subject to change.

Implications of Being an Emerging Growth Company

As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an emerging growth company (“EGC”) under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). 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. As an EGC:

•we may present as few as two years of audited financial statements and two years of related management discussion and analysis of financial condition and results of operations;
•we are exempt from the requirement to obtain an attestation and report from our auditors on management’s assessment of our internal control over financial reporting under the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”);
•we are permitted to provide less extensive disclosure about our executive compensation arrangements; and
•we are not required to give our stockholders non-binding advisory votes on executive compensation or golden parachute arrangements.

In this prospectus we have elected to take advantage of the reduced disclosure requirements relating to the presentation and discussion of our audited financial statements and executive compensation, and in the future we may take advantage of any or all of these exemptions for so long as we remain an EGC. We will remain an EGC until the earliest of (i) the end of the fiscal year during which we have total annual gross revenues of $1.07 billion or more, (ii) the last day of the fiscal year following the fifth anniversary of the completion of this offering, (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities and (iv) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

In addition to the relief described above, the JOBS Act permits us an extended transition period for complying with new or revised accounting standards affecting public companies. We have elected to take advantage of this extended transition period, which means that the financial statements included in this prospectus, as well as any financial statements that we file or furnish in the future, will not be subject to all new or revised accounting standards generally applicable to public companies for the transition period for so long as we remain an EGC or until we affirmatively and irrevocably opt out of the extended transition period under the JOBS Act.

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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider in making your investment decision. You should read the following summary together with the entire prospectus, including the matters discussed in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and the historical financial statements and the accompanying notes before deciding to invest in our common stock. Some of the statements in this prospectus constitute forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.”

Our Company

CrossFirst Bankshares, Inc., a Kansas corporation and registered bank holding company, is the holding company for CrossFirst Bank. The Company was initially formed as a limited liability company, CrossFirst Holdings, LLC, on September 1, 2008 to become the holding company for the Bank and converted to a corporation in 2017. The Bank was established as a Kansas state-chartered bank in 2007 and provides a full suite of financial services to businesses, business owners, professionals and their personal networks throughout our five primary markets located in Kansas, Missouri, Oklahoma and Texas. As of March 31, 2019, we had total assets of $4.3 billion, total loans of $3.3 billion, total deposits of $3.4 billion and total stockholders’ equity of $480.5 million. We have highly engaged employees who are focused on driving profitability and sustainable growth across our markets of operation.

We are committed to a culture of serving our clients, stockholders and communities in extraordinary ways by providing personalized, relationship-based banking. We believe that success is achieved through establishing and growing the trust of our clients, employees, communities and stockholders. In addition to our strong culture, we believe our leadership has effectively aligned incentives for management and stockholders to aggressively pursue business opportunities in our designated markets. Our focus continues to be on middle market businesses and professionals to whom we can cross-sell our multiple products and services. Historically, our success has been evidenced by the significant growth in our franchise, growing assets at a compound annual growth rate (“CAGR”) of 48.8% between 2008 and 2018, and raising over $400.0 million in capital to fund such growth. Going forward, our focus will be on driving increased profitability combined with continued strong growth.

Our History and Growth

The Bank was organized by a group of financial executives and prominent business leaders with a shared vision to invest in highly experienced people and technology to offer unprecedented levels of personal service to our clients. We achieved initial profitability in the third quarter of 2009 and have since grown to be the third largest bank headquartered in the Kansas City metropolitan statistical area (“MSA”) by asset size. At the same time, we have expanded our operations to seven full-service banking offices primarily along the I-35 corridor, with locations in Leawood and Wichita, Kansas; Kansas City, Missouri; Tulsa and Oklahoma City, Oklahoma; and Dallas, Texas.

We have demonstrated significant balance sheet growth and an ability to organically expand into new markets with our relationship-based, branch-lite approach. We do so, in part, by hiring experienced, high-caliber bankers and banking teams that share our passion for delivering extraordinary client service. We have invested in scalable technology that allows us to compete for sophisticated business clients and to serve clients sufficiently without a large branch network. We have had the benefit of numerous high net worth investors and clients concentrated in our MSAs, who have provided important business relationships. Additionally, we have enhanced our growth and geographic presence by successfully integrating two strategic bank acquisitions.

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Our Strategy

Since inception, our strategy has been to build the most trusted bank serving our markets, which we believe has driven value for our stockholders. We establish the trust of our clients with our experienced and motivated teams of employees that provide superior products and services, with the goal of delivering on our promises and consistently exceeding our clients’ expectations. This trust has afforded our bankers the ability to effectively integrate into the local markets allowing for strong asset and loan growth, while maintaining superior asset quality. Historically, we have made significant investments in human capital to grow local market share. We remain focused on robust growth and are equally focused on building stockholder value through greater efficiency and increased profitability. We intend to execute our strategic plan through the following:

•Continuing Our Organic Growth. We have been able to grow our balance sheet, as evidenced by loan growth of 317.4% since 2014, which we believe has been a result of our relationship-based approach and market expansion into major metropolitan areas. We have also grown our core deposits, which we define as total deposits less wholesale deposits, time deposits greater than $250.0 thousand and reciprocal deposits, by 205.1% since 2014. This balance sheet growth has translated into significant growth in operating revenue as illustrated below:

Operating Revenue ($M)(1)

 

(1)Net interest income plus non-interest income.

We also believe our geographic markets provide synergistic growth opportunities, as numerous clients throughout our markets operate in broader geographic footprints and continue to experience growth and

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a need for sophisticated financial services. Our strategy is to continue to focus on organic growth throughout our footprint by deepening ties within our communities, building upon current client relationships and further leveraging the extensive experience of our senior management team, commercial lenders and local stockholder base.

•Improving Profitability and Operating Efficiency. The Company was built on the premise of achieving a sufficient size to compete with larger banks in the markets we serve. We achieved a modest level of profitability on an annual basis starting in 2010, and after enhancing our focus on profitability in 2018, in conjunction with the significant expansion of our Company, produced earnings growth since 2010 at a CAGR of 42.3% through the twelve months ended December 31, 2018. Since 2010, we have invested in talent and acquisitions to grow our market presence and expand into several new products such as an energy lending vertical. Our strategy includes continuing to pursue accretive initiatives to increase profitability. In addition, we believe that a branch-lite approach should continue to drive operating leverage and scale as we develop these markets. Although profitability in the first half of 2018 was impacted by several factors, including our start-up investment in the Dallas market and additional personnel required to execute our company-wide plans, we implemented a number of expense reduction strategies that have contributed to an improved efficiency ratio.

Efficiency Ratio

 

We calculate “non-GAAP core operating efficiency ratio” as non-interest expense adjusted to remove non-recurring non-interest expenses as defined under non-GAAP core operating income, divided by the sum of net interest income and non-interest income. Non-GAAP core operating efficiency ratio is a non-GAAP financial measure. The most directly comparable GAAP financial measure is the efficiency ratio. See “GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures” for a reconciliation of this measure.

•Attracting and Developing Talent within Our Organization. We believe that our teams of engaged employees have been, and will continue to be, an important factor in seeking to drive future organic growth and in cultivating relationships with current and potential clients. Since our inception, we have prioritized hiring highly experienced employees, which continues to be a core strategic focus. We seek employees who are capable and proficient in managing larger client relationships. We have a long-term talent development strategy and have been successful in promoting many of our employees to leadership positions. In addition, we have a performance-driven culture and an engaged well-being coach who adds to employee retention and motivation. Our partnership model requires certain members of senior management to purchase a minimum amount of common stock in the Company. We believe this requirement, in addition to our equity compensation program, aligns management’s interests with those of our stockholders and incentivizes the leadership to focus on business generation, relationship management, attracting and developing talented bankers and serving clients and communities in extraordinary ways.
•Maintaining Our Branch-Lite Business Model with Strategically Placed Locations. Our offices have been strategically placed to provide financial services to businesses, business owners, professionals and their personal networks. We have one to three office locations in each of our markets creating the potential for a highly efficient business operating model located near attractive client opportunities. The Company has average deposits per location of $485.7 million as of March 31, 2019, with centralized

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processing located in its corporate headquarters. As of December 31, 2018, the Company ranked number one in deposits per location in Kansas City, Wichita and Tulsa, and ranked in the top 10 percent in deposits per location in our other locations of Oklahoma City and Dallas, according to data obtained through S&P Global Market Intelligence (“S&P Global”). In addition, our modern locations provide very unique and professional atmospheres for providing extraordinary banking services. Our strategic business model allows us to operate at an $11.8 million in assets-to-employee ratio as of March 31, 2019, as compared to a median $5.8 million per employee for banks between $1.0 and $10.0 billion in total assets as of December 31, 2018, according to data obtained through S&P Global. As part of our continued focus on improving efficiency, we plan to continue monitoring and improving how we deploy our human capital and utilize resources.

•Leveraging Technology to Enhance the Client Experience and Improve Productivity. We strive to maximize client convenience through the use of technology and our mobile banking applications, along with our strategically placed banking locations. Since our founding, we have made significant investments in technology to offer online and mobile banking products that we believe are superior to those offered by many similar-sized competitors and comparable to those of the nation’s largest banks. We utilize a large bank core processing service provider that we believe can support our growth plan, bring the best technology solutions to the Company and its clients and monitor and address cyber security risks. Business and individual clients have the latest banking products, services, systems and security available to them, including traditional loan and deposit products, online and mobile banking applications, treasury management and mortgage and international services that we believe are superior to, or competitive with, those offered by other banks. In addition to client-facing technology, significant investments have been made in the technology and software utilized by our employees. This technology and software enable our employees to be more productive by enhancing workflow and internal and external management reporting, extracting unnecessary steps, reducing manual errors, as well as supporting our branch-lite business model.
•Selectively Pursuing Opportunities to Expand through Acquisitions or New Market Development. We anticipate that we may selectively pursue future acquisitions and new market expansions to supplement current market growth or expand our geographic presence. Our business has been successfully built on synergistic acquisitions and new market expansion. We anticipate that any future acquisitions or new market expansions we may pursue would be consistent with our strategy of operating in attractive and adjacent metropolitan markets with a branch-lite structure and with banking teams that are proficient and knowledgeable of our target client base and that provide a strong cultural fit. In addition, our acquisition activity could occur in our existing core markets or as part of a new market initiative with an already established presence. We would seek acquisitions that provide meaningful financial benefits, long-term organic growth opportunities and economies of scale without compromising asset quality to the overall organization. While we evaluate and engage in discussions with potential acquisition candidates from time to time and will continue to evaluate opportunities for acquisitions, we do not have any current plans, arrangements or understandings to make any acquisitions at this time.

Competitive Strengths

We believe that the following strengths will help us achieve our principal financial objectives of continued balance sheet and earnings growth:

Experienced and Invested Leadership

Our executive leadership team is comprised of established industry veterans with a track record of profitable organic growth, operating efficiencies and strong risk management. Each member of our executive leadership team is a participant in our partnership program and has made a meaningful ownership investment in the Company. Our Board of Directors has decades of combined business experience from a variety of backgrounds and actively participates in and supports community activities, which we believe significantly benefits our business development efforts. In addition to our executive leadership team, we believe that we are supported by a deep and talented bench of business unit leaders, many of whom have been with the Company for much of its existence. We believe the following executive leadership team has the experience to execute on our strategic vision:

•George F. Jones, Jr. – President & CEO of the Company. Mr. Jones joined the Company as Vice Chairman in 2016 after a two-year retirement from Texas Capital Bank. Mr. Jones was one of the

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founding executives of Texas Capital Bank in 1998 and led the bank through 50 consecutive profitable quarters and growth to $12.0 billion in assets. Previously, Mr. Jones was president and CEO of NorthPark National Bank of Dallas, president and CEO of Texas American Bank, Dallas, and manager of financial institutions for Mercantile National Bank, Dallas.

•Mike Maddox – President & CEO of the Bank. Mr. Maddox joined CrossFirst Bank in 2008 after serving as Kansas City Regional President for Intrust Bank. He earned a business degree from the Kansas University School of Business. Additionally, he earned a law degree from the Kansas University School of Law and practiced for more than six years before joining Intrust. Mr. Maddox is a graduate of the Graduate School of Banking at the University of Wisconsin - Madison.
•David O’Toole – Chief Financial Officer & Chief Investment Officer of the Company; Chief Financial Officer of the Bank. Mr. O’Toole has more than 40 years of experience in banking, accounting, valuation and investment banking. Mr. O’Toole is a founding stockholder and director of CrossFirst Bank and became CFO in 2008. Previously, Mr. O’Toole was co-founder and managing partner of a national bank consulting and accounting firm. He has served on numerous boards of directors of banks and private companies, including the Continental Airlines, Inc. travel agency advisory board.
•W. Randall Rapp – Chief Credit Officer of the Bank. Mr. Rapp has more than 30 years of experience in credit and banking and has served as the Chief Credit Officer of the Bank since April 2019. Prior to joining the Bank, Mr. Rapp held various positions at Texas Capital Bank, N.A. from March 2000 until March 2019, including serving as Executive Vice President and Chief Credit Officer from May 2015 until March 2019, and as a Senior Credit Officer from 2013 until May 2015. Mr. Rapp holds a BBA in Accounting from The University of Texas at Austin and an MBA in Finance from Texas Christian University. He is also a licensed CPA.
•Amy Fauss – Chief Operating Officer of the Bank. Ms. Fauss has more than 28 years of banking experience and joined the Bank in 2009 after serving as executive vice president and chief operating officer for Solutions Bank in Overland Park, Kansas. Previously, she was senior vice president of operations for $1.0 billion in assets at Hillcrest Bank. Ms. Fauss is a graduate of the Graduate School of Banking at the University of Wisconsin - Madison and earned an MBA at the University of Missouri - Kansas City.
•Tom Robinson – Chief Risk Officer of the Company. Mr. Robinson has more than 35 years of industry experience and has served as Chief Risk Officer of the Company since January 2019. Mr. Robinson also served as Chief Credit Officer at CrossFirst Bank from 2011 until March 2019. Prior to joining CrossFirst Bank in 2011, Mr. Robinson was the chief lending officer for Morrill & Janes Bank and Trust Company. He is a past president of the Kansas City chapter of the Risk Management Association and graduated from the Graduate School of Banking at Colorado University – Boulder.

Disciplined Underwriting and Structured Credit Administration

Since 2014, we have driven tremendous balance sheet growth, with a CAGR in loans and assets of 40.0% and 34.2%, respectively. We have achieved this balance sheet growth while maintaining superior credit quality. We have established a strong risk management culture supported by comprehensive policies and procedures for credit underwriting and monitoring. We are guided by the following principles, which have served us well throughout our history:

•focus on relationship lending;
•commitment to diversification;
•disciplined and standardized underwriting;
•proactive problem asset management;
•decisive response to market opportunities; and
•highly competent and experienced bankers and credit officers.

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Our credit quality is proven out through our low net charge-off and nonperforming asset history. Since 2014, we have experienced a total of $10.8 million in net charge-offs relative to a volume of loans that have grown from $785.2 million as of December 31, 2014 to $3.3 billion as of March 31, 2019.

Net Charge-offs / Average Loans
Nonperforming Assets / Total Assets
   
 
 
 
   
 

We seek to be nimble and responsive in our credit underwriting and client mandates. We believe that our larger competitors require inflexible terms and requirements of their small and middle market clients. We recognize that businesses differ, and we tailor our lending to suit our clients’ needs. We believe our combination of local business unit leaders, disciplined and standardized underwriting and experienced credit officers enables us to meet varied borrowing needs. Additionally, our senior management review potential applications early in the process, which allows us to be more responsive than many of our larger competitors.

Scalable Infrastructure Designed to Accommodate Significant Growth

We have made significant investments in technology, risk management systems and people, and we believe that we have developed an infrastructure that can support significant additional asset growth with minimal capital investment. As described above, we utilize a large bank core processing service provider that we believe can support our growth plan. Each of our banking locations is structured to be able to provide extraordinary service with a heightened level of autonomy and accountability for performance. This means that with respect to each banking location: (i) a significant investment is made in the real property and improvements thereon, (ii) the location is led by an experienced local leader and staffed with talented bankers responsible for various lines of business, including real estate, commercial, corporate, private and relationship banking and (iii) comprehensive information is captured and disseminated to measure productivity and progress towards financial, business and strategic goals. In addition, we have organized our lending team into specialized areas of expertise, both geographically and by lines of business, and reinforced our team approach to building client relationships, which further fosters our ability to scale our business model. We believe that our scalable operating platform will allow us to manage our growth effectively, resulting in greater efficiency and enhanced profitability.

Sophisticated Suite of Banking Services to Facilitate Full-Service Commercial Relationships

We provide products and services that compete with large, national banks, but with the personalized attention and responsiveness of a relationship-focused community bank. We also offer technologically sophisticated cash and treasury management solutions to our clients to help build and maintain our commercial relationships. Ultimately, our focus on establishing a full-service relationship with our clients and incenting our employees to generate core funding has provided us with a strong base of core deposits to fund our loan growth, with over 75.4% of our loan relationships also maintaining deposit accounts with us as of March 31, 2019.

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We believe we have an attractive mix of loan and deposit products. As of March 31, 2019, approximately 35.4% of our loan portfolio was comprised of commercial loans and 28.8% was commercial real estate loans. Our focus on commercial lending increases the asset sensitivity of our balance sheet, with approximately 73.1% floating rate loans or maturing within one year. As of March 31, 2019, approximately 14.4% of our deposits were non-interest-bearing, with a deposit CAGR since 2014 of 34.6%. Non-interest-bearing deposit generation and overall enhancement of the funding base will continue to be a key initiative of the Bank.

 

Specialized Lending Verticals

As a result of our market expansions, we have developed a diverse portfolio of loans both geographically and by type. Each of our markets offers innovative and relevant lending verticals that we believe offer attractive risk-adjusted returns and will contribute to our future growth. These verticals include the following:

•Energy Lending. Introduced in 2014, and based in our Tulsa market, we have a team of senior lenders with experience in energy lending throughout credit cycles and across various segments of the industry and nationwide. We have successfully grown this vertical to over $376.1 million in outstanding loan balances as of March 31, 2019 and maintain disciplined underwriting. The portfolio is comprised of reserve-based lending on proven production and is well-diversified across a number of regions.
•Enterprise Value Lending. Introduced in our Kansas City market in 2017, our relationship-based Enterprise Value Lending services provide solutions designed to meet the needs of middle market manufacturers, distributors and service providers. As with our energy lending, our focus is on building relationships with clients who have strong cash flow, investor sponsorship and lower leverage.
•Tribal Nations Lending. Introduced in 2017, and based in our Tulsa market, we have built relationships and developed expertise in providing services to tribal nations throughout the broader Midwest and Southwest regions of the United States.
•Home Builder Lending. Introduced in 2017 in our Dallas market, our team of industry experts are focused on providing financing to large scale and high-volume residential developers and homebuilders. We focus primarily on home construction loans.

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Our Markets

We have a growing presence in what we believe are among the most attractive metropolitan markets in the United States, each generally situated along the I-35 corridor from Kansas City to the north through Dallas to the south.

 
As of March 31, 2019
 
Gross Loans
Deposits
Market
($)
(%)
($)
(%)
 
(Dollars in millions)
Kansas City, MO-KS
$
1,028
 
 
31.2
%
$
1,659
 
 
48.8
%
Wichita, KS
 
378
 
 
11.5
 
 
481
 
 
14.2
 
Oklahoma City, OK
 
229
 
 
7.0
 
 
331
 
 
9.7
 
Tulsa, OK
 
873
 
 
26.6
 
 
566
 
 
16.6
 
Dallas-Fort Worth-Arlington, TX
 
779
 
 
23.7
 
 
363
 
 
10.7
 
Total
$
3,287
 
 
100.0
%
$
3,400
 
 
100.0
%

The strength of these markets is demonstrated by their size, growth prospects and economic diversity. Each market presents unique opportunities with attractive business climates and skilled workforces. We believe that our current market areas provide opportunity for significant continued growth in loans and deposits. The following summarizes key statistics of each market:

Market
Population
(in millions)
Population
Change (%)
Projected Population
Growth (%)
Feb. 2019
Unemployment
Rate
Median
Household
Income
2010 - 2019
2019 - 2024
Kansas City, MO-KS
 
2.2
 
 
7.4
%
 
3.5
%
 
3.7
%
$
66,838
 
Wichita, KS
 
0.6
 
 
2.7
 
 
1.6
 
 
3.9
 
 
56,619
 
Oklahoma City, OK
 
1.4
 
 
12.3
 
 
5.1
 
 
3.2
 
 
59,019
 
Tulsa, OK
 
1.0
 
 
6.7
 
 
3.6
 
 
3.5
 
 
54,700
 
Dallas-Fort Worth-Arlington, TX
 
7.6
 
 
17.9
 
 
7.7
 
 
3.6
 
 
69,458
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
329.2
 
 
6.6
%
 
3.6
%
 
4.1
%
$
63,174
 

Source: S&P Global

Kansas City MSA

We operate three full-service branches in the Kansas City MSA, two in Leawood, Kansas and one in Kansas City, Missouri. The Kansas City MSA has a population of approximately 2.2 million, according to S&P Global. This area is the largest contributor to assets, deposits and earnings for our Company. The market is characterized by its stable growth and central location. Kansas City continues to grow as a leading distribution hub due in part to its centralized location. The area outperformed the United States in terms of population growth, GDP growth and unemployment rate since the 2008 Great Recession. The Kansas City MSA’s major contributors to gross domestic product include financial services, professional and business services, government and manufacturing. Together, these industries contributed 58% of the area’s GDP. Private service-providing industries contributed over 80% of the area’s private GDP. Kansas City is home to notable company headquarters including Cerner Corporation (which is its largest private employer), HCA Midwest Health System, Hallmark Cards, Inc., H&R Block, Inc., Sprint Corporation and Garmin International, Inc. With over 10 years of operation in the Kansas City market, we believe we are well positioned to continue to benefit from our deep relationships in this large and growing metropolitan market.

Wichita MSA

We operate one full-service branch in the Wichita MSA. Wichita is the largest MSA in Kansas with a population of over 600,000. Known as the “Air Capital of the World,” aircraft manufacturing is Wichita’s largest industry with several companies across the supply chain based in the area including Textron Aviation, Learjet and Spirit AeroSystems. Other prominent corporations with a substantial Wichita presence include Koch Industries, Cargill Meat Solutions and The Coleman Company. In 2010 the city government, in partnership with local

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businesses, announced a 20-year vision to revitalize the downtown area. Over $1.0 billion has been invested in the city’s urban core with an estimated $1.1 billion economic impact as a result of the project in addition to the development of new residential units, retail stores and office space. Overall, given Wichita’s diverse employment universe which includes many highly-skilled workers, prudent focus on economic development, low cost of living and location at the confluence of major railroad systems, we believe the market is well-positioned for further growth.

Oklahoma City MSA

We have one full-service branch in the Oklahoma City MSA. The Oklahoma City MSA is the largest in the state of Oklahoma with a population of approximately 1.4 million, according to S&P Global. Historically, the economy had been primarily energy-focused, but today Oklahoma City hosts a wide range of businesses and employers. Agriculture, energy, aviation, government, health care, manufacturing and industry all play major roles in the city’s economic well-being. The city was named the most “recession proof city in America” in 2008 (during the Great Recession) by Forbes and has experienced consistent increases in employment, a strong housing market and stable growth in the energy, agriculture and manufacturing industries. Oklahoma City’s visionary capital improvement program, “MAPS” or Metropolitan Area Projects, has provided for new and upgraded sports, recreation, entertainment, cultural and convention facilities and is now entering into its fourth phase supporting a vibrant and growing city.

Tulsa MSA

We have one full-service branch in the Tulsa MSA, which also serves as the headquarters for our energy lending vertical. Tulsa is the second-largest city in the state of Oklahoma with a diverse economic landscape. The Tulsa MSA has a population of approximately 1.0 million, according to S&P Global. Tulsa is home to some of the nation’s largest companies, with key industry sectors that include aerospace, energy, health care, technology, manufacturing and transportation. Tulsa is also home to the Port of Catoosa, an inland river port, which is a major economic engine for the region. The port has five public terminals that can transfer inbound and outbound bulk freight between barges, trucks and railroad cars. Two Fortune 500 companies are based in Tulsa - Oneok, Inc. and Williams Companies.

Dallas MSA

We operate one full-service branch in the Dallas MSA, which serves as one of the economic hubs of Texas and is part of the Dallas/Fort Worth MSA, the fourth largest MSA in the United States, both by population and by GDP. The Dallas/Fort Worth MSA has a population of approximately 7.6 million, according to S&P Global. The Dallas/Fort Worth MSA continues to attract business relocations, with one recent notable move being Core-Mark, which will become the 23rd Fortune 500 company headquartered in Dallas when it moves its headquarters from San Francisco. Businesses are attracted to the highly skilled and diverse workforce, business-friendly climate, lower taxation, central location and two international airports. According to the data from the Bureau of Economic Analysis, the Dallas/Fort Worth MSA was responsible for producing nearly 33% of the state’s total gross domestic product in 2017. The Dallas/Fort Worth MSA is an important market for us to continue to pursue our outsized loan growth. We are currently considering the opening of a second smaller full-service branch in the Dallas MSA. This process is in the preliminary stages and there can be no assurance as to whether or when a second branch will be opened.

Recent Developments

Stock Split

On December 21, 2018, we effected a two-for-one split of our common stock in the form of a stock dividend, whereby each holder of our common stock received one additional share of common stock for each share owned as of the record date of December 19, 2018. The effect of the stock dividend on outstanding shares and per share figures has been retroactively applied to all periods presented in this prospectus.

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Preferred Stock Redemption

On December 18, 2018, we provided notice to all holders of our 7.00% Series A Non-Cumulative Perpetual Preferred Stock (“Series A Preferred Shares”) of our intent to redeem all 1,200,000 outstanding Series A Preferred Shares on January 30, 2019 (the “Redemption Date”). On the Redemption Date, we redeemed each outstanding Series A Preferred Share at a redemption price of $25.00 per share and paid a pro rata share of a 30-day dividend for January 2019 in the aggregate amount of $175.0 thousand. From and after the Redemption Date, all of the Series A Preferred Shares ceased to be outstanding, all dividends with respect to the Series A Preferred Shares ceased to accrue and all rights with respect to the Series A Preferred Shares ceased and were terminated.

Risks Related to Our Company and an Investment in Our Common Stock

An investment in our common stock involves substantial risks and uncertainties. These risks are more fully discussed in the section titled “Risk Factors,” beginning on page 20, and include, among others, the following:

•we may not be able to effectively implement or manage the risks of our growth strategy or profitability improvement plan;
•because a significant portion of our business is tied to Kansas, Missouri, Oklahoma and Texas, we are more sensitive than our more geographically diversified competitors to adverse changes in the economy, including downturns in the real estate market and energy markets, the effect of which could adversely impact our growth and profitability of our lending and deposit operations;
•we operate in a highly regulated environment and our noncompliance with the laws and regulations that govern our business, operations, corporate governance, executive compensation and accounting principles could subject us to regulatory action or penalties;
•a disruption in our operational systems or infrastructure, whether as a result of cyber-attacks or third parties, could impair our liquidity, result in the unauthorized disclosure of confidential information, damage our reputation and cause financial losses; and
•we rely heavily on our executive management team and other key employees, and the unexpected loss of any of their services could adversely impact our business or reputation.

Corporate Information

Our principal executive office is located at 11440 Tomahawk Creek Parkway, Leawood, Kansas 66211, telephone number: (913) 312-6822. Our website address is www.crossfirstbank.com. Neither this website nor the information on or accessible through this website is included or incorporated in, or is a part of, this prospectus.

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THE OFFERING

Common stock offered by us
         shares.
Common stock offered by the selling stockholders
         shares.
Underwriters’ overallotment option
         shares from us.
Common stock outstanding after completion of this offering
         shares (or           shares if the underwriters exercise in full their option to purchase additional shares of common stock).
Use of proceeds
Assuming an initial public offering price of $       per share, which is the midpoint of the price range set forth on the cover page of this prospectus, we estimate that the net proceeds to us from this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $       million (or approximately $       million if the underwriters exercise in full their option to purchase additional shares of common stock). We intend to use the net proceeds of this offering for general corporate purposes, including maintenance of required regulatory capital and to support our future growth. We do not have any current plan to establish any new bank branches or to make any acquisitions, except that we are currently considering the opening of a second smaller full-service branch in the Dallas MSA. The estimated cost for a second branch has not been determined since this project is still in the early development stage. If we proceed with opening a second branch, the cost of establishing the branch will depend upon many factors such as whether the facility is owned or leased, the location of the branch, the size of the facility and the type of improvements and furnishings used in the facility. Opening a second branch would also be subject to obtaining required regulatory approvals. This process is in the preliminary stages and there can be no assurance as to whether or when a second branch will be opened. The precise amounts and timing of our use of the proceeds will depend upon market conditions and other factors. The principal reasons for conducting this offering are to increase our available cash resources, provide liquidity for our selling stockholders and create a public market for our common stock. We will not receive any proceeds from the sale of shares of common stock by the selling stockholders. See “Use of Proceeds.”
Dividends
We have not declared or paid any cash dividends on our common stock and we do not currently anticipate paying any cash dividends on our common stock in the foreseeable future. Instead, we anticipate that our earnings in the foreseeable future will be retained to support our operations and finance the growth and development of our business. Any future determination to pay dividends on our common stock will be made by our Board of Directors and will depend upon our

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results of operations, our financial condition, capital requirements, general economic conditions, regulatory and contractual restrictions, our business strategy, our ability to service any equity or debt obligations senior to our common stock and other factors that our Board of Directors deems relevant. See “Market Price of Common Stock—Dividend Policy.”

Directed share program
At our request, the underwriters have reserved for sale, at the initial public offering price, up to       shares offered by this prospectus for sale to our directors, executive officers, employees and business associates and certain other related persons. If these persons purchase reserved shares, it will reduce the number of shares available for sale to the general public. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares offered by this prospectus.
Securities owned by directors and executive officers
As of June 30, 2019, our directors and executive officers beneficially owned 10.36% of our outstanding common stock. Following the completion of this offering, we anticipate that our directors and executive officers will beneficially own approximately      % of our common stock (or      % if the underwriters exercise their option to purchase additional shares of common stock in full). See “Principal and Selling Stockholders.”
Risk factors
Investing in shares of our common stock involves a high degree of risk. See “Risk Factors,” beginning on page 20, for a discussion of certain factors you should consider carefully before deciding to invest.
Listing
We have applied to list our common stock on the Nasdaq Global Select Market under the trading symbol “CFB.”

Unless otherwise indicated, all information in this prospectus relating to the number of shares of common stock to be outstanding immediately after the completion of this offering is based on 45,367,641 shares issued and outstanding as of June 30, 2019. Unless expressly indicated or the context otherwise requires, all information in this prospectus:

•gives effect to a two-for-one stock split effected in the form of stock dividend completed on December 21, 2018, and the effect of the stock dividend on outstanding shares and per share figures has been retroactively applied to all periods presented in this prospectus;
•assumes no exercise by the underwriters of their option to purchase up to an additional       shares of our common stock from us;
•assumes that the shares of common stock sold in this offering are sold at $      per share, which is the midpoint of the price range set forth on the cover of this prospectus;
•does not attribute to any director, executive officer or principal stockholder any purchases of shares of our common stock in this offering, including through the directed share program described in “Underwriting—Directed Share Program;”
•excludes 2,466,363 shares of common stock issuable upon the exercise or settlement of equity awards and warrants outstanding at June 30, 2019; and
•excludes 2,319,364 shares of common stock reserved and available for future awards under our CrossFirst Bankshares, Inc. 2018 Omnibus Equity Incentive Plan at June 30, 2019.

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING INFORMATION

The following table sets forth (i) selected historical consolidated financial and operating data as of and for the three months ended March 31, 2019 and 2018 and as of and for the years ended December 31, 2018, 2017, 2016, 2015 and 2014 and (ii) selected ratios as of and for the periods indicated. Selected financial data as of and for the years ended December 31, 2018 and 2017 has been derived from our audited consolidated financial statements included elsewhere in this prospectus, and the selected historical consolidated financial information as of and for the years ended December 31, 2016, 2015 and 2014 has been derived from our audited consolidated financial statements not appearing in this prospectus. We have derived selected financial data as of March 31, 2018 from our unaudited consolidated financial statements not included in this prospectus. Selected financial data as of and for the three months ended March 31, 2019 and for the three months ended March 31, 2018 has been derived from our unaudited consolidated financial statements included elsewhere in this prospectus and has not been audited, but in the opinion of our management, contain all adjustments (consisting of only normal or recurring adjustments) necessary to present fairly in all material respects our financial position and results of operations for the period in accordance with generally accepted accounting principles (“GAAP”). The historical results set forth below and elsewhere in this prospectus are not necessarily indicative of our future performance. The performance, asset quality and capital ratios are unaudited and derived from our audited and unaudited financial statements as of and for the periods presented. Average balances have been calculated using daily averages.

You should read the following financial data in conjunction with the other information contained in this prospectus, including under “Risk Factors,” “GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the financial statements and related notes included elsewhere in this prospectus.

 
As of or for the
Three Months Ended
March 31,
As of or for the Year Ended
December 31,
 
2019
2018
2018
2017
2016
2015
2014
 
(Dollars in thousands, except per share data)
Income Statement Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
$
51,317
 
$
32,131
 
$
156,880
 
$
97,816
 
$
69,069
 
$
54,116
 
$
39,320
 
Interest expense
 
17,712
 
 
8,994
 
 
46,512
 
 
22,998
 
 
15,016
 
 
11,849
 
 
8,230
 
Net interest income
 
33,605
 
 
23,137
 
 
110,368
 
 
74,818
 
 
54,053
 
 
42,267
 
 
31,090
 
Provision for loan losses
 
2,850
 
 
3,000
 
 
13,500
 
 
12,000
 
 
6,500
 
 
5,975
 
 
3,915
 
Non-interest income
 
1,645
 
 
1,973
 
 
6,083
 
 
3,679
 
 
3,407
 
 
2,365
 
 
1,904
 
Non-interest expense
 
22,631
 
 
20,158
 
 
85,755
 
 
62,089
 
 
40,587
 
 
30,562
 
 
24,640
 
Income before taxes
 
9,769
 
 
1,952
 
 
17,196
 
 
4,408
 
 
10,373
 
 
8,095
 
 
4,439
 
Income tax expense (benefit)
 
419
 
 
(672
)
 
(2,394
)
 
(1,441
)
 
62
 
 
626
 
 
296
 
Net income
 
9,350
 
 
2,624
 
 
19,590
 
 
5,849
 
 
10,311
 
 
7,469
 
 
4,143
 
Preferred stock dividends
 
175
 
 
525
 
 
2,100
 
 
2,100
 
 
2,100
 
 
2,066
 
 
1,485
 
Net income available to common stockholders
 
9,175
 
 
2,099
 
 
17,490
 
 
3,749
 
 
8,211
 
 
5,403
 
 
2,658
 
Non-GAAP core operating income(1)
 
7,989
 
 
2,624
 
 
19,940
 
 
9,716
 
 
10,311
 
 
7,469
 
 
4,143
 
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
117,317
 
$
191,322
 
$
216,541
 
$
130,820
 
$
155,972
 
$
79,418
 
$
18,084
 
Available-for-sale securities
 
707,430
 
 
738,983
 
 
663,678
 
 
703,581
 
 
593,012
 
 
460,542
 
 
375,039
 
Gross loans (net of unearned income)
 
3,277,598
 
 
2,137,341
 
 
3,060,747
 
 
1,996,029
 
 
1,296,886
 
 
992,726
 
 
785,193
 
Allowance for loan losses
 
40,001
 
 
27,818
 
 
37,826
 
 
26,091
 
 
20,786
 
 
15,526
 
 
9,905
 
Goodwill and other intangibles
 
7,770
 
 
7,872
 
 
7,796
 
 
7,897
 
 
7,998
 
 
8,100
 
 
8,201
 
Total assets
 
4,266,369
 
 
3,206,791
 
 
4,107,215
 
 
2,961,118
 
 
2,133,106
 
 
1,574,346
 
 
1,220,281
 
Non-interest-bearing deposits
 
488,375
 
 
332,427
 
 
484,284
 
 
290,906
 
 
198,088
 
 
123,430
 
 
92,332
 
Total deposits
 
3,399,899
 
 
2,527,792
 
 
3,208,097
 
 
2,303,364
 
 
1,694,301
 
 
1,294,812
 
 
961,623
 
Borrowings and repurchase agreements
 
368,597
 
 
387,538
 
 
388,391
 
 
357,837
 
 
216,709
 
 
112,430
 
 
115,241
 
Preferred stock, liquidation value
 
—
 
 
30,000
 
 
30,000
 
 
30,000
 
 
30,000
 
 
30,000
 
 
28,614
 
Total stockholders’ equity
 
480,514
 
 
282,962
 
 
490,336
 
 
287,147
 
 
214,837
 
 
160,004
 
 
137,098
 

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As of or for the
Three Months Ended
March 31,
As of or for the Year Ended
December 31,
 
2019
2018
2018
2017
2016
2015
2014
 
(Dollars in thousands, except per share data)
Share and Per Share Data(2):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic earnings per share
$
0.20
 
$
0.07
 
$
0.48
 
$
0.12
 
$
0.39
 
$
0.29
 
$
0.17
 
Diluted earnings per share
 
0.20
 
 
0.07
 
 
0.47
 
 
0.12
 
 
0.39
 
 
0.28
 
 
0.17
 
Book value per share
 
10.63
 
 
8.12
 
 
10.21
 
 
8.38
 
 
7.34
 
 
6.61
 
 
6.06
 
Tangible book value per share(3)
 
10.46
 
 
7.87
 
 
10.04
 
 
8.12
 
 
7.02
 
 
6.20
 
 
5.60
 
Weighted average common shares outstanding – basic
 
45,093,442
 
 
30,794,758
 
 
36,422,612
 
 
30,086,530
 
 
20,820,784
 
 
18,640,678
 
 
15,381,950
 
Weighted average common shares outstanding – diluted
 
45,960,267
 
 
32,097,870
 
 
37,492,567
 
 
30,963,424
 
 
21,305,874
 
 
19,378,290
 
 
15,611,950
 
Shares outstanding at end of period
 
45,202,370
 
 
31,135,720
 
 
45,074,322
 
 
30,686,256
 
 
25,194,872
 
 
19,661,718
 
 
17,908,862
 
Selected Ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average assets(9)
 
0.91
%
 
0.35
%
 
0.56
%
 
0.24
%
 
0.56
%
 
0.53
%
 
0.41
%
Non-GAAP core operating return on average assets(4)(9)
 
0.78
 
 
0.35
 
 
0.57
 
 
0.40
 
 
0.56
 
 
0.53
 
 
0.41
 
Return on average common equity(9)
 
7.98
 
 
3.38
 
 
5.34
 
 
1.53
 
 
5.51
 
 
4.60
 
 
3.08
 
Non-GAAP core operating return on average common equity(5)(9)
 
6.79
 
 
3.38
 
 
5.45
 
 
3.11
 
 
5.51
 
 
4.60
 
 
3.08
 
Yield on earning assets - tax equivalent(6)
 
5.25
 
 
4.53
 
 
4.77
 
 
4.37
 
 
4.08
 
 
4.14
 
 
4.25
 
Yield on securities - tax equivalent(6)
 
3.59
 
 
3.66
 
 
3.62
 
 
3.85
 
 
3.63
 
 
3.72
 
 
3.69
 
Yield on loans
 
5.75
 
 
5.09
 
 
5.34
 
 
4.89
 
 
4.60
 
 
4.62
 
 
5.01
 
Cost of funds
 
1.96
 
 
1.31
 
 
1.49
 
 
1.06
 
 
0.91
 
 
0.94
 
 
0.92
 
Cost of interest-bearing deposits
 
2.30
 
 
1.42
 
 
1.71
 
 
1.12
 
 
0.96
 
 
1.01
 
 
0.98
 
Cost of total deposits
 
1.96
 
 
1.24
 
 
1.44
 
 
0.99
 
 
0.87
 
 
0.91
 
 
0.88
 
Net interest margin - tax equivalent(6)
 
3.46
 
 
3.29
 
 
3.39
 
 
3.40
 
 
3.24
 
 
3.27
 
 
3.40
 
Non-interest expense to average assets
 
2.20
 
 
2.66
 
 
2.45
 
 
2.53
 
 
2.21
 
 
2.17
 
 
2.45
 
Efficiency ratio(7)
 
64.20
 
 
80.28
 
 
73.64
 
 
79.10
 
 
70.64
 
 
68.48
 
 
74.68
 
Non-GAAP core operating efficiency ratio(8)
 
64.20
 
 
80.28
 
 
69.47
 
 
77.23
 
 
70.64
 
 
68.48
 
 
74.68
 
Non-interest-bearing deposits to total deposits
 
14.36
 
 
13.15
 
 
15.10
 
 
12.63
 
 
11.69
 
 
9.53
 
 
9.60
 
Loans to deposits
 
96.40
 
 
84.55
 
 
95.41
 
 
86.66
 
 
76.54
 
 
76.67
 
 
81.65
 
Credit Quality Ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loans losses to total loans
 
1.22
%
 
1.30
%
 
1.23
%
 
1.30
%
 
1.60
%
 
1.56
%
 
1.26
%
Nonperforming assets to total assets
 
0.36
 
 
0.69
 
 
0.43
 
 
0.18
 
 
0.20
 
 
0.08
 
 
0.27
 
Nonperforming loans to total loans
 
0.40
 
 
1.04
 
 
0.58
 
 
0.27
 
 
0.33
 
 
0.12
 
 
0.41
 
Allowance for loans losses to nonperforming loans
 
307.27
 
 
125.33
 
 
212.30
 
 
481.68
 
 
493.14
 
 
1,336.38
 
 
310.43
 
Net charge-offs to average loans(9)
 
0.09
 
 
0.25
 
 
0.07
 
 
0.44
 
 
0.11
 
 
0.04
 
 
0.02
 
Capital Ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total stockholders’ equity to total assets
 
11.26
%
 
8.82
%
 
11.94
%
 
9.70
%
 
10.07
%
 
10.16
%
 
11.23
%
Tier 1 leverage ratio
 
11.15
 
 
8.97
 
 
12.43
 
 
9.71
 
 
10.48
 
 
9.72
 
 
13.51
 
Common equity tier 1 capital ratio
 
11.23
 
 
8.26
 
 
11.75
 
 
8.62
 
 
9.78
 
 
8.50
 
 
N/A
 
Tier 1 risk-based capital ratio
 
11.23
 
 
9.26
 
 
12.53
 
 
9.70
 
 
11.38
 
 
10.70
 
 
10.58
 
Total risk-based capital ratio
 
12.20
 
 
10.20
 
 
13.51
 
 
10.65
 
 
12.51
 
 
11.82
 
 
12.50
 

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(1)We calculate “non-GAAP core operating income” as net income adjusted to remove non-recurring or non-core income and expense items related to restructuring charges associated with our CEO transition, impairment charges associated with two buildings that were held-for-sale, state tax credits and a one-time charge to income related to the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”). Non-GAAP core operating income is a non-GAAP financial measure. The most directly comparable measure under GAAP is net income. See “GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures” for a reconciliation of this measure.
(2)All share and per share information reflects the two-for-one stock split of our common stock effected in the form of a stock dividend, whereby each holder of our common stock received one additional share of common stock for each share owned as of the record date of December 19, 2018, which was distributed on December 21, 2018. The effect of the stock dividend on outstanding shares and per share figures has been retroactively applied to all periods presented in this prospectus.
(3)We calculate “tangible book value per share” as total stockholders’ equity less goodwill and intangible assets and preferred stock divided by the number of outstanding shares of our common stock at the end of the relevant period. Tangible book value per share is a non-GAAP financial measure. The most directly comparable GAAP measure is book value per share. See “GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures” for a reconciliation of this measure.
(4)We calculate “non-GAAP core operating return on average assets” as non-GAAP core operating income (defined above) divided by average assets. Non-GAAP core operating return on average asset is a non-GAAP financial measure. The most directly comparable GAAP financial measure is return on average assets. See “GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures” for a reconciliation of this measure.
(5)We calculate “non-GAAP core operating return on average common equity” as non-GAAP core operating income (defined above) less preferred dividends divided by average common equity. Non-GAAP core operating return on average common equity is a non-GAAP financial measure. The most directly comparable GAAP financial measure is return on average common equity. See “GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures” for a reconciliation of this measure.
(6)Tax-exempt income is calculated on a tax equivalent basis. Tax-exempt income includes municipal securities, which are exempt from federal taxation. A tax rate of 21% is used for fiscal year 2018 and interim periods and a tax rate of 35% is used for fiscal years 2017 and prior.
(7)We calculate efficiency ratio as non-interest expense divided by the sum of net interest income and non-interest income.
(8)We calculate “non-GAAP core operating efficiency ratio” as non-interest expense adjusted to remove non-recurring non-interest expenses as defined under non-GAAP core operating income divided by the sum of net interest income and non-interest income. Non-GAAP core operating efficiency ratio is a non-GAAP financial measure. The most directly comparable GAAP financial measure is the efficiency ratio. See “GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures” for a reconciliation of this measure.
(9)Interim periods are annualized.

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GAAP RECONCILIATION AND MANAGEMENT EXPLANATION
OF NON-GAAP FINANCIAL MEASURES

Our accounting and reporting policies conform to GAAP and the prevailing practices in the banking industry. Some of the financial measures included in this prospectus are not measures of financial performance recognized by GAAP. These non-GAAP financial measures are used by management to evaluate our performance. A financial measure is considered non-GAAP if the measure (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in its most directly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement of cash flows of the issuer or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure calculated and presented in accordance with GAAP.

The non-GAAP financial measures that we discuss in this prospectus should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate these non-GAAP financial measures may differ from that of other companies reporting measures with similar names. It is important to understand how other banking organizations calculate their financial measures with names similar to the non-GAAP financial measures we have discussed in this prospectus when comparing such non-GAAP financial measures.

We calculate “non-GAAP core operating income” as net income adjusted to remove non-recurring or non-core income and expense items related to:

•Restructuring charges associated with the transition of our former CEO - In connection with the departure of our former CEO in the second quarter of 2018, we incurred restructuring charges related to the acceleration of certain stock-based compensation and employee costs.
•Impairment charges associated with two buildings that were held-for-sale - We acquired a new, larger corporate headquarters to accommodate our business needs, which eliminated the need for two smaller support buildings. The two smaller support buildings had been acquired recently and were extensively remodeled, which resulted in a difference between book and market value for those assets. We sold one of the buildings in 2018.
•State tax credits as a result of the purchase and improvement of our new corporate headquarters − We acquired a new, larger corporate headquarters to accommodate our business needs. Our purchase and improvement of the new headquarters resulted in state tax credits.
•One-time charge to income related to the 2017 Tax Act - Our corporate income tax rate was reduced as a result of the 2017 Tax Act, which caused a revaluation of our deferred tax assets and liabilities. We were required to write down the value of the net deferred tax assets based upon the difference between the then current tax rate and the new tax rate, resulting in a one-time charge to income.

The most directly comparable GAAP financial measure for non-GAAP core operating income is net income.

We calculate “non-GAAP core operating return on average assets” as non-GAAP core operating income (as defined above) divided by average assets. The most directly comparable GAAP financial measure is return on average assets, which is calculated as net income divided by average assets.

We calculate “non-GAAP core operating return on average common equity” as non-GAAP core operating income (defined above) less preferred dividends divided by average common equity. The most directly comparable GAAP financial measure is return on average common equity, which is calculated as net income less preferred dividends divided by average common equity.

Management believes that non-GAAP core operating income, non-GAAP core operating return on average assets and non-GAAP core operating return on average common equity removes events that are not recurring and not part of core business activities and are useful analytical tools for investors to compare periods excluding these non-recurring or non-core expenses and charges.

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The following table reconciles, as of the dates set forth below, net income to non-GAAP core operating income, non-GAAP core operating return on average assets and non-GAAP core operating return on average common equity:

 
As of or for the
Three Months Ended
March 31,
As of or for the Year Ended
December 31,
 
2019
2018
2018
2017
2016
2015
2014
 
(Dollars in thousands)
Non-GAAP core operating income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
9,350
 
$
2,624
 
$
19,590
 
$
5,849
 
$
10,311
 
$
7,469
 
$
4,143
 
Add: Restructuring charges
 
—
 
 
—
 
 
4,733
 
 
—
 
 
—
 
 
—
 
 
—
 
Less: Tax effect(1)
 
—
 
 
—
 
 
1,381
 
 
—
 
 
—
 
 
—
 
 
—
 
Restructuring charges, net of tax
 
—
 
 
—
 
 
3,352
 
 
—
 
 
—
 
 
—
 
 
—
 
Add: Fixed asset impairments
 
—
 
 
—
 
 
171
 
 
1,903
 
 
—
 
 
—
 
 
—
 
Less: Tax effect(2)
 
—
 
 
—
 
 
44
 
 
737
 
 
—
 
 
—
 
 
—
 
Fixed asset impairments, net of tax
 
—
 
 
—
 
 
127
 
 
1,166
 
 
—
 
 
—
 
 
—
 
Add: State tax credit(3)
 
(1,361
)
 
—
 
 
(3,129
)
 
—
 
 
—
 
 
—
 
 
—
 
Add: 2017 Tax Cut and Jobs Act(3)
 
—
 
 
—
 
 
—
 
 
2,701
 
 
—
 
 
—
 
 
—
 
Non-GAAP core operating income
$
7,989
 
$
2,624
 
$
19,940
 
$
9,716
 
$
10,311
 
$
7,469
 
$
4,143
 
Non-GAAP core operating return on average assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
9,350
 
$
2,624
 
$
19,590
 
$
5,849
 
$
10,311
 
$
7,469
 
$
4,143
 
Non-GAAP core operating income
 
7,989
 
 
2,624
 
 
19,940
 
 
9,716
 
 
10,311
 
 
7,469
 
 
4,143
 
Average assets
 
4,168,243
 
 
3,071,454
 
 
3,494,655
 
 
2,452,797
 
 
1,839,563
 
 
1,410,447
 
 
1,003,991
 
GAAP return on average assets(4)
 
0.91
%
 
0.35
%
 
0.56
%
 
0.24
%
 
0.56
%
 
0.53
%
 
0.41
%
Non-GAAP core operating return on average assets(4)
 
0.78
%
 
0.35
%
 
0.57
%
 
0.40
%
 
0.56
%
 
0.53
%
 
0.41
%
Non-GAAP core operating return on average equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
9,350
 
$
2,624
 
$
19,590
 
$
5,849
 
$
10,311
 
$
7,469
 
$
4,143
 
Non-GAAP core operating income
 
7,989
 
 
2,624
 
 
19,940
 
 
9,716
 
 
10,311
 
 
7,469
 
 
4,143
 
Less: Preferred stock dividends
 
175
 
 
525
 
 
2,100
 
 
2,100
 
 
2,100
 
 
2,066
 
 
1,485
 
Net income available to common stockholders
 
9,175
 
 
2,099
 
 
17,490
 
 
3,749
 
 
8,211
 
 
5,403
 
 
2,658
 
Non-GAAP core operating income available to common stockholders
 
7,814
 
 
2,099
 
 
17,840
 
 
7,616
 
 
8,211
 
 
5,403
 
 
2,658
 
Average common equity
 
466,506
 
 
251,704
 
 
327,446
 
 
245,193
 
 
149,132
 
 
117,343
 
 
86,273
 
GAAP return on average equity(4)
 
7.98
%
 
3.38
%
 
5.34
%
 
1.53
%
 
5.51
%
 
4.60
%
 
3.08
%
Non-GAAP core operating return on average equity(4)
 
6.79
%
 
3.38
%
 
5.45
%
 
3.11
%
 
5.51
%
 
4.60
%
 
3.08
%
(1)Represents the tax impact of the adjustments above at a tax rate of 25.73%, plus a permanent tax benefit associated with stock-based grants that were exercised prior to our former CEO’s departure.
(2)Represents the tax impact of the adjustments above at a tax rate of 25.73% for fiscal year 2018 and 38.73% for fiscal years prior to 2018.
(3)No tax effect associated with the 2017 Tax Act adjustment or state tax credit.
(4)Interim periods have been annualized.

We calculate “tangible common stockholders’ equity” as total stockholders’ equity less goodwill and other intangible assets and preferred stock. The most directly comparable GAAP financial measure is total stockholders’ equity.

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We calculate “tangible book value per share” as tangible common stockholders’ equity (as defined above) divided by the number of shares of our common stock outstanding at the end of the relevant period. The most directly comparable GAAP financial measure is book value per share.

Management believes that tangible stockholders’ equity and tangible book value per share are important to many investors in the marketplace who are interested in changes from period to period in our stockholders’ equity, exclusive of changes in intangible assets. The following table reconciles, as of the dates set forth below, total stockholders’ equity to tangible stockholders’ equity and presents tangible book value per share compared to book value per share:

 
As of or for the
Three Months Ended
March 31,
As of or for the Year Ended
December 31,
 
2019
2018
2018
2017
2016
2015
2014
 
(Dollars in thousands, except per share data)
Tangible common stockholders’ equity and tangible book value per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stockholders’ equity
$
480,514
 
$
282,962
 
$
490,336
 
$
287,147
 
$
214,837
 
$
160,004
 
$
137,098
 
Less: Goodwill and other intangible assets
 
7,770
 
 
7,872
 
 
7,796
 
 
7,897
 
 
7,998
 
 
8,100
 
 
8,201
 
Less: Preferred stock
 
—
 
 
30,000
 
 
30,000
 
 
30,000
 
 
30,000
 
 
30,000
 
 
28,614
 
Tangible common stockholders’ equity
$
472,744
 
$
245,090
 
$
452,540
 
$
249,250
 
$
176,839
 
$
121,904
 
$
100,283
 
Shares outstanding at end of period
 
45,202,370
 
 
31,135,720
 
 
45,074,322
 
 
30,686,256
 
 
25,194,872
 
 
19,661,718
 
 
17,908,862
 
Book value per share
$
10.63
 
$
8.12
 
$
10.21
 
$
8.38
 
$
7.34
 
$
6.61
 
$
6.06
 
Tangible book value per share
$
10.46
 
$
7.87
 
$
10.04
 
$
8.12
 
$
7.02
 
$
6.20
 
$
5.60
 

We calculate “non-GAAP core operating efficiency ratio” as non-interest expense adjusted to remove non-recurring non-interest expenses as defined under non-GAAP core operating income divided by the sum of net interest income and non-interest income. Management believes that the non-GAAP core operating efficiency ratio is important to many investors because the ratio removes events that are not recurring or not part of core business activities and is a useful analytical tool. The most directly comparable GAAP financial measure is the efficiency ratio, which is calculated as non-interest expense divided by the sum of net interest income and non-interest income. The following tables provide the calculation of the non-GAAP core operating efficiency ratio:

 
As of or for the
Three Months Ended
March 31,
As of or for the Year Ended
December 31,
 
2019
2018
2018
2017
2016
2015
2014
 
(Dollars in thousands, except per share data)
Non-GAAP core operating efficiency ratio:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-interest expense
$
22,631
 
$
20,158
 
$
85,755
 
$
62,089
 
$
40,587
 
$
30,562
 
$
24,640
 
Less: Restructuring charges
 
—
 
 
—
 
 
4,733
 
 
—
 
 
—
 
 
—
 
 
—
 
Non-GAAP non-interest expense (numerator)
 
22,631
 
 
20,158
 
 
81,022
 
 
62,089
 
 
40,587
 
 
30,562
 
 
24,640
 
Net interest income
 
33,605
 
 
23,137
 
 
110,368
 
 
74,818
 
 
54,053
 
 
42,267
 
 
31,090
 
Non-interest income
 
1,645
 
 
1,973
 
 
6,083
 
 
3,679
 
 
3,407
 
 
2,365
 
 
1,904
 
Add: Fixed asset impairments
 
—
 
 
—
 
 
171
 
 
1,903
 
 
—
 
 
—
 
 
—
 
Non-GAAP operating revenue (denominator)
$
35,250
 
$
25,110
 
$
116,622
 
$
80,400
 
$
57,460
 
$
44,632
 
$
32,994
 
Efficiency ratio
 
64.20
%
 
80.28
%
 
73.64
%
 
79.10
%
 
70.64
%
 
68.48
%
 
74.68
%
Non-GAAP core operating efficiency ratio
 
64.20
%
 
80.28
%
 
69.47
%
 
77.23
%
 
70.64
%
 
68.48
%
 
74.68
%

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As of or for the
Three Months Ended
 
March 31,
2018
June 30,
2018
September 30,
2018
December 31,
2018
March 31,
2019
 
(Dollars in thousands, except per share data)
Non-GAAP core operating efficiency ratio:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-interest expense
$
20,158
 
$
25,556
 
$
19,875
 
$
20,166
 
$
22,631
 
Less: Restructuring charges
 
—
 
 
5,548
 
 
—
 
 
(815
)
 
—
 
Non-GAAP non-interest expense (numerator)
 
20,158
 
 
20,008
 
 
19,875
 
 
20,981
 
 
22,631
 
Net interest income
 
23,137
 
 
25,948
 
 
28,967
 
 
32,316
 
 
33,605
 
Non-interest income
 
1,973
 
 
1,730
 
 
1,185
 
 
1,195
 
 
1,645
 
Add: Fixed asset impairments
 
—
 
 
—
 
 
171
 
 
—
 
 
—
 
Non-GAAP operating revenue (denominator)
$
25,110
 
$
27,678
 
$
30,323
 
$
33,511
 
$
35,250
 
Efficiency ratio
 
80.28
%
 
92.33
%
 
65.91
%
 
60.18
%
 
64.20
%
Non-GAAP core operating efficiency ratio
 
80.28
%
 
72.29
%
 
65.54
%
 
62.61
%
 
64.20
%

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RISK FACTORS

Investing in our common stock involves a high degree of risk. Before you decide to invest, you should carefully consider the risks described below, together with all other information included in this prospectus. We believe the risks described below are the risks that are material to us. Any of the following risks, as well as risks that we do not know or currently deem immaterial, could have a material adverse effect on our business, financial condition, results of operations and growth prospects. In that case, you could experience a partial or complete loss of your investment.

Risks Relating to Our Business and Market

A decline in general business and economic conditions and any regulatory responses to such conditions could have a material adverse effect on our business, financial position, results of operations and growth prospects.

Our business and operations, which primarily consist of lending money to clients in the form of loans and borrowing money from clients in the form of deposits, are sensitive to general business and economic conditions in the United States, generally, and in Kansas, Missouri, Oklahoma and Texas in particular. If the U.S. economy weakens, or if the economies of Kansas, Missouri, Oklahoma or Texas weaken, our growth and profitability from our lending, deposit and investment operations could be constrained. Unfavorable or uncertain economic and market conditions could lead to credit quality concerns related to borrower repayment ability and collateral protection as well as reduced demand for the products and services we offer. In recent years, there has been a gradual improvement in the U.S. economy and the economies of the states in which we operate, as evidenced by a rebound in the housing market, lower unemployment and higher valuations in the equities markets; however, economic growth has been uneven, and opinions vary on the strength and direction of the economy. Uncertainties also have arisen regarding the potential for a reversal or renegotiation of international trade agreements and the impact such actions and other policies of the current administration may have on economic and market conditions. In addition, concerns about the performance of international economies can impact the economy and financial markets here in the United States. If the national, regional and local economies experience worsening economic conditions, including high levels of unemployment, our growth and profitability could be constrained. Weak economic conditions are characterized by, among other indicators, deflation, elevated levels of unemployment, fluctuations in debt and equity capital markets, increased delinquencies on commercial, mortgage and consumer loans, residential and commercial real estate (“CRE”) price declines and lower home sales and commercial activity. All of these factors are generally detrimental to our business.

Our business is also significantly affected by monetary and other regulatory policies of the U.S. federal government, its agencies and government-sponsored entities. Uncertainty about the federal fiscal policymaking process, the medium and long-term fiscal outlook of the federal government and future tax rates are concerns for businesses, consumers and investors in the U.S. Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond our control and are difficult to predict. Adverse economic conditions and governmental policy responses to such conditions could have a material adverse effect on our business, financial position, results of operations and growth prospects.

We may not be able to implement aspects of our growth strategy, which may adversely affect our ability to maintain our historical earnings trends.

We may not be able to sustain our growth at the rate we have enjoyed during the past several years. Our growth over the past several years has been driven primarily by new market expansion, a strong commercial and real estate lending market in our market areas and our ability to identify and attract high caliber experienced banking talent. A downturn in local economic market conditions, a failure to attract and retain high performing personnel, heightened competition from other financial services providers and an inability to attract core funding and quality lending clients, among other factors, could limit our ability to grow as rapidly as we have in the past and as such may have a negative effect on our business, financial condition and results of operations. In addition, we may become more susceptible to risks associated with failing to maintain effective financial and operational controls as we grow, such as maintaining appropriate loan underwriting and credit monitoring procedures, maintaining an adequate allowance, controlling concentrations and complying with regulatory or accounting requirements, including increased loan losses, reduced earnings and potential regulatory penalties and restrictions on growth, all could have a negative effect on our business, financial condition and results of operations.

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

Our business strategy includes evaluating potential strategic opportunities to grow through de novo branching. As part of this strategy, we are currently considering the opening of a second smaller full-service branch in the Dallas MSA. De novo branching carries with it certain potential risks, including significant startup costs and anticipated initial operating losses; an inability to gain regulatory approval; an inability to secure the services of qualified senior management to operate the de novo banking location and successfully integrate and promote our corporate culture; poor market reception for de novo banking locations established in markets where we do not have a preexisting reputation; challenges posed by local economic conditions; challenges associated with securing attractive locations at a reasonable cost; and the additional strain on management resources and internal systems and controls. Failure to adequately manage the risks associated with our anticipated growth through de novo branching could have an adverse effect on our business, financial condition and results of operations.

We may grow through mergers or acquisitions, which may not be successful or, if successful, may produce risks in successfully integrating and managing the merged companies or acquisitions and may dilute our stockholders.

As part of our growth strategy, we may pursue mergers and acquisitions of banks and non-bank financial services companies within or outside our principal market areas. Although we occasionally identify and explore specific merger and acquisition opportunities as part of our ongoing business practices, we have no present agreements or commitments to merge with or acquire any financial institution or any other company, and we may not find suitable merger or acquisition opportunities in the future. We face significant competition from numerous other financial services institutions, many of which will have greater financial resources or more liquid securities than we do, when considering merger and acquisition opportunities. Accordingly, attractive merger and acquisition opportunities may not be available to us. If we fail to successfully evaluate and execute mergers, acquisitions or investments or otherwise adequately address these risks, it could materially harm our business, financial condition and results of operations.

Mergers and acquisitions involve numerous risks, any of which could harm our business, including:

•difficulties in integrating the operations, management, products and services, technologies, existing contracts, accounting processes and personnel of the target;
•not realizing the anticipated synergies of the combined businesses or incurring costs in excess of what we anticipated;
•difficulties in supporting and transitioning clients of the target;
•diversion of financial and management resources from existing operations;
•assumption of nonperforming loans;
•the price we pay or other resources that we devote may exceed the value we realize, or the value we could have realized if we had allocated the purchase price or other resources to another opportunity;
•entering new markets or areas in which we have limited or no experience;
•potential loss of key personnel and clients from either our business or the target’s business;
•failure to obtain required regulatory approvals or satisfy conditions imposed by regulatory authorities;
•assumption of unanticipated problems or latent liabilities of the target;
•incurring costs in excess of what we anticipate; and
•inability to generate sufficient revenue to offset acquisition costs.

Mergers and acquisitions frequently result in the recording of goodwill and other intangible assets, which are subject to potential impairments in the future and that could harm our financial results. In addition, if we finance acquisitions by issuing convertible debt or equity securities, our existing stockholders may be diluted, which could affect the market price of our common stock.

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We may also be required to sell banking locations as a condition to receiving regulatory approval, which condition may not be acceptable to us or, if acceptable to us, may reduce the benefit of any acquisition. The failure to obtain these regulatory approvals for potential future strategic acquisitions could impact our business plans and restrict our growth.

New lines of business, services, products or product enhancements may subject us to additional risks.

From time to time, we may implement or acquire new lines of business or offer new services, products or product enhancements within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing, implementing and marketing new lines of business, services, products and product enhancements, we may invest significant time and resources. We may misjudge the level of resources or expertise appropriate to make new lines of business or products successful or to realize their expected benefits. We may not achieve target timetables for the introduction and development of new lines of business, services, products and product enhancements, and price and profitability targets may not prove feasible. External factors, such as regulatory compliance obligations, competitive alternatives and shifting market preferences, may also impact the successful implementation of a new line of business or offerings of new products, product enhancements or services. Furthermore, any new line of business, product, product enhancement or service could have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business, products, product enhancements or services could have a material adverse effect on our business, results of operations and financial condition.

We introduced Enterprise Value Lending through our Kansas City market, Tribal Nations Lending through our Tulsa market and Home Builder Lending in our Dallas market. These products and services are relatively new and, if not managed effectively, could subject us to additional risks.

Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR may adversely affect our results of operations.

Regulators and law enforcement agencies in a number of countries are conducting civil and criminal investigations into whether the banks that contribute to the British Bankers’ Association (“BBA”) in connection with the calculation of LIBOR may have been under-reporting or otherwise manipulating or attempting to manipulate LIBOR. A number of BBA member banks have entered into settlements with their regulators and law enforcement agencies with respect to this alleged manipulation of LIBOR. Actions by the BBA, regulators or law enforcement agencies may result in changes to the manner in which LIBOR is determined or the establishment of alternative reference rates. At this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates or any other reforms to LIBOR that may be enacted. Uncertainty as to the nature of such potential changes, alternative reference rates or other reforms may adversely affect the value of LIBOR-based loans and securities in our portfolio, and may impact the availability and cost of hedging instruments and borrowings. If LIBOR rates are no longer available, and we are required to implement substitute indices for the calculation of interest rates under our loan agreements, we may incur additional expenses in effecting the transition, and we may be subject to disputes or litigation with clients over the appropriateness or comparability to LIBOR of the substitute indices, which could have an adverse effect on our results of operations.

As of March 31, 2019, $886.0 million of outstanding loans had interest rates tied to LIBOR market rates.

The fair value of our investment securities can fluctuate due to factors outside of our control.

As of March 31, 2019 and December 31, 2018 and 2017, the fair value of our investment securities portfolio was approximately $707.4 million, $663.7 million and $703.6 million, respectively. Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities. These factors include, but are not limited to, rating agency actions in respect of the securities, defaults by the issuer or with respect to the underlying securities, changes in market interest rates and instability in the capital markets. These and other factors could cause other-than-temporary impairments (“OTTIs”) and realized or unrealized losses in future periods and declines in other comprehensive income, which could materially and adversely affect our business, results of operations, financial condition and prospects, as well as the value of our common stock. The process for determining whether impairment of a

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security is other-than-temporary usually requires complex, subjective judgments about the future financial performance and liquidity of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security. Our inability to accurately predict the future performance of an issuer or to efficiently respond to changing market conditions could result in a decline in the value of our investment securities portfolio, which could have an adverse effect on our business, results of operations and financial condition.

We could suffer material credit losses if we do not appropriately manage our credit risk.

There are risks inherent in making any loan, including risks inherent in dealing with individual borrowers, risks of non-payment, risks resulting from uncertainties as to the future value of collateral and risks resulting from changes in economic and industry conditions. Changes in the economy can cause the assumptions that we made at origination to change and can cause borrowers to be unable to make payments on their loans, and significant changes in collateral values can cause us to be unable to collect the full value of loans we make. There is no assurance that our loan approval and credit risk monitoring procedures are or will be adequate or will reduce the inherent risks associated with lending. Our credit administration personnel and our policies and procedures may not adequately adapt to changes in economic or any other conditions affecting clients and the quality of our loan portfolio. Any failure to manage such credit risks may materially adversely affect our business, financial condition and results of operations.

We have credit exposure to the energy industry.

We have credit exposure to the energy industry in each of our primary markets and across the United States. A downturn or lack of growth in the energy industry and energy-related business, including sustained low oil or gas prices or the failure of oil or gas prices to rise in the future, could adversely affect our business, financial condition and results of operations. As of March 31, 2019, our energy loans, which include primarily loans to exploration and production companies, totaled $376.1 million, or 11.4% of total loans, as compared to $358.3 million, or 11.7% and $242.7 million, or 12.1% of total loans as of December 31, 2018 and 2017, respectively. In addition to our direct exposure to energy loans, we also have indirect exposure to energy prices, as some of our non-energy clients’ businesses are directly affected by volatility within the oil and gas industry and energy prices and otherwise are dependent on energy-related businesses. As of March 31, 2019, we had $454.4 million in loan commitments to borrowers in the oil and gas industry, of which $376.1 million was outstanding. Prolonged or further pricing pressure on oil and gas could lead to increased credit stress in our energy portfolio, increased losses associated with our energy portfolio, increased utilization of our contractual obligations to extend credit and weaker demand for energy lending. Such a decline or general uncertainty resulting from continued volatility could have other adverse impacts, such as job losses in industries tied to energy, increased spending habits, lower borrowing needs, higher transaction deposit balances or a number of other effects that are difficult to isolate or quantify, particularly in markets with significant dependence on the energy industry, all of which could have an adverse effect on our business, financial condition and results of operations.

We have a concentration in commercial real estate lending that could cause our regulators to restrict our ability to grow.

As a part of their regulatory oversight, the federal regulators have issued guidance on Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices (the “CRE Concentration Guidance”) with respect to a financial institution’s concentrations in CRE lending activities. This guidance was issued in response to the agencies’ concerns that rising CRE concentrations might expose institutions to unanticipated earnings and capital volatility in the event of adverse changes in the CRE market. This guidance reinforces and enhances existing regulations and guidelines for safe and sound real estate lending by providing supervisory criteria, including numerical indicators to assist in identifying institutions with potentially significant CRE loan concentrations that may warrant greater supervisory scrutiny. The guidance does not limit banks’ CRE lending, but rather guides institutions in developing risk management practices and levels of capital that are commensurate with the level and nature of their CRE concentrations. The CRE Concentration Guidance identifies certain concentration levels that, if exceeded, will expose the institution to additional supervisory analysis with regard to the institution’s CRE concentration risk. The CRE Concentration Guidance is designed to promote appropriate levels of capital and sound loan and risk management practices for institutions with a concentration of CRE loans. In general, the CRE Concentration Guidance establishes the following supervisory criteria as

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preliminary indications of possible CRE concentration risk: (i) the institution’s total construction, land development and other land loans represent 100% or more of total capital and reserves; or (ii) total CRE loans as defined in the guidance, or Regulatory CRE, represent 300% or more of the institution’s total capital and reserves, and the institution’s Regulatory CRE has increased by 50% or more during the prior 36-month period. Pursuant to the CRE Concentration Guidance, loans secured by owner occupied CRE are not included for purposes of the CRE concentration calculation. We believe that the CRE Concentration Guidance is applicable to us. As of March 31, 2019, our Regulatory CRE represented 229.9% of our total Bank risk-based capital and reserves and our construction, land development and other land loans represented 86.5% of our total Bank risk-based capital, as compared to 211.0% and 91.4%, and 198.2% and 89.3% as of December 31, 2018 and 2017, respectively. During the prior 36-month period, our Regulatory CRE has increased 250.0%. The FDIC or other federal regulators could become concerned about our CRE loan concentrations, and they could limit our ability to grow by restricting their approvals for the establishment or acquisition of branches, or approvals of mergers or other acquisition opportunities, or by requiring us to raise additional capital, reduce our loan concentrations or undertake other remedial actions.

Many of our loans are to commercial borrowers, which have a higher degree of risk than other types of loans.

As of March 31, 2019, we had approximately $2.5 billion of commercial purpose loans which include general commercial, energy and CRE loans, representing approximately 75.7% of our gross loan portfolio. Commercial purpose loans are often larger and involve greater risks than other types of lending. Because payments on these loans are often dependent on the successful operation or development of the property or business involved, their repayment is more sensitive than other types of loans to adverse conditions in the real estate market or the general economy.

Accordingly, a downturn in the real estate market or the general economy could heighten our risk related to commercial purpose loans, particularly CRE loans. Unlike residential mortgage loans, which generally are made on the basis of the borrowers’ ability to make repayment from their employment and other income and which are secured by real property whose value tends to be more easily ascertainable, commercial purpose loans typically are made on the basis of the borrowers’ ability to make repayment from the cash flow of the commercial venture. If the cash flow from business operations is reduced, the borrowers’ ability to repay the loan may be impaired. As a result of the larger average size of each commercial purpose loan as compared with other loans such as residential loans, as well as the collateral which is generally less readily marketable, losses incurred on a small number of commercial purpose loans could have a material adverse impact on our financial condition and results of operations.

Because a portion of our loan portfolio is comprised of real estate loans, negative changes in the economy affecting real estate values and liquidity could impair the value of collateral securing our real estate loans and result in loan and other losses.

Adverse developments affecting real estate values, particularly in the markets in which we operate, could increase the credit risk associated with our real estate loan portfolio (both commercial real estate and owner-occupied). Real estate values may experience periods of fluctuation, and the market value of real estate can fluctuate significantly in a short period of time. Adverse changes affecting real estate values and the liquidity of real estate in one or more of our markets could increase the credit risk associated with our loan portfolio, and could result in losses that adversely affect credit quality, financial condition and results of operation. Negative changes in the economy affecting real estate values and liquidity in our market areas could significantly impair the value of property pledged as collateral on loans and affect our ability to sell the collateral upon foreclosure without a loss or additional losses. Collateral may have to be sold for less than the outstanding balance of the loan, which could result in losses on such loans. Such declines and losses could have a material adverse impact on our business, results of operations and growth prospects. If real estate values decline, it is also more likely that we would be required to increase our allowance, which could adversely affect our business, financial condition and results of operations.

Our largest loan relationships make up a significant percentage of our total loan portfolio.

As of March 31, 2019, our 25 largest borrowing relationships ranged from approximately $33.2 million to $70.1 million (including unfunded commitments) and totaled approximately $1.1 billion in total commitments (representing, in the aggregate, 23.7% of our total outstanding commitments as of March 31, 2019). Our five

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largest borrowers, based on total commitments, accounted for 7.0% of total commitments as of March 31, 2019. Each of the loans associated with these relationships has been underwritten in accordance with our underwriting policies and limits. Along with other risks inherent in these loans, such as the deterioration of the underlying businesses or property securing these loans, this concentration of borrowers presents a risk that, if one or more of these relationships were to become delinquent or suffer default, we could be exposed to material losses. The allowance for loan losses may not be adequate to cover losses associated with any of these relationships, and any loss or increase in the allowance would negatively affect our earnings and capital. Even if these loans are adequately collateralized, an increase in classified assets could harm our reputation with our regulators and inhibit our ability to execute our business plan.

A portion of our loan portfolio is comprised of participation and syndicated transaction interests, which could have an adverse effect on our ability to monitor the lending relationships and lead to an increased risk of loss.

As of March 31, 2019, we had $98.3 million of purchased loan participations from other financial institutions and a combination of shared national credits and syndications purchased totaling $257.9 million. Although we historically have underwritten these loan participations and syndicated loans consistent with our general underwriting criteria, these loans may have a higher risk of loss than loans we originate and administer. With respect to loan participations in which we are not the lead lender and in syndicated transactions (including shared national credits) in which other lenders serve as the agent bank, we rely in part on the lead lender or the agent, as the case may be, to monitor the performance of the loan. Moreover, our decision regarding the classification of such a loan and loan loss provisions associated with such a loan is made in part based upon information provided by the lead lender or agent bank. A lead lender or agent bank also may not monitor such a loan in the same manner as we would for loans that we originate and administer. If our underwriting or monitoring of these loans is not sufficient, our nonperforming loans may increase and our earnings may decrease.

Our levels of nonperforming assets could increase, which would adversely affect our results of operations and financial condition, and could result in losses in the future.

As of March 31, 2019, our nonperforming loans (which consist of non-accrual loans, loans past due 90 days or more and still accruing interest and loans modified under troubled debt restructurings that are not performing in accordance with their modified terms) totaled $13.0 million and our nonperforming assets (which include nonperforming loans plus other real estate owned) totaled $15.5 million. However, we can give no assurance that our nonperforming assets will continue to remain at low levels and we may experience increases in nonperforming assets in the future. Our nonperforming assets adversely affect our net income in various ways and returns on assets and equity, and in addition, our loan administration costs increase, which together with reduced interest income adversely affects our efficiency ratio. When we take collateral in foreclosure and similar proceedings, we are required to mark the collateral to its then-fair market value, which may result in a loss. These nonperforming assets also increase our risk profile and the level of capital our regulators believe is appropriate for us to maintain in light of such risks. The resolution of nonperforming assets requires significant time commitments from management and can be distracting to the performance of their other responsibilities. If we were to experience increases in nonperforming assets, our net interest income may be negatively impacted as interest income is not recorded on our nonperforming assets and our loan administration costs could increase, each of which would have an adverse effect on our net income and related ratios, such as returns on assets and equity.

Our allowance may not be adequate to cover actual loan losses.

A significant source of risk arises from the possibility that we could sustain losses due to loan defaults and nonperformance on loans. We maintain an allowance in accordance with GAAP to provide for such defaults and other nonperformance. As of March 31, 2019, our allowance as a percentage of total loans was 1.22% and our allowance as a percentage of nonperforming loans was 307.3%. The determination of the appropriate level of allowance is an inherently difficult process and is based on numerous assumptions. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, many of which are beyond our control. In addition, our underwriting policies, adherence to credit monitoring processes and risk management systems and controls may not prevent unexpected losses. Our allowance may not be adequate to cover actual loan losses. Moreover, any increase in our allowance will adversely affect our earnings by decreasing our net income.

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In June 2016, the Financial Accounting Standards Board (“FASB”) decided to change how banks estimate losses in the allowance calculation, and it issued the current expected credit loss standard (“CECL”). Currently, the impairment model is based on incurred losses, and investments are recognized as impaired when there is no longer an assumption that future cash flows will be collected in full under the originally contracted terms. This model will be replaced by the new CECL model that will become effective for us, as an EGC, for the first interim and annual reporting periods beginning after December 15, 2020. Under the new CECL model, we will be required to use historical information, current conditions and reasonable forecasts to estimate the expected loss over the life of the loan. The transition to the CECL model will bring with it significantly greater data requirements and changes to methodologies to accurately account for expected losses under the new parameters.

Management is currently evaluating the impact of these changes to our financial position and results of operations. The allowance is a material estimate of ours, and given the change from an incurred loss model to a methodology that considers the credit loss over the life of the loan, there is the potential for an increase in the allowance at adoption date. We anticipate a significant change in the processes and procedures to calculate the allowance, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. We expect to continue developing and implementing processes and procedures to ensure we are fully compliant with the CECL requirements at its adoption date.

The small- to medium-sized businesses to whom we lend may have fewer resources to weather adverse business conditions, which may impair their ability to repay a loan, and such impairment could adversely affect our results of operations and financial condition.

Our business development and marketing strategies result in us serving the banking and financial services needs of small- to medium-sized businesses. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities, frequently have smaller market shares than their competition, may be more vulnerable to economic downturns, often need substantial additional capital to expand or compete and may experience substantial volatility in operating results, any of which may impair a borrower’s ability to repay a loan. In addition, the success of a small- to medium-sized business often depends on the management skills, talents and efforts of one or two people or a small group of people, and the death, disability or resignation of one or more of these people could have a material adverse impact on the business and its ability to repay its loans. If general economic conditions negatively impact Kansas, Missouri, Oklahoma, Texas or the specific markets in these states in which we operate and small- to medium-sized businesses are adversely affected or our borrowers are otherwise affected by adverse business conditions, our business, financial condition and results of operations could be adversely affected.

We rely on our senior management team and may have difficulty identifying, attracting and retaining necessary personnel, which may divert resources and limit our ability to execute our business strategy and successfully grow our business.

Our business plan includes, and is dependent upon, our hiring and retaining highly qualified and motivated personnel at every level. Our senior management team has significant industry experience, and their knowledge and relationships would be difficult to replace. The loss of senior management without qualified successors who can execute our strategy could have an adverse impact on our business, financial condition and results of operations. In addition, we must successfully manage transition and replacement issues that may result from the departure or retirement of members of our management team.

Competition for senior executives and skilled personnel in the financial services and banking industry is intense, which means the cost of hiring, incenting and retaining skilled personnel may continue to increase. We need to continue to identify, attract and retain key personnel and to recruit qualified individuals to succeed existing key personnel to ensure the continued growth and successful operation of our business. In addition, as a provider of relationship-based commercial banking services, we must identify, attract and retain qualified banking personnel to continue to grow our business. Our ability to effectively compete for senior executives and other qualified personnel by offering competitive compensation and benefit arrangements may be restricted by applicable banking laws and regulations. If we are unable to hire and retain qualified personnel or successfully address management succession issues, we may be unable to successfully execute our business strategy and manage our growth. In addition, to attract and retain personnel with appropriate skills and knowledge to support our business, we may offer a variety of benefits, which could reduce our earnings or have a material adverse effect on our business, financial condition or results of operations.

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Our profitability depends on interest rates generally, and we may be adversely affected by changes in market interest rates.

Our profitability depends in substantial part on our net interest income. Net interest income is the difference between the amounts received by us on our interest-earning assets and the interest paid by us on our interest-bearing liabilities. Our net interest income depends on many factors that are partly or completely outside of our control, including competition, federal economic, monetary and fiscal policies and economic conditions generally. Our net interest income will be adversely affected if market interest rates change so that the interest we pay on deposits and borrowings increases faster than the interest we earn on loans and investments.

Changes in interest rates could affect our ability to originate loans and deposits. Historically, there has been an inverse correlation between the demand for loans and interest rates. Loan origination volume usually declines during periods of rising or high interest rates and increases during periods of declining or low interest rates. Changes in interest rates also have a significant impact on the carrying value of certain of our assets, including loans and other assets, on our balance sheet.

Interest rate increases often result in larger payment requirements for our borrowers, which increase the potential for default. At the same time, the marketability of any underlying property that serves as collateral for such loans may be adversely affected by any reduced demand resulting from higher interest rates. An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans may lead to an increase in nonperforming assets and a reduction of income recognized, which could have a material adverse effect on our results of operations and cash flows. Further, when we place a loan on nonaccrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income. Subsequently, we continue to have a cost to fund the loan, which is reflected as interest expense, without any interest income to offset the associated funding expense. Thus, an increase in the amount of nonaccrual loans would have an adverse impact on net interest income.

If short-term interest rates remain at low levels for a prolonged period, and if longer term interest rates fall, we could experience net interest margin compression as our interest-earning assets would continue to reprice downward while our interest-bearing liability rates could fail to decline in tandem. This could have a material adverse effect on our net interest income and our results of operations.

The ratio of variable- to fixed-rate loans in our loan portfolio, the ratio of short-term (maturing at a given time within 12 months) to long-term loans, and the ratio of our demand, money market and savings deposits to certificates of deposit (and their time periods), are the primary factors affecting the sensitivity of our net interest income to changes in market interest rates. The composition of our rate-sensitive assets or liabilities is subject to change and could result in a more unbalanced position that would cause market rate changes to have a greater impact on our earnings. Fluctuations in market rates and other market disruptions are neither predictable nor controllable and may adversely affect our financial condition and earnings.

We rely on short-term funding, which can be adversely affected by local and general economic conditions.

As of March 31, 2019, approximately $2.1 billion, or 62.3%, of our deposits consisted of demand, savings, money market and transaction accounts (including negotiable order of withdrawal (“NOW”) accounts). The approximately $1.3 billion remaining balance of deposits consisted of certificates of deposit, of which approximately $763.6 million, or 22.5% of our total deposits, was due to mature within one year. Based on our experience, we believe that our savings, money market and non-interest-bearing accounts are relatively stable sources of funds. Historically, a majority of non-brokered certificates of deposit are renewed upon maturity as long as we pay competitive interest rates. Many of these clients are, however, interest rate conscious and may be willing to move funds into higher-yielding investment alternatives. Our ability to attract and maintain deposits, as well as our cost of funds, has been, and will continue to be significantly affected by general economic conditions. In addition, as market interest rates rise, we will have competitive pressure to increase the rates we pay on deposits. If we increase interest rates paid to retain deposits, our earnings may be adversely affected.

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Our largest deposit relationships currently make up a significant percentage of our deposits and the withdrawal of deposits by our largest depositors could force us to fund our business through more expensive and less stable sources.

At March 31, 2019, our 30 largest depositors accounted for 20.7% of our total deposits and our five largest depositors accounted for 9.6% of our total deposits. Withdrawals of deposits by any one of our largest depositors or by one of our related client groups could force us to rely more heavily on borrowings and other sources of funding for our business and withdrawal demands, adversely affecting our net interest margin and results of operations. We may also be forced, as a result of withdrawals of deposits, to rely more heavily on other, potentially more expensive and less stable funding sources. Additionally, such circumstances could require us to raise deposit rates in an attempt to attract new deposits, which would adversely affect our results of operations. Under applicable regulations, if the Bank were no longer “well capitalized,” the Bank would not be able to accept brokered deposits without the approval of the FDIC and would be subject to a deposit rate cap, pursuant to which the Bank would be prohibited from paying in excess of 75 basis points above published national deposit rates unless the FDIC determined that the Bank’s local market rate was above the national rate. The imposition of a deposit rate cap may require the Bank to reduce its deposit rates, which would likely cause the loss of depositors.

Liquidity risk could impair our ability to fund operations and meet our obligations as they become due, and failure to maintain sufficient liquidity could materially adversely affect our growth, business, profitability and financial condition.

Liquidity is essential to our business. Liquidity risk is the potential that we will be unable to meet our obligations as they come due because of an inability to liquidate assets or obtain adequate funding at a reasonable cost, in a timely manner and without adverse conditions or consequences. We require sufficient liquidity to fund asset growth, meet client loan requests, client deposit maturities and withdrawals, payments on our debt obligations as they come due and other cash commitments under both normal operating conditions and other unpredictable circumstances, including events causing industry or general financial market stress. Liquidity risk can increase due to a number of factors, including an over-reliance on a particular source of funding or market-wide phenomena such as market dislocation and major disasters. We have a concentration of large depositors which increases our liquidity risk.

The Bank’s primary funding source is client deposits. In addition, the Bank has historically had access to advances from the Federal Home Loan Bank (“FHLB”), the Federal Reserve Bank of Kansas City (the “FRB”), discount window and other wholesale sources, such as internet-sourced deposits and brokered deposits to fund operations. The Bank also acquires brokered deposits, internet subscription (“QwickRate”) certificates of deposit and reciprocal deposits through the Promontory Interfinancial Network (“Promontory” or “the Promontory network”). The reciprocal deposits include both the Certificate of Deposit Account Registry Service and Insured Cash Sweep program. The Bank is a member of the Promontory network which effectively allows depositors to receive FDIC insurance on amounts greater than the FDIC insurance limit, which is currently $250.0 thousand. Promontory allows institutions to break large deposits into smaller amounts and place them in a network of other Promontory institutions to ensure full FDIC insurance is gained on the entire deposit. Although the Bank has historically been able to replace maturing deposits and advances as necessary, it might not be able to replace such funds in the future. An inability to raise funds through deposits, borrowings, the sale of loans, securities and other sources could have a substantial negative effect on liquidity.

Our access to funding sources in amounts adequate to finance our activities or on acceptable terms could be impaired by factors that affect our organization specifically or the financial services industry or economy in general. Factors that could detrimentally impact access to liquidity sources include a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated or adverse regulatory actions against us. The Bank’s ability to borrow or attract and retain deposits in the future could be adversely affected by the Bank’s financial condition or regulatory restrictions, or impaired by factors that are not specific to it, such as FDIC insurance changes, disruption in the financial markets or negative views and expectations about the prospects for the banking industry. Borrowing capacity from the FHLB or FRB may fluctuate based upon the condition of the Bank or the acceptability and risk rating of loan and securities collateral and counterparties could adjust discount rates applied to such collateral at the lender’s discretion.

The FRB or FHLB could restrict or limit the Bank’s access to secured borrowings. Correspondent banks can withdraw unsecured lines of credit or require collateralization for the purchase of fed funds. Liquidity also may

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be affected by the Bank’s unfunded commitments to extend credit. Market conditions or other events could also negatively affect the level or cost of funding, affecting our ongoing ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations and fund asset growth and new business transactions at a reasonable cost, in a timely manner and without adverse consequences.

Any substantial, unexpected or prolonged change in the level or cost of liquidity could have a material adverse effect on our financial condition and results of operations, and could impair our ability to fund operations and meet our obligations as they become due and could jeopardize our financial condition.

Our historical growth rate and performance may not be indicative of our future growth or financial results and our ability to continue to grow is dependent upon our ability to effectively manage the increases in scale of our operations.

We may not be able to sustain our historical rate of growth or grow our business at all. We have benefited from the recent low interest rate environment, which has provided us with better net interest margins which we use to grow our business. Higher rates may compress our margins and may impact our ability to grow. Additionally, we may not be able to maintain historical levels of expenses. As a public company, we expect that we will incur additional expenses, commit significant resources, hire additional staff and provide additional management oversight for the purpose of addressing the standards and requirements applicable to public companies. Sustaining our growth also will require us to commit additional management, operational and financial resources to identify new professionals to join our company and to maintain appropriate operational and financial systems to adequately support growth. Consequently, our historical results of operations will not necessarily be indicative of our future operations.

We have historically experienced rapid growth and our continuing business strategy focuses upon continuing such rapid growth. Our ability to succeed in this environment of rapid growth is dependent upon our ability to scale our operations, including various internal processes.

We may need to raise additional capital in the future, and if we fail to maintain sufficient capital, whether due to losses, an inability to raise additional capital or otherwise, our financial condition, liquidity and results of operations, as well as our ability to maintain regulatory compliance, would be adversely affected.

Our business strategy calls for continued growth. We anticipate that we will be able to support this growth through the net proceeds from this offering. However, we may need to raise additional capital in the future to support our continued growth and to maintain our required regulatory capital levels. Our ability to raise additional capital depends on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental activities, and on our financial condition and performance. Any occurrence that may limit our access to the capital markets may adversely affect our capital costs and our ability to raise capital. Moreover, if we need to raise capital in the future, we may have to do so when many other financial institutions are also seeking to raise capital, and we would have to compete with those institutions for investors. Accordingly, we cannot assure you that we will be able to raise additional capital if needed or on terms acceptable to us. Our growth may be constrained if we are unable to raise additional capital as needed. Furthermore, if we fail to maintain capital to meet regulatory requirements, our financial condition, liquidity and results of operations would be materially and adversely affected.

We face strong competition from banks, credit unions and other financial services providers that offer banking services, which may limit our ability to attract and retain banking clients.

Competition in the banking industry generally, and in our primary markets specifically, is intense. Competitors include banks as well as other financial services providers, such as savings and loan institutions, brokerage firms, credit unions, mortgage banks and other financial intermediaries. In particular, our competitors include larger national and regional financial institutions whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous banking locations and ATMs, achieve larger economies of scale, offer a wider array of banking services, make larger investments in technologies needed to attract and retain clients and conduct extensive promotional and advertising campaigns. If we are unable to offer competitive products and services as quickly as our larger competitors, our business may be negatively affected.

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Additionally, we may be disproportionately affected by the continually increasing costs of compliance with new banking and other regulations. Banks and other financial institutions with larger capitalization and financial intermediaries not subject to bank regulatory restrictions have larger lending limits and are thereby able to serve the credit needs of a broader client base than us. Larger competitors may also be able to offer better lending and deposit rates to clients, and could increase their competition as we become a public company and our growth becomes more visible. If our competitors extend credit on terms we find to pose excessive risks, or at interest rates which we believe do not warrant the credit exposure, we may not be able to maintain our business volume and could experience deteriorating financial performance. Moreover, larger competitors may not be as vulnerable as us to downturns in the local economy and real estate markets since they often have a broader geographic area and their loan portfolio is often more diversified.

We face growing competition from so-called “online businesses” with few or no physical locations, including financial technology companies, online banks, lenders and consumer and commercial lending platforms, as well as automated retirement and investment service providers. New technology and other changes are allowing parties to effectuate financial transactions that previously required the involvement of banks. For example, consumers can maintain funds in brokerage accounts or mutual funds that would have historically been held as bank deposits. Consumers can also complete transactions such as paying bills and transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of client deposits and the related income generated from those deposits. The loss of these revenue streams and access to lower cost deposits as a source of funds could have a material adverse effect on our business, results of operations and financial condition.

We also compete against community banks, credit unions and non-bank financial services companies that have strong local ties. These smaller institutions are likely to cater to the same small- to medium-sized businesses that we target. If we are unable to attract and retain banking clients, we may be unable to continue to grow our loan and deposit portfolios and our results of operations and financial condition may be adversely affected. Ultimately, we may be unable to compete successfully against current and future competitors.

Many of our clients also hold equity interests in us and to the extent such clients determine to cease their ownership relationship with us, they may also decide to limit or terminate their client relationship with us.

Many of our clients also hold equity interests in us. To the extent such clients determine to cease their ownership relationship with us, they may also decide to limit or terminate their client relationship with us.

Our risk management framework may not be effective in mitigating risks or losses to us, and we may incur losses due to ineffective risk management processes and strategies.

Our risk management framework is comprised of various processes, systems and strategies, and is designed to manage the types of risk to which we are subject, including credit, market, liquidity, interest rate, operational, reputation, business and compliance. Our framework also includes financial or other modeling methodologies that involve management assumptions and judgment. Our risk management framework may not be effective under all circumstances and may not adequately mitigate risk or loss to us. If our risk management framework is not effective, we could suffer unexpected losses and our business, financial condition, results of operations or growth prospects could be materially and adversely affected. We may also be subject to potentially adverse regulatory consequences.

We are required to make significant judgments, assumptions and estimates in the preparation of our financial statements and our judgments, assumptions and estimates may not be accurate.

The preparation of financial statements and related disclosures in conformity with GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. Our critical accounting policies, which are included in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus, describe those significant accounting policies and methods used in the preparation of our consolidated financial statements that we consider “critical” because they require judgments, assumptions and estimates that materially affect our consolidated financial statements and related disclosures. As a result, if future events or regulatory views concerning such analysis differ significantly from the judgments, assumptions and estimates in our critical

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accounting policies, those events or assumptions could have a material impact on our consolidated financial statements and related disclosures, in each case resulting in our need to revise or restate prior period financial statements, cause damage to our reputation and the price of our common stock and adversely affect our business, financial condition and results of operations.

If we fail to maintain effective internal control over financial reporting, we may not be able to report our financial results accurately and timely, in which case our business may be harmed, investors may lose confidence in the accuracy and completeness of our financial reports, we could be subject to regulatory penalties and the price of our common stock may decline.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for evaluating and reporting on that system of internal control. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. As a public company, we will be required to comply with the Sarbanes-Oxley Act and other rules that govern public companies. In particular, we will be required to certify our compliance with Section 404(a) of the Sarbanes-Oxley Act beginning with our second annual report on Form 10-K, which will require us to furnish annually a report by management on the effectiveness of our internal control over financial reporting. In addition, unless we remain an EGC and elect additional transitional relief available to EGCs, our independent registered public accounting firm may be required to report on the effectiveness of our internal control over financial reporting beginning as of that second annual report on Form 10-K.

We will continue to periodically test and update, as necessary, our internal control systems, including our financial reporting controls. Our actions, however, may not be sufficient to result in an effective internal control environment, and any future failure to maintain effective internal control over financial reporting could impair the reliability of our financial statements which in turn could harm our business, impair investor confidence in the accuracy and completeness of our financial reports and our access to the capital markets, cause the price of our common stock to decline and subject us to regulatory penalties.

Failure to keep pace with technological change could adversely affect our business.

Advances and changes in technology could significantly affect our business, financial condition, results of operations and future prospects. We face many challenges, including the increased demand for providing clients access to their accounts and the systems to perform banking transactions electronically. Our ability to compete depends on our ability to continue to adapt technology on a timely and cost-effective basis to meet these demands.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively or timely implement new technology-driven products and services or be successful in marketing these products and services to our clients. Failure to successfully keep pace with technological change affecting the financial services industry could harm our ability to compete effectively and could have a material adverse impact on our business, financial condition, results of operations or cash flows. As these technologies are improved in the future, we may be required to make significant capital expenditures in order to remain competitive, which may increase our overall expenses and have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are exposed to cybersecurity risks and potential security breaches associated with our internet-based systems and online commerce security, and therefore we may incur increasing costs in an effort to minimize those risks and to respond to cyber incidents and we may experience harm to our reputation and liability exposure from security breaches.

We conduct a portion of our business over the internet. We rely heavily upon data processing, including loan servicing and deposit processing, software, communications and information systems from a number of third parties to conduct our business. In addition, our business involves the storage and transmission of clients’ proprietary information and security breaches could expose us to a risk of loss or misuse of such information, litigation and potential liability.

In recent periods, several governmental agencies and large corporations, including financial service organizations and retail companies, have suffered major data breaches, in some cases exposing not only their

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confidential and proprietary corporate information, but also sensitive financial and other personal information of their clients or other third parties, and subjecting those agencies and corporations to potential fraudulent activity and their clients and other third parties to identity theft and fraudulent activity in their credit card and banking accounts. Therefore, security breaches and cyber-attacks can cause significant increases in operating costs, including the costs of compensating clients for any resulting losses they may incur and the costs and capital expenditures required to correct the deficiencies in and strengthen the security of data processing and storage systems. Additionally, we provide international wire transfer and other international services, which subject us to associated risks, including risks of increased difficulties recovering transferred funds in the event of fraud or otherwise.

Third-party or internal systems and networks may fail to operate properly or become disabled due to deliberate attacks or unintentional events; furthermore, we could be subjected to an unauthorized takeover of one or more of our corporate accounts and subjected to unauthorized transfers. Our operations are vulnerable to disruptions from human error, natural disasters, power loss, computer viruses, spam attacks, denial of service attacks, unauthorized access and other unforeseen events. Undiscovered data corruption could render our client information inaccurate. These events may obstruct our ability to provide services and process transactions. While we believe we are in compliance with all applicable privacy and data security laws, an incident could put our client confidential information at risk.

We have been the target of data and cyber security attacks and may experience attacks in the future. While we have not experienced a material cyber-incident or security breach that has been successful in compromising our data or systems to date, we can never be certain that all of our systems are entirely free from vulnerability to breaches of security or other technological difficulties or failures. Although we monitor and modify, as necessary, our protective measures in response to the perpetual evolution of known cyber-threats and devote significant resources to maintain, regularly update and backup our systems and processes that are designed to protect the security of our systems, we may not be able to anticipate, or effectively implement preventative measures against, all cyber-attacks.

A breach in the security of any of our information systems, or other cyber-incident, could have an adverse impact on, among other things, our revenue, ability to attract and maintain clients and our reputation. In addition, as a result of any breach, we could incur higher costs to conduct our business, to increase protection or related to remediation. Furthermore, our clients could incorrectly blame us and terminate their account with us for a cyber-incident which occurred on their own system or with that of an unrelated third party. In addition, a security breach could also subject us to additional regulatory scrutiny and expose us to civil litigation and possible financial liability, all of which could have a material adverse effect on our business, financial condition and results of operations.

We rely on client, counterparty and third-party information, which subjects us to risks if that information is not accurate or is incomplete.

In deciding whether to extend credit or enter into other transactions with clients and counterparties, we rely on information furnished to us by or on behalf of clients and counterparties, including financial statements and other financial information. We also rely on representations of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. While we have a practice of seeking to independently verify some of the client information that we use in deciding whether to extend credit or to agree to a loan modification, including employment, assets, income and credit score, not all client information is independently verified, and if any of the information that is independently verified (or any other information considered in the loan review process) is misrepresented and such misrepresentation is not detected prior to loan funding, the value of the loan may be significantly lower than expected. Whether a misrepresentation is made by the applicant, another third party or one of our employees, we generally bear the risk of loss associated with the misrepresentation. We may not detect all misrepresented information in our approval process. Any such misrepresented information could adversely affect our business, financial condition and results of operations.

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We are subject to certain operating risks related to employee error and client, employee and third party misconduct, which could harm our reputation and business.

Employee error or employee and client misconduct could subject us to financial losses or regulatory sanctions and seriously harm our reputation. Misconduct by our employees could include hiding unauthorized activities from us, improper or unauthorized activities on behalf of our clients or improper use of confidential information. It is not always possible to prevent employee error or misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases. Because the nature of the financial services business involves a high volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully rectified. Our necessary dependence upon processing systems to record and process transactions and our large transaction volume may further increase the risk that employee errors, tampering or manipulation of those systems will result in losses that are difficult to detect. Employee error or misconduct could also subject us to financial claims. If our internal control systems fail to prevent or detect an occurrence, it could have a material adverse effect on our business, financial condition and results of operations.

Fraudulent activity could damage our reputation, disrupt our businesses, increase our costs and cause losses.

As a financial institution, we are inherently exposed to operational risk in the form of theft and other fraudulent activity by employees, clients and other third parties targeting us and our clients or data. Such activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts. Although the Company devotes substantial resources to maintaining effective policies and internal controls to identify and prevent such incidents, given the increasing sophistication of possible perpetrators, the Company may experience financial losses or reputational harm as a result of fraud. In addition, we may be required to make significant capital expenditures in order to modify and enhance our protective measures or to investigate and remediate fraudulent activity. Although we have not experienced any material business or reputational harm as a result of fraudulent activities in the past, the occurrence of fraudulent activity could damage our reputation, disrupt our business, increase our costs and cause losses in the future.

Our operations could be interrupted if our third-party service providers experience difficulty, terminate their services or fail to comply with banking regulations.

We depend to a significant extent on a number of relationships with third-party service providers. Specifically, we receive core systems processing, essential web hosting and other internet systems, loan and deposit processing and other processing services from third-party service providers. If these third-party service providers experience financial, operational or technological difficulties or terminate their services and we are unable to replace them with other service providers, our operations could be interrupted. If an interruption were to continue for a significant period of time, our business, financial condition and results of operations could be adversely affected, perhaps materially. Even if we are able to replace our service providers, it may be at a higher cost to us, which could adversely affect our business, financial condition and results of operations.

We follow a relationship-based operating model and negative public opinion could damage our reputation and adversely impact our earnings.

Reputation risk, or the risk to our business, earnings and capital from negative public opinion, is inherent in our business. Negative public opinion can result from our actual or alleged conduct in any number of activities, including lending practices, corporate governance and acquisitions, and from actions taken by government regulators and community organizations in response to those activities. Negative public opinion can adversely affect our ability to keep and attract clients and employees and can expose us to litigation and regulatory action and adversely affect our results of operations. Although we take steps to minimize reputation risk in dealing with our clients and communities, this risk will always be present given the nature of our business.

If third parties infringe upon our intellectual property or if we were to infringe upon the intellectual property of third parties, we may expend significant resources enforcing or defending our rights or suffer competitive injury.

We rely on a combination of copyright, trademark, trade secret laws and confidentiality provisions to establish and protect our intellectual property rights. If we fail to successfully maintain, protect and enforce our intellectual property rights, our competitive position could suffer. Similarly, if we were to infringe on the intellectual property rights of others, our competitive position could suffer. Third parties may challenge,

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invalidate, circumvent, infringe or misappropriate our intellectual property, or such intellectual property may not be sufficient to permit us to take advantage of current market trends or otherwise to provide competitive advantages, which could result in costly redesign efforts, discontinuance of certain product or service offerings or other competitive harm.

We may also be required to spend significant resources to monitor and police our intellectual property rights. Others, including our competitors, may independently develop similar technology, duplicate our products or services or design around our intellectual property, and in such cases we may not be able to assert our intellectual property rights against such parties. Further, our contractual arrangements may not effectively prevent disclosure of our confidential information or provide an adequate remedy in the event of unauthorized disclosure of our confidential or proprietary information. We may have to litigate to enforce or determine the scope and enforceability of our intellectual property rights, trade secrets and know-how, which could be time-consuming and expensive, could cause a diversion of resources and may not prove successful.

The loss of intellectual property protection or the inability to obtain rights with respect to third party intellectual property could harm our business and ability to compete. In addition, because of the rapid pace of technological change in our industry, aspects of our business and our products and services rely on technologies developed or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies from these third parties on reasonable terms or at all.

We may be exposed to risk of environmental liabilities or failure to comply with regulatory requirements with respect to properties to which we take title.

In the course of our business, we may foreclose and take title to real estate, and we could be subject to environmental liabilities with respect to these properties. We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or we may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, if we are the owner or former owner of a contaminated site, we may be subject to claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. These properties may also be subject to various other federal, state or local regulatory requirements, such as the Americans with Disabilities Act. We do not know whether existing requirements will change or whether compliance with future requirements will involve significant expenditures. If we ever become subject to significant environmental liabilities or costs or fail to comply with regulatory requirements with respect to these properties, our business, financial condition, liquidity and results of operations could be materially and adversely affected.

The costs and effects of litigation, investigations or similar matters, or adverse facts and developments related thereto, could materially affect our business, operating results and financial condition.

We may be involved from time to time in a variety of litigation, investigations or similar matters arising out of our business. It is inherently difficult to assess the outcome of these matters, and we may not prevail in proceedings or litigation. Our insurance may not cover all claims that may be asserted against us and indemnification rights to which we are entitled may not be honored, and any claims asserted against us, regardless of merit or eventual outcome, may harm our reputation. The ultimate judgments or settlements in any litigation or investigation could have a material adverse effect on our business, financial condition and results of operations. In addition, premiums for insurance covering the financial and banking sectors are rising. We may not be able to obtain appropriate types or levels of insurance in the future, nor may we be able to obtain adequate replacement policies with acceptable terms or at historic rates, if at all.

Financial counterparties expose the Company to risks.

We maintain correspondent bank relationships, manage certain loan participations, engage in securities transactions and engage in other activities with financial counterparties that are customary to our industry. Many of these transactions expose us to counterparty credit, liquidity and/or reputational risk in the event of default by the counterparty, or negative publicity or public complaints, whether real or perceived, about one or more financial counterparties, or the financial services industry in general. Although we seek to manage these risks through internal controls and procedures, we may experience loss or interruption of business, damage to our

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reputation, or incur additional costs or liabilities as a result of unforeseen events with these counterparties. Any financial cost, liability or reputational damage could have a material adverse effect on our business, which in turn, could have a material adverse effect on our financial condition and results of operations.

Severe weather, natural disasters, acts of war or terrorism and other external events could significantly impact our business.

Severe weather, including tornadoes, droughts, hailstorms and other natural disasters, acts of war or terrorism and other adverse external events could have a significant impact on our ability to conduct business. Such events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue or cause us to incur additional expenses. Operations in our markets could be disrupted by both the evacuation of large portions of the population as well as damage or lack of access to our banking and operation facilities. While we have not experienced such an event to date, other severe weather or natural disasters, acts of war or terrorism or other adverse external events may occur in the future. Although management has established disaster recovery policies and procedures, the occurrence of any such events could have a material adverse effect on our business, financial condition and results of operations.

Risks Relating to Our Regulatory Environment

We are subject to extensive regulation, which increases the cost and expense of compliance and could limit or restrict our activities, which in turn may adversely impact our earnings and ability to grow.

We operate in a highly regulated environment and are subject to regulation, supervision and examination by a number of governmental regulatory agencies, including, with respect to the Bank, the FDIC and the Office of the State Bank Commissioner of Kansas (“OSBCK”) and, with respect to the Company, the Federal Reserve. Regulations adopted by these agencies, which are generally intended to provide protection for depositors, clients and the Deposit Insurance Fund of the FDIC (the “DIF”), rather than for the benefit of stockholders, govern a comprehensive range of matters relating to ownership and control of our shares, our acquisition of other companies and businesses, permissible activities for us to engage in, maintenance of adequate capital levels, dividend payments and other aspects of our operations. These bank regulators possess broad authority to prevent or remedy unsafe or unsound practices or violations of law. Following examinations, we may be required, among other things, to change our asset valuations or the amounts of required loan loss allowances or to restrict our operations, as well as increase our capital levels, which could adversely affect our results of operations.

The laws and regulations applicable to the banking industry could change at any time and we cannot predict the effects of these changes on our business, profitability or growth strategy. Increased regulation could increase our cost of compliance and adversely affect profitability. Moreover, certain of these regulations contain significant punitive sanctions for violations, including monetary penalties and limitations on a bank’s ability to implement components of its business plan, such as expansion through mergers and acquisitions or the opening of new branch offices. In addition, changes in regulatory requirements may add costs associated with compliance efforts. Furthermore, government policy and regulation, particularly as implemented through the Federal Reserve, significantly affect credit conditions. Negative developments in the financial industry and the impact of new legislation and regulation in response to those developments could negatively impact our business operations and adversely impact our financial performance.

Legislative and regulatory actions taken now or in the future may increase our costs and impact our business, governance structure, financial condition or results of operations. Proposed legislative and regulatory actions, including changes to financial regulation, may not occur on the timeframe that is expected, or at all, which could result in additional uncertainty for our business.

We are subject to extensive regulation by multiple regulatory bodies. These regulations may affect the manner and terms of delivery of our services. If we do not comply with governmental regulations, we may be subject to fines, penalties, lawsuits or material restrictions on our businesses which may adversely affect our business operations. Changes in these regulations can significantly affect the services that we provide as well as our costs of compliance with such regulations. In addition, adverse publicity and damage to our reputation arising from the failure or perceived failure to comply with legal, regulatory or contractual requirements could affect our ability to attract and retain clients.

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Current and past economic conditions, particularly in the financial markets, have resulted in government regulatory agencies and political bodies placing increased focus and scrutiny on the financial services industry. For example, the Dodd-Frank Wall Street Consumer Protection Act (the “Dodd-Frank Act”) significantly changed the regulation of financial institutions and the financial services industry. In addition, new proposals for legislation continue to be introduced in the U.S. Congress that could further substantially increase regulation of the financial services industry, impose restrictions on the operations and general ability of firms within the industry to conduct business consistent with historical practices, including in the areas of compensation, interest rates, financial product offerings and disclosures, and have an effect on bankruptcy proceedings with respect to consumer residential real estate mortgages, among other things. Federal and state regulatory agencies also frequently adopt changes to their regulations or change the manner in which existing regulations are applied. President Donald Trump issued an executive order directing the review of existing financial regulations. The Trump administration has also indicated in public statements that the Dodd-Frank Act will be under scrutiny and that some of its provisions and the rules promulgated thereunder may be revised, repealed or amended.

Certain aspects of current or proposed regulatory or legislative changes, including laws applicable to the financial industry and federal and state taxation, if enacted or adopted, may impact the profitability of our business activities, require more oversight or change certain of our business practices, including the ability to offer new products, obtain financing, attract deposits, make loans and achieve satisfactory interest spreads, and could expose us to additional costs, including increased compliance costs. These changes also may require us to invest significant management attention and resources to make any necessary changes to operations to comply, and could have a material adverse effect on our business, financial condition and results of operations. In addition, any proposed legislative or regulatory changes, including those that could benefit our business, financial condition and results of operations, may not occur on the timeframe that is proposed, or at all, which could result in additional uncertainty for our business.

The 2017 Tax Act, enacted in the fourth quarter of 2017, may impact the profitability of our business activities, require more oversight or change certain of our business practices, and could expose us to additional costs, including increased compliance costs. The 2017 Tax Act could negatively impact our customers because it lowers the existing caps on mortgage interest deductions and limits the state and local tax deductions. These changes could make it more difficult for borrowers to make their loan payments, and could also negatively impact the housing market, which could adversely affect our business and loan growth.

Many of our new activities and growth plans require regulatory approvals, and failure to obtain them may restrict our growth.

As part of our growth strategy, we may expand our business by pursuing strategic acquisitions of financial institutions and other complementary businesses. Generally, we must receive federal and state regulatory approval before we can acquire an FDIC-insured depository institution or related business. In determining whether to approve a proposed acquisition, federal and state banking regulators will consider, among other factors, the effect of the acquisition on competition, our financial condition, our future prospects and the impact of the proposal on U.S. financial stability. The regulators also review current and projected capital ratios, the competence, experience and integrity of management and its record of compliance with laws and regulations, the convenience and needs of the communities to be served and the effectiveness of the acquiring institution in combating money laundering activities. Such regulatory approvals may not be granted on terms that are acceptable to us, or at all.

The Federal Reserve may require the Company to commit capital resources to support the Bank.

As a matter of policy, the Federal Reserve expects a bank holding company to act as a source of financial and managerial strength to a subsidiary bank and to commit resources to support such subsidiary bank. The Dodd-Frank Act codified the Federal Reserve’s policy on serving as a source of financial strength. Under the “source of strength” doctrine, the Federal Reserve may require a bank holding company to make capital injections into a troubled subsidiary bank, even if the Company would not ordinarily do so and even if such contribution is to its detriment or the detriment of its stockholders. The Federal Reserve may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank. A capital injection may be required at times when the holding company may not have the resources to provide it and therefore may be required to borrow the funds or raise capital. Any loans by a bank holding

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company to its subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a bank holding company’s bankruptcy, the bankruptcy trustee will assume any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank.

Moreover, bankruptcy law provides that claims based on any such commitment will be entitled to a priority of payment over the claims of the bank holding company’s general unsecured creditors, including the holders of its indebtedness. Thus, any borrowing that must be incurred by the Company in order to make a required capital injection to the Bank becomes more difficult and expensive and will adversely impact our financial condition, results of operations and future prospects.

The Financial Institutions Reform Recovery and Enforcement Act of 1989 (“FIRREA”) grants the FDIC broad authority to charge off any losses caused by a failing bank subsidiary to the capital of a non-failing affiliated bank. Moreover, any bank operating under the Company’s common control could be required by the FDIC to contribute capital to a failing affiliate bank within the Company’s control group. This is known as FIRREA’s “cross-guarantee” provision. The Company currently has one bank subsidiary.

The Company and the Bank are subject to stringent capital requirements that may limit our operations and potential growth.

The Company and the Bank are subject to various regulatory capital requirements. 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 our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet commitments as calculated under these regulations.

In order to be a “well-capitalized” depository institution under prompt corrective action standards (but without taking into account the capital conservation buffer requirement described below), a bank must maintain a common equity Tier 1 (“CET1”) risk-based capital ratio of 6.5% or more, a Tier 1 risk-based capital ratio of 8.0% or more, a total risk-based capital ratio of 10.0% or more and a leverage ratio of 5.0% or more (and is not subject to any order or written directive specifying any higher capital ratio). The failure to meet the established capital requirements under the prompt corrective action framework could result in one or more of our regulators placing limitations or conditions on our activities, including our growth initiatives, or restricting the commencement of new activities, and such failure could subject us to a variety of enforcement remedies available to the federal regulatory authorities, including limiting our ability to pay dividends, issuing a directive to increase our capital and terminating the Bank’s FDIC deposit insurance. FDIC deposit insurance is critical to the continued operation of the Bank. In addition, an inability to meet the capital requirements under the Basel III regulatory capital reforms (“Basel III”) would prevent us from being able to pay certain discretionary bonuses to our executive officers and dividends to our stockholders. Due to the completed phase-in of a capital conservation buffer requirement, the Company and the Bank must effectively maintain a CET1 capital ratio of 7.0% or more, a Tier 1 risk-based capital ratio of 8.5% or more, a total risk-based capital ratio of 10.5% or more and, for the Bank, a leverage ratio of 5.0% or more and for the Company, a leverage ratio of 4.0% or more.

Many factors affect the calculation of our risk-based assets and our ability to maintain the level of capital required to achieve acceptable capital ratios. For example, changes in risk weightings of assets relative to capital and other factors may combine to increase the amount of risk-weighted assets in the Tier 1 risk-based capital ratio and the total risk-based capital ratio. Any increases in our risk-weighted assets will require a corresponding increase in our capital to maintain the applicable ratios. In addition, recognized loan losses in excess of amounts reserved for such losses, loan impairments and other factors will decrease our capital, thereby reducing the level of the applicable ratios.

Our failure to remain well-capitalized for bank regulatory purposes could affect client and investor confidence, our ability to grow, our costs of funds and FDIC insurance costs, our ability to pay dividends on common stock, our ability to make acquisitions, and our business, results of operations and financial condition. If we cease to be a well-capitalized institution for bank regulatory purposes, the interest rates that we pay on deposits and our ability to accept brokered deposits may be restricted. If we were restricted in the amount of interest that we could pay on our deposits, we could fail to maintain levels of deposits consistent with our business plan.

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Higher FDIC deposit insurance premiums and assessments could adversely affect our financial condition.

Our deposits are insured up to applicable limits by the DIF and are subject to deposit insurance assessments to maintain deposit insurance. As an FDIC-insured institution, we are required to pay quarterly deposit insurance premium assessments to the FDIC. Although we cannot predict what the insurance assessment rates will be in the future, either a deterioration in our risk-based capital ratios or adjustments to the base assessment rates could have a material adverse impact on our business, financial condition, results of operations and cash flows.

Bank regulatory agencies periodically examine our business, including compliance with laws and regulations, and our failure to comply with any supervisory actions to which we become subject as a result of such examinations could materially and adversely affect us.

Our regulators periodically examine our business, including our compliance with laws and regulations. Accommodating such examinations may require management to reallocate resources, which would otherwise be used in the day-to-day operation of other aspects of our business. If, as a result of an examination, a banking agency were to determine that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of our operations had become unsatisfactory, or that we were, or our management was, in violation of any law or regulation, they may take a number of different remedial actions as they deem appropriate. These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil money penalties against us, our officers or directors, to fine or remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate the Bank’s FDIC deposit insurance and place the Bank into receivership or conservatorship. Any regulatory action against us could have a material adverse effect on our business, financial condition and results of operations.

Monetary policy and other economic factors could affect our profitability adversely.

In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the Federal Reserve. An important function of the Federal Reserve is to regulate the money supply and credit conditions. Among the instruments used by the Federal Reserve to implement these objectives are open market purchases and sales of U.S. government securities, adjustments of the discount rate and changes in banks’ reserve requirements against bank deposits. These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits.

The monetary policies and regulations of the Federal Reserve have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. The effects of such policies upon our business, financial condition and results of operations cannot be predicted.

We face a risk of noncompliance and enforcement action with respect to the Bank Secrecy Act and other anti-money laundering statutes and regulations.

The Bank Secrecy Act (the “BSA”), the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “PATRIOT Act”) and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering (“AML”) program and to file reports such as suspicious activity reports and currency transaction reports. We are required to comply with these and other AML requirements. The federal banking agencies and Financial Crimes Enforcement Network are authorized to impose significant civil money penalties for violations of those requirements and have recently engaged in coordinated enforcement efforts against banks and other financial services providers with the U.S. Department of Justice (“DOJ”), the Drug Enforcement Administration and the Internal Revenue Service (“IRS”). We are also subject to increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control (“OFAC”), which involve sanctions for dealing with certain persons or countries. If our policies, procedures and systems are deemed deficient, or if the policies, procedures and systems of any financial institutions that we may acquire in the future are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan,

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including our acquisition plans. Although, as of the date of this prospectus, we have not been subject to any fines or penalties, and we believe we have not suffered any material business or reputational harm, as a result of violations of anti-money laundering laws and regulations, there is no assurance that we will not be subject to such fines, penalties or losses or harm in the future.

Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities.

We are subject to various privacy, information security and data protection laws, including requirements concerning security breach notification, and we could be negatively impacted by these laws. For example, our business is subject to the Gramm-Leach-Bliley Act which, among other things: (i) imposes certain limitations on our ability to share non-public personal information about our clients with non-affiliated third parties; (ii) requires that we provide certain disclosures to clients about our information collection, sharing and security practices and afford clients the right to “opt out” of any information sharing by us with non-affiliated third parties (with certain exceptions); and (iii) requires that we develop, implement and maintain a written comprehensive information security program containing safeguards that are appropriate based on our size and complexity, the nature and scope of our activities and the sensitivity of client information we process, as well as plans for responding to data security breaches. Various state and federal banking regulators, states and foreign countries have also enacted data security breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in certain circumstances in the event of a security breach. Moreover, legislators and regulators in the United States and other countries are increasingly adopting or revising privacy, information security and data protection laws that potentially could have a significant impact on our current and planned privacy, data protection and information security-related practices, our collection, use, sharing, retention and safeguarding of client or employee information, and some of our current or planned business activities. This could also increase our costs of compliance and business operations and could reduce income from certain business initiatives. This includes increased privacy-related enforcement activity at the federal level by the Federal Trade Commission, as well as at the state level.

Compliance with current or future privacy, data protection and information security laws (including those regarding security breach notification) affecting client or employee data to which we are subject could result in higher compliance and technology costs and could restrict our ability to provide certain products and services, which could have a material adverse effect on our business, financial conditions or results of operations. Our failure to comply with privacy, data protection and information security laws could result in potentially significant regulatory or governmental investigations or actions, litigation, fines, sanctions and damage to our reputation, which could have a material adverse effect on our business, financial condition or results of operations.

We face increased risk under the terms of the Community Reinvestment Act (“CRA”) as we accept additional deposits in new geographic markets.

Under the terms of the CRA, each appropriate federal bank regulatory agency is required, in connection with its examination of a bank, to assess such bank’s record in assessing and meeting the credit needs of the communities served by that bank, including low- and moderate-income neighborhoods. During these examinations, the regulatory agency rates such bank’s compliance with the CRA as “Outstanding,” “Satisfactory,” “Needs to Improve” or “Substantial Noncompliance.” The Bank had a CRA rating of “Satisfactory” as of its most recent CRA assessment. The regulatory agency’s assessment of an institution’s record is part of the regulatory agency’s consideration of applications to acquire, merge or consolidate with another banking institution or its holding company, or to open or relocate a branch office.

As we accept additional deposits in new geographic markets, we will be required to maintain an acceptable CRA rating, which may be difficult.

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We are subject to certain restrictions related to interstate banking and branching, including restrictions on interstate deposits.

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Interstate Act”), together with the Dodd-Frank Act, relaxed prior interstate branching restrictions under federal law by permitting, subject to regulatory approval, commercial banks to establish branches in states where the laws permit banks chartered in such states to establish branches. As discussed in this prospectus, the Bank operates branches in Missouri, Oklahoma and Texas, in addition to its home state of Kansas. Federal banking agency regulations prohibit banks from using their interstate branches primarily for deposit production, and the federal banking agencies have implemented a loan-to-deposit ratio screen to ensure compliance with this prohibition, the purpose of which is to ensure that interstate branches do not take deposits from a community without the bank reasonably helping to meet the credit needs of that community.

The prohibition on establishing interstate branches for the purpose of deposit production, and the corresponding regulatory loan-to-deposit restrictions, could limit our ability to establish branches outside Kansas. We believe that the Bank’s operations in Missouri, Oklahoma and Texas are in compliance with the Interstate Act and that the Bank is reasonably helping to meet the credit needs of the communities served by the Bank’s branches in such states. If, however, the FDIC were to determine that the Bank is not reasonably helping to meet the credit needs of the communities served by the Bank’s branches in such states or the Bank otherwise fails to satisfy the requirements of the Interstate Act, then the FDIC could require the Bank’s branches to be closed in such states or not permit the Bank to open new branches in such states.

We are subject to federal and state fair lending laws, and failure to comply with these laws could lead to material penalties.

Federal and state fair lending laws and regulations, such as the Equal Credit Opportunity Act (“ECOA”) and the Fair Housing Act, impose nondiscriminatory lending requirements on financial institutions. The DOJ, the Consumer Financial Protection Bureau (“CFPB”) and other federal and state agencies are responsible for enforcing these laws and regulations. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation.

A successful challenge to our compliance with fair lending laws and regulations could adversely impact our rating under the CRA and result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on merger and acquisition activity, restrictions on expansion activity and restrictions on entering new business lines, which could negatively impact our reputation, business, financial condition and results of operations.

We may be subject to liability for potential violations of predatory lending laws, which could adversely impact our results of operations, financial condition and business.

Various U.S. federal, state and local laws have been enacted that are designed to discourage predatory lending practices. The U.S. Home Ownership and Equity Protection Act of 1994 (“HOEPA”) prohibits inclusion of certain provisions in mortgages that have interest rates or origination costs in excess of prescribed levels and requires that borrowers be given certain disclosures prior to origination. Some states have enacted, or may enact, similar laws or regulations, which in some cases impose restrictions and requirements greater than those in HOEPA. In addition, under the anti-predatory lending laws of some states, the origination of certain mortgages, including loans that are not classified as “high-cost” loans under applicable law, must satisfy a net tangible benefit test with respect to the related borrower. Such tests may be highly subjective and open to interpretation. As a result, a court may determine that a home mortgage, for example, does not meet the test even if the related originator reasonably believed that the test was satisfied. If any of our mortgages are found to have been originated in violation of predatory or abusive lending laws, we could incur losses, which could adversely impact our results of operations, financial condition and business.

Regulatory agencies and consumer advocacy groups have asserted claims that the practices of lenders and loan servicers result in a disparate impact on protected classes.

Antidiscrimination statutes, such as the Fair Housing Act and the ECOA, prohibit creditors from discriminating against loan applicants and borrowers based on certain characteristics, such as race, religion and national origin. Various federal regulatory agencies and departments, including the DOJ and the CFPB, have

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taken the position that these laws apply not only to intentional discrimination, but also to neutral practices that have a disparate impact on a group that shares a characteristic that a creditor may not consider in making credit decisions protected classes (i.e., creditor or servicing practices that have a disproportionate negative effect on a protected class of individuals).

These regulatory agencies, as well as consumer advocacy groups and plaintiffs’ attorneys, have focused greater attention on “disparate impact” claims. The U.S. Supreme Court has confirmed that the “disparate impact” theory applies to cases brought under the Fair Housing Act, while emphasizing that a causal relationship must be shown between a specific policy of the defendant and a discriminatory result that is not justified by a legitimate objective of the defendant. Although it is still unclear whether the theory applies under ECOA, regulatory agencies and private plaintiffs may continue to apply it to both the Fair Housing Act and ECOA in the context of mortgage lending and servicing. To the extent that the “disparate impact” theory continues to apply, we are faced with significant administrative burdens in attempting to comply and potential liability for failures to comply.

In addition to reputational harm, violations of the ECOA and the Fair Housing Act can result in actual damages, punitive damages, injunctive or equitable relief, attorneys’ fees and civil money penalties.

Risks Related to this Offering and an Investment in Our Common Stock

There has been no prior active trading market for our common stock, and we cannot assure you that an active public trading market will develop after the offering; and, even if it does, our share price may trade below the public offering price and be subject to substantial volatility.

There has been no public market for our common stock prior to this offering. We cannot predict the extent to which investor interest in our Company will lead to the development of an active trading market on the Nasdaq Global Select Market or otherwise, or how liquid that market may become, especially if few stock analysts follow our stock or issue research reports concerning our business. In addition, we expect that more than          % of our outstanding shares will be restricted from trading for a period of 180 days following this offering, resulting in a limited number of our shares available to be traded in the public market. If an active trading market does not develop, you may have difficulty selling any shares that you buy in this offering. Neither the underwriters nor any other market maker in our common stock will be obligated to make a market in our shares, and any such market making may be discontinued at any time in the sole discretion of each market maker.

The initial public offering price for our common stock has been determined through negotiations between us, the selling stockholders and the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell your shares of common stock at or above the public offering price or at any other price or at the time that you would like to sell. An inactive market may also impair our ability to raise capital by selling our common stock and may impair our ability to expand our business by using our common stock as consideration in an acquisition.

The price of our common stock could be volatile following this offering.

Even if a market develops for our common stock after the offering, the market price of our common stock may be volatile and could be subject to wide fluctuations in price in response to various factors, some of which are beyond our control. These factors include, among other things:

•actual or anticipated variations in our quarterly or annual results of operations;
•recommendations by securities analysts;
•operating and stock price performance of other companies that investors deem comparable to us;
•news reports relating to trends, concerns and other issues in the financial services industry generally;
•conditions in the banking industry such as credit quality and monetary policies;
•perceptions in the marketplace regarding us or our competitors;
•fluctuations in the stock price and operating results of our competitors;
•domestic and international economic factors unrelated to our performance;

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•general market conditions and, in particular, developments related to market conditions for the financial services industry;
•new technology used, or services offered, by competitors; and
•changes in government regulations.

In addition, if the market for stocks in our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and be a distraction to management.

We will have broad discretion as to the use of the net proceeds from this offering, and we may not use the proceeds effectively.

We are not required to apply any portion of the net proceeds of this offering for any particular purpose. Accordingly, our management will have broad discretion as to the application of the net proceeds of this offering and could use them for purposes other than those contemplated at the time of this offering. Our stockholders may not agree with the manner in which our management chooses to allocate and spend the net proceeds. A portion of the proceeds may be used to provide additional capital as a cushion against minimum regulatory capital requirements, which may reduce our return on equity as opposed to if such proceeds were used for further growth. Moreover, our management may use the net proceeds for corporate purposes that may not increase our market value or profitability. We cannot predict whether the proceeds from this offering will be invested to yield a favorable return.

The obligations associated with being a public company will require significant resources and management attention, which will increase our costs of operations and may divert focus from our business operations.

As a public company, we will face increased legal, accounting, administrative and other costs and expenses that we have not incurred as a private company, particularly after we no longer qualify as an EGC. After the completion of this offering, we will be subject to the reporting requirements of the Exchange Act, which requires that we file annual, quarterly and current reports with respect to our business and financial condition and proxy and other information statements, and the rules and regulations implemented by the Securities and Exchange Commission (the “SEC”), the Sarbanes-Oxley Act, the Dodd-Frank Act, the Public Company Accounting Oversight Board and the Nasdaq Global Select Market, each of which imposes additional reporting and other obligations on public companies. As a public company, compliance with these reporting requirements and other SEC and the Nasdaq Global Select Market rules will make certain operating activities more time-consuming, and we will also incur significant new legal, accounting, insurance and other expenses. Furthermore, the need to establish the corporate infrastructure demanded of a public company may divert management’s attention from implementing our operating strategy, which could prevent us from successfully implementing our strategic initiatives and improving our results of operations. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company. However, we cannot predict or estimate the amount of additional costs we may incur in order to comply with these requirements. We anticipate that these costs will materially increase our general and administrative expenses and such increases will reduce our profitability.

Securities analysts may not initiate or continue coverage on us.

The trading market for our common stock will depend, in part, on the research and reports that securities analysts publish about us and our business. We do not have any control over these securities analysts, and they may not cover us. If one or more of these analysts cease to cover us or fail to publish regular reports on us, we could lose visibility in the financial markets, which could cause the price or trading volume of our common stock to decline. If we are covered by securities analysts and are the subject of an unfavorable report, the price of our common stock may decline.

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You will experience immediate dilution in the book value of the shares you purchase in this offering.

Investors purchasing common stock in this offering will pay more for their shares than the amount paid by existing stockholders who acquired shares prior to this offering. You will incur immediate dilution of approximately $   per share if you purchase common stock in this offering, representing the difference between the initial public offering price of $   per share, the midpoint set forth on the cover page of this prospectus, and our adjusted tangible book value per share after giving effect to this offering. This represents    % dilution from the initial public offering price.

Shares of certain stockholders may be sold into the public market in the near future, which could cause the market price of our common stock to drop significantly.

In connection with this offering, we, our directors, our executive officers and certain of our stockholders have each agreed to enter into lock-up agreements that restrict the sale of their holdings of our common stock for a period of 180 days after the date of this offering, subject to an extension in certain circumstances. When these lock-up agreements expire or the underwriters earlier release such persons from such agreements in the discretion of the underwriters, these shares and the shares underlying any equity awards held by these individuals will become eligible for sale, in some cases subject only to the volume, manner of sale and notice requirements of Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”). Sales of a substantial number of these shares in the public market after this offering, or the perception that these sales could occur, could cause the market price of our common stock to decline or to be lower than it might otherwise be. In addition, we estimate that immediately following this offering, approximately    % of our outstanding common stock will be beneficially owned by our principal stockholders, executive officers and directors. The amount of common stock that is owned by and issuable to our principal stockholders, executive officers and directors may adversely affect our share price, our share price volatility and the development of an active and liquid trading market. The sale of these shares could impair our ability to raise capital through the sale of additional equity securities.

Kansas law and the provisions of our articles of incorporation and bylaws may have an anti-takeover effect, and there are substantial regulatory limitations on changes of control of bank holding companies.

Kansas corporate law and provisions of our articles of incorporation and our bylaws could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial by our stockholders. Furthermore, with certain limited exceptions, federal regulations prohibit a person or company or a group of persons deemed to be “acting in concert” from, directly or indirectly, acquiring more than 10% (5% if the acquirer is a bank holding company) of any class of our voting stock or obtaining the ability to control in any manner the election of a majority of our directors or otherwise direct the management or policies of our Company without prior notice or application to and the approval of the Federal Reserve. Accordingly, prospective investors need to be aware of and comply with these requirements, if applicable, in connection with any purchase of shares of our common stock. Collectively, provisions of our articles of incorporation and bylaws and other statutory and regulatory provisions may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction that might otherwise result in our stockholders receiving a premium over the market price for their common stock. Moreover, the combination of these provisions effectively inhibits certain business combinations, which, in turn, could adversely affect the market price of our common stock.

Future equity issuances could result in dilution, which could cause the price of our shares of common stock to decline.

We are generally not restricted from issuing additional shares of stock, up to the 200,000,000 shares of voting common stock and 5,000,000 shares of preferred stock authorized in our articles of incorporation. In addition, we may issue additional shares of our common stock in the future pursuant to current or future equity compensation plans, upon conversions of preferred stock or debt, upon exercise of warrants or in connection with future acquisitions or financings. If we choose to issue additional shares of our common stock, or securities convertible into shares of our common stock, for any reason, the issuance would have a dilutive effect on the holders of our common stock and could have a material negative effect on the market price of our common stock.

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We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our common stock.

Our articles of incorporation authorize us to issue up to 5,000,000 shares of one or more series of preferred stock. Our Board of Directors has the power to set the terms of any series of preferred stock that may be issued, including voting rights, dividend rights, conversion rights, preferences over our voting common stock with respect to dividends or in the event of a dissolution, liquidation or winding up and other terms. If we issue preferred stock in the future that has preference over our common stock with respect to payment of dividends or upon our liquidation, dissolution or winding up, the rights of the holders of our common stock or the market price of our common stock could be adversely affected.

We have issued warrants, the exercise of which may dilute the value of outstanding common shares.

We previously issued 700,000 warrants to acquire common shares in connection with prior capital raising efforts, of which 113,500 were outstanding as of June 30, 2019. The warrants each carry a strike price of $5.00 per share. The 113,500 warrants are exercisable through April 26, 2023 or a change in control of the Company.

We have limited the circumstances in which our directors will be liable for monetary damages.

We have included in our articles of incorporation a provision to eliminate the liability of directors for monetary damages to the maximum extent permitted by Kansas law. The effect of this provision will be to reduce the situations in which we or our stockholders will be able to seek monetary damages from our directors.

Our articles of incorporation and bylaws each have a provision providing for indemnification of our present and former directors and executive officers and advancement of expenses related to such indemnification to the fullest extent permitted by applicable law. We have entered into agreements with certain officers and our directors in which we will agree to provide indemnification that is otherwise discretionary. Such indemnification may be available for liabilities arising in connection with this offering.

Our dividend policy may change without notice, and our future ability to pay dividends is subject to restrictions.

Holders of our common stock are entitled to receive only such dividends as our Board of Directors may declare out of funds legally available for such payments. Any declaration and payment of dividends on our common stock will depend upon our earnings and financial condition, liquidity and capital requirements, the general economic and regulatory climate, our ability to service any equity or debt obligations senior to our common stock and other factors deemed relevant by our Board of Directors. If declared, dividends will be payable to the holders of shares of our common stock on a pro rata basis in accordance with their shares held. If preferred shares are issued, such shares may be entitled to priority over the common shares as to dividends. Furthermore, consistent with our strategic plans, growth initiatives, capital availability, projected liquidity needs and other factors, we have made, and will continue to make, capital management decisions and policies that could adversely affect the amount of dividends, if any, paid to our common stockholders. Other than the stock dividend provided to our stockholders pursuant to our recent two-for-one stock split, we have no history of paying dividends to holders of our common stock.

The Federal Reserve has indicated that bank holding companies should carefully review their dividend policy in relation to the organization’s overall asset quality, current and prospective earnings and level, composition and quality of capital. The Federal Reserve is authorized to determine under certain circumstances related to the financial condition of a bank holding company or a bank that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. If required payments on our debt obligations are not made, or dividends on any preferred stock we may issue are not paid, we will be prohibited from paying dividends on our common stock.

Shares of our common stock are equity and therefore are subordinate to our indebtedness and preferred shares.

Our shares of common stock are equity interests in the Company and do not constitute indebtedness. As such, our shares of common stock will rank junior to all existing and future indebtedness and other non-equity claims on the Company with respect to assets available to satisfy claims on the Company, including claims in the event of the Company’s liquidation. The common shares place no restrictions on the Company’s

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business or operations or on the Company’s ability to incur indebtedness or engage in any transactions, subject only to the applicable voting rights of holders of common shares and preferred shares as provided in our organizational documents and the Kansas General Corporation Code (the “KGCC”). Additionally, holders of shares of our common stock are subject to the prior dividend and liquidation rights of any holders of our preferred shares then outstanding.

We are a bank holding company and our only source of cash, other than further issuances of securities, is distributions from our wholly-owned subsidiaries.

We are a bank holding company with no material activities other than activities incidental to holding the common stock of the Bank. Our principal source of funds to pay distributions on our common stock and service any of our obligations, other than further issuances of securities, would be dividends received from our wholly-owned subsidiaries. Furthermore, our wholly-owned subsidiaries are not obligated to pay dividends to us, and any dividends paid to us would depend on the earnings or financial condition of our wholly-owned subsidiaries and various business considerations. As is the case with all financial institutions, the profitability of our wholly-owned subsidiaries is subject to the fluctuating cost and availability of money, changes in interest rates and economic conditions in general. In addition, various federal and state statutes limit the amount of dividends that our wholly-owned subsidiaries may pay to the Company without regulatory approval.

We are an EGC and the reduced reporting requirements applicable to EGCs may make our common stock less attractive to investors.

We are an EGC. For as long as we continue to be an EGC, we may take advantage of reduced regulatory and reporting requirements that are otherwise generally applicable to public companies. These include, without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced financial reporting requirements, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding non-binding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved. The JOBS Act also permits an EGC such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to, and expect to continue to, take advantage of certain of these and other exemptions until we are no longer an EGC. Further, the JOBS Act allows us to present only two years of audited financial statements and only two years of related management’s discussion and analysis of financial condition and results of operations and provide less than five years of selected financial data in this prospectus.

We may take advantage of these provisions for up to five years, unless we earlier cease to be an EGC, which would occur if our annual gross revenues exceed $1.07 billion, if we issue more than $1.0 billion in non-convertible debt in a three-year period or if we become a “large accelerated filer,” in which case we would no longer be an EGC as of the following December 31. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions, or if we choose to rely on additional exemptions in the future. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our share price may be lower or more volatile.

An investment in our common stock is not an insured deposit and is subject to risk of loss.

Your investment in our common stock will not be a bank deposit and, therefore, will not be insured against loss or guaranteed by the FDIC, any deposit insurance fund or by any other public or private entity. Investment in our common stock is inherently risky for the reasons described herein, and is subject to similar market forces that may affect the price of common stock in any other company. As a result, if you acquire our common stock, you could lose some or all of your investment.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “strive,” “projection,” “goal,” “target,” “outlook,” “aim,” “would,” “annualized” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following:

•risks related to general business and economic conditions and any regulatory responses to such conditions;
•our ability to effectively execute our growth strategy and manage our growth, including identifying and consummating suitable mergers and acquisitions;
•our ability to manage the risks associated with our anticipated growth, potentially through de novo branching;
•our ability to integrate and manage merged and acquired companies;
•risks associated with new lines of business, services, products or product enhancements;
•the geographic concentration of our markets in Kansas, Missouri, Oklahoma and Texas;
•uncertainty related to the LIBOR calculation process and potential phasing out of LIBOR;
•fluctuation of the fair value of our investment securities due to factors outside our control;
•our ability to successfully manage our credit risk and the sufficiency of our allowance;
•risks of downturn or lack of growth in the energy industry;
•regulatory restrictions on our ability to grow due to our concentration in commercial real estate lending;
•negative changes in the economy affecting real estate values and liquidity;
•risks associated with our energy portfolio;
•risks associated with our commercial loan portfolio, including the risk of deterioration in the value of the general business assets that secure such loans;
•risks related to the significant amount of credit that we have extended to a limited number of borrowers;
•risks related to the significant amount of deposits that we have from a limited number of depositors;
•risks related to possible increases in our levels of nonperforming assets;
•risks related to potential losses from loan defaults and nonperformance on loans;
•the inability of small- and medium-sized businesses to whom we lend to weather adverse business conditions and repay loans;
•our ability to attract, hire and retain qualified management personnel;
•our ability to address succession planning issues;

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•our dependence on our management team, including our ability to retain executive officers and key employees and their client and community relationships;
•interest rate fluctuations, which could have an adverse effect on our profitability;
•our ability to maintain sufficient liquidity;
•our ability to sustain our historic rate of growth;
•our ability to raise or maintain sufficient capital;
•competition from banks, credit unions and other financial services providers;
•the effectiveness of our risk management framework in mitigating risks and losses;
•the ability to make accurate judgments, assumption and estimates in preparation of our financial statements;
•our ability to maintain effective internal control over financial reporting;
•our ability to keep pace with technological changes;
•system failures and interruptions, cyber-attacks and security breaches;
•employee error, fraudulent activity by employees or clients and inaccurate or incomplete information about our clients and counterparties;
•our ability to maintain our reputation;
•infringement upon our intellectual property or our infringement upon the intellectual property of third parties;
•costs and effects of litigation, investigations or similar matters to which we may be subject, including any effect on our reputation;
•risk exposure from transactions with financial counterparties;
•severe weather, acts of god, acts of war or terrorism;
•compliance with governmental and regulatory requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities and tax matters;
•changes in the laws, rules, regulations, interpretations or policies relating to financial institutions, accounting, tax, trade, monetary and fiscal matters, including the policies of the Federal Reserve and as a result of initiatives of the Trump administration;
•the effective use of proceeds from this offering;
•compliance with requirements associated with being a public company;
•level of coverage of our business by securities analysts;
•future equity issuances, including the issuance of preferred shares; and
•other factors that are discussed in the section entitled “Risk Factors,” beginning on page 20.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this prospectus. Because of these risks and other uncertainties, our actual future results, performance or achievements, or industry results, may be materially different from the results indicated by the forward-looking statements in this prospectus. In addition, our past results of operations are not necessarily indicative of our future results. Accordingly, you should not rely on any forward-looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which such forward-looking statements were made. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

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USE OF PROCEEDS

Assuming an initial public offering price of $      per share, the midpoint of the price range set forth on the cover page of this prospectus, we estimate that the net proceeds to us from the sale of our common stock in this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $       million, or approximately $            million if the underwriters exercise their option in full to purchase additional shares from us.

Each $1.00 increase or decrease in the assumed initial public offering price would increase or decrease the net proceeds to us from this offering by approximately $      million (or approximately $      million if the underwriters exercise their purchase option in full) assuming the number of shares we sell, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

We intend to use the net proceeds of this offering for general corporate purposes, including maintenance of required regulatory capital and to support our future growth. We do not have any current plan to establish any new bank branches or to make any acquisitions, except that we are currently considering the opening of a second smaller full-service branch in the Dallas MSA. The estimated cost for a second branch has not been determined since this project is still in the early development stage. If we proceed with opening a second branch, the cost of establishing the branch will depend upon many factors such as whether the facility is owned or leased, the location of the branch, the size of the facility and the type of improvements and furnishings used in the facility. Opening the second branch would also be subject to obtaining required regulatory approvals. This process is in the preliminary stages and there can be no assurance as to whether or when a second branch will be opened. The precise amounts and timing of our use of the proceeds will depend upon market conditions and other factors. The principal reasons for conducting this offering are to increase our available cash resources, provide liquidity for our selling stockholders and create a public market for our common stock. We will not receive any proceeds from the sale of shares of common stock by the selling stockholders.

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CAPITALIZATION

The following table shows the Company’s capitalization, including regulatory capital ratios, on a consolidated basis, as of March 31, 2019:

•on an actual basis; and
•on an as adjusted basis after giving effect to:
○the net proceeds from the sale of       shares by us (assuming the underwriters do not exercise their overallotment option) at an assumed public offering price of $      per share (the midpoint of the price range set forth on the front cover page); and
○the deduction of underwriting discounts and estimated offering expenses.

The “as adjusted” information below is illustrative only, and our capitalization following the closing of this offering will be adjusted based on the actual public offering price and other terms of this offering determined at pricing. You should read the following table in conjunction with the sections titled “Selected Historical Consolidated Financial and Operating Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and related notes appearing elsewhere in this prospectus.

 
As of March 31, 2019
 
Actual
As
adjusted(1)
 
(Dollars in thousands, except per share data)
Borrowings and repurchase agreements
$
368,597
 
$
   
 
 
 
 
 
 
 
 
Stockholders’ Equity:
 
 
 
 
 
 
Common stock, par value $0.01 per share, 100,000,000 shares authorized; 45,202,370 shares issued and outstanding (actual);          shares issued and outstanding (as adjusted)
 
452
 
Preferred stock, par value $0.01 per share, 5,000,000 shares authorized; no shares issued and outstanding (actual); no shares issued and outstanding (as adjusted)
 
0
 
 
 
 
Additional paid-in-capital
 
428,412
 
 
 
 
Accumulated other comprehensive income
 
6,357
 
 
 
 
Retained earnings
 
45,459
 
 
 
 
Other
 
(166
)
 
 
 
Total stockholders’ equity
$
480,514
 
$
 
 
 
 
 
 
 
 
 
Capital Ratios:
 
 
 
 
 
 
Total stockholders’ equity to total assets
 
11.26
%
 
 
%
Common equity tier 1 capital ratio
 
11.23
 
 
 
 
Tier 1 leverage ratio
 
11.15
 
 
 
 
Tier 1 risk-based capital ratio
 
11.23
 
 
 
 
Total risk-based capital ratio
 
12.20
 
 
 
 
 
 
 
 
 
 
 
Per Share Data:
 
 
 
 
 
 
Book value per share
$
10.63
 
$
 
 
Tangible book value per share(1)(2)
$
10.46
 
$
 
 
(1)A $1.00 increase (decrease) in the assumed public offering price of $          per share would increase (decrease) the as adjusted amount of each of common stock, total stockholders’ equity and total capitalization by approximately $   million, assuming no change to the number of shares offered by us as set forth on the cover of this prospectus, and after deducting underwriting discounts and estimated offering expenses.
(2)Represents a non-GAAP financial measure. See “GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures.”

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DILUTION

If you purchase shares of our common stock in this offering, your ownership interest will be diluted to the extent the public offering price per share exceeds our tangible book value per share immediately following this offering. Tangible book value per share is equal to our total stockholders’ equity less goodwill and other intangibles and preferred stock, divided by the number of shares of our common stock outstanding at the end of the relevant period. Tangible book value per share is a non-GAAP financial measure. The most directly comparable GAAP financial measure is book value per share. See our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption “GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures.”

Our tangible book value at March 31, 2019 was $472.7 million, or $10.46 per share, based on the number of shares outstanding as of such date. After giving effect to our sale of          shares in this offering at an assumed public offering price of $      per share, which is the midpoint of the price range on the cover of this prospectus, and after deducting underwriting discounts and estimated offering expenses, our as adjusted tangible book value at March 31, 2019, would have been approximately $       million, or $         per share. Therefore, under those assumptions this offering would result in an immediate increase of $         in the tangible book value per share to our existing stockholders, and immediate dilution of $         in the tangible book value per share to investors purchasing shares in this offering. The following table illustrates this per share dilution.

Assumed public offering price per share
 
      
 
Tangible book value per share at March 31, 2019
$
10.46
 
Increase in tangible book value per share attributable to this offering
 
 
 
As adjusted tangible book value per share after this offering
 
 
 
Dilution in tangible book value per share to new investors
 
 
 

A $1.00 increase (decrease) in the assumed public offering price of $         per share, which is the midpoint of the price range on the cover of this prospectus, would increase (decrease) our tangible book value by $      million, or $         per share, and the dilution to new investors by $      per share, assuming no change to the number of shares offered by us as set forth on the cover of this prospectus, and after deducting underwriting discounts and estimated offering expenses.

If the underwriters exercise their option to purchase additional shares from us in full, the as adjusted net tangible book value after giving effect to this offering would be $    per share. This represents an increase in net tangible book value of $    per share to existing stockholders and dilution of $    per share to new investors, in each case assuming an initial public offering price of $    per share, which is the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus.

The following table summarizes, as of June 30, 2019, the total consideration paid to us and the average price paid per share by existing stockholders and investors purchasing common stock in this offering. This information is presented on a pro forma basis as of June 30, 2019 after giving effect to the sale of the          shares of common stock in this offering (assuming the underwriters do not exercise their overallotment option) at an initial public offering price of $       per share, which is the midpoint of the price range on the cover of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:

 
Shares Purchased
Total Consideration
Average Price
Per Share
 
Number
Percentage
Amount
Percentage
 
(Dollars in thousands, except per share amounts)
Existing stockholders
 
         
 
 
      
%
$
      
 
 
      
%
$
      
 
New investors
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
%
$
 
 
 
 
%
$
 
 

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Assuming no shares are sold to existing stockholders in this offering and using the number of shares of common stock outstanding as of June 30, 2019, sales of shares of our common stock by the selling stockholders in this offering would reduce the number of shares of common stock held by existing stockholders to          , or approximately          % of the total shares of our common stock outstanding after this offering, and will result in new investors holding          shares, or approximately % of the total shares of our common stock after this offering.

In addition, if the underwriters’ option to purchase additional shares is exercised in full, the number of shares of common stock held by existing stockholders would be further reduced to approximately       % of the total number of shares of common stock to be outstanding upon the completion of this offering, and the number of shares of common stock held by investors participating in this offering will be further increased to          shares, or approximately       % of the total number of shares of common stock to be outstanding upon the completion of this offering.

The number of shares of our common stock to be outstanding after this offering described under the heading “Dilution” is based on 45,367,641 shares of common stock outstanding as of June 30, 2019, and excludes (i) 2,466,363 shares of common stock issuable upon the exercise or settlement of equity awards and warrants outstanding at June 30, 2019 and (ii) 2,319,364 shares of common stock reserved and available for future awards under our CrossFirst Bankshares, Inc. 2018 Omnibus Equity Incentive Plan at June 30, 2019. We may choose to raise additional capital through the sale of equity or convertible debt securities due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent we issue additional shares of common stock or other equity or convertible debt securities in the future, there will be further dilution to investors participating in this offering.

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MARKET PRICE OF COMMON STOCK

Our common stock is not currently traded on an established public trading market and there has been no regular market for our common stock. On June 30, 2019, we had 1,493 record holders of our common stock.

We have applied to list our common stock on the Nasdaq Global Select Market under the symbol “CFB.” We anticipate that this offering and the listing of our common stock on the Nasdaq Global Select Market will result in a more active trading market for our common stock. However, we cannot assure you that a liquid trading market for our common stock will develop or be sustained after this offering. You may not be able to sell your shares quickly or at the market price if trading in our common stock is not active. See “Underwriting” for more information regarding our arrangements with the underwriters and the factors considered in setting the initial public offering price.

Dividend Policy

Other than the stock dividend provided to our stockholders pursuant to our recent two-for-one stock split, we have no history of paying dividends to holders of our common stock and we do not currently anticipate paying any cash dividends on our common stock in the foreseeable future. Instead, we anticipate that our earnings in the foreseeable future will be retained to support our operations and finance the growth and development of our business. Any future determination to pay dividends on our common stock will be made by our Board of Directors and will depend upon our results of operations, financial condition, capital requirements, general economic conditions, regulatory and contractual restrictions, our business strategy, our ability to service any equity or debt obligations senior to our common stock and other factors that our Board of Directors deems relevant. We are not obligated to pay dividends on our common stock and are subject to restrictions on paying dividends on our common stock.

Dividend Restrictions

As a bank holding company, our ability to pay dividends is affected by the policies and enforcement powers of the Federal Reserve. See “Supervision and Regulation—The Company—Dividend Payments, Stock Redemptions and Repurchases.” In addition, because we are a holding company, we are dependent upon the payment of dividends by the Bank to us as our principal source of funds to pay dividends in the future, if any, and to make other payments. The Bank is also subject to various legal, regulatory and other restrictions on its ability to pay dividends and make other distributions and payments to us. See “Supervision and Regulation—The Bank—Dividend Payments.” The present and future dividend policy of the Bank is subject to the discretion of the board of directors of the Bank. The Bank is not obligated to pay us dividends.

As a Kansas corporation, we are subject to certain restrictions on dividends under the KGCC. Under the KGCC, a Kansas corporation may pay dividends to its stockholders out of its surplus or, if there is no surplus, out of its net profits for the fiscal year in which the dividend is declared or the preceding fiscal year, or both. In addition, if the capital of a Kansas corporation is diminished by depreciation in the value of its property, or by losses, or otherwise, to an amount less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets, the directors of such corporation cannot declare and pay out of such net profits any dividends upon any shares of any classes of its capital stock until the deficiency in the amount of capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets is repaired.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section titled “Selected Historical Consolidated Financial and Operating Information” and our consolidated financial statements and related notes included elsewhere in this prospectus. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Certain risks, uncertainties and other factors, including but not limited to those set forth under “Cautionary Note Regarding Forward-Looking Statements,” “Risk Factors” and elsewhere in this prospectus, may cause actual results to differ materially from those projected in the forward-looking statements. We assume no obligation to update any of these forward-looking statements, except as required by law. Unless otherwise stated, all information in this prospectus gives effect to a two-for-one stock split effected in the form of a stock dividend, whereby each holder of our common stock received one additional share of common stock for each share owned as of the record date of December 19, 2018, which was distributed on December 21, 2018. The effect of the stock dividend on outstanding shares and per share figures has been retroactively applied to all periods presented in this prospectus.

Overview

We are a bank holding company headquartered in Leawood, Kansas. Through our wholly-owned subsidiary, CrossFirst Bank, we operate seven branches that provide a full range of banking and financial services to businesses, business owners, professionals and their professional networks in our five primary markets of operation in Kansas, Missouri, Oklahoma and Texas. We are focused on serving our clients in extraordinary ways by meeting their personal banking needs and offering products tailored to their businesses. As of March 31, 2019, we had total assets of $4.3 billion, total loans of $3.3 billion, total deposits of $3.4 billion and total stockholders’ equity of $480.5 million.

As a bank holding company, we generate most of our revenues from interest income and fees on loans and interest earned from our marketable securities portfolio. Additional revenue is derived from non-interest income, which includes service charges and fees, bank-owned life insurance earnings, and interest rate swap fees, among other items. We incur interest expense on deposits and other borrowed funds, as well as non-interest expenses, such as salaries and benefits, occupancy, deposit insurance premiums, technology and other costs required to support our operations. Our goal is to maximize income generated from interest-earning assets, while also minimizing interest expense associated with our funding base to widen net interest spread and drive net interest margin expansion.

Changes in market interest rates and the interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and non-interest-bearing liabilities and stockholders’ equity, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions and conditions in domestic and foreign financial markets. Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other factors, economic and competitive conditions in our target markets, as well as developments affecting the real estate, financial services, insurance and energy sectors within our target markets.

We were originally organized as a limited liability company under the laws of the State of Kansas in August 2008 and formerly known as CrossFirst Holdings, LLC. Effective December 31, 2017, we converted from a limited liability company to a corporation organized under the laws of the State of Kansas. In accordance with applicable law, we are treated as the same entity that existed prior to the conversion.

Recent Developments

Stock Split

On December 21, 2018, we effected a two-for-one split of our common stock in the form of a stock dividend, whereby each holder of our common stock received one additional share of common stock for each share owned as of the record date of December 19, 2018. The effect of the stock dividend on outstanding shares and per share figures has been retroactively applied to all periods presented in this prospectus.

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Preferred Stock Redemption

On December 18, 2018, we provided notice to all holders of our Series A Preferred Shares of our intent to redeem all 1,200,000 outstanding Series A Preferred Shares on January 30, 2019. On the Redemption Date, we redeemed each outstanding Series A Preferred Share at a redemption price of $25.00 per share and paid a pro rata share of a 30-day dividend for January 2019 in the aggregate amount of $175.0 thousand. From and after the Redemption Date, all of the Series A Preferred Shares ceased to be outstanding, all dividends with respect to the Series A Preferred Shares ceased to accrue and all rights with respect to the Series A Preferred Shares ceased and were terminated.

Results of Operations

Our results of operations depend substantially on net interest income and non-interest income. Other factors contributing to our results of operations include our level of our non-interest expenses, such as salaries and employee benefits, occupancy and equipment and other miscellaneous operating expenses.

Net Interest Income

Net interest income is the difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings that are used to fund those assets. Management works to maximize net interest income by monitoring (i) the yields on interest-earning assets, (ii) the cost of funds on deposits and funding sources and (iii) the volume and types of assets and liabilities while managing interest rate risk and liquidity. Net interest margin is defined as net interest income divided by average interest-earning assets. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities.

Changes in market interest rates and the interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and non-interest-bearing liabilities and stockholders’ equity, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income.

Non-interest Income

Our non-interest income includes the following: (i) service charges and fees on client accounts; (ii) bank-owned life insurance earnings; (iii) gain on the sales of loans; (iv) gain on the sales of investment securities; (v) impairment of premises and equipment held for sale; (vi) interest rate swap fee income; and (vii) other non-interest income (including credit card, ATM and letter of credit fees).

Non-interest Expense

Our non-interest expense includes the following: (i) salaries and employee benefits; (ii) occupancy expenses; (iii) professional fees; (iv) deposit insurance premiums; (v) data processing; (vi) advertising; (vii) depreciation and amortization; and (viii) other non-interest expense.

Financial Condition

The primary factors we use to evaluate and manage our financial condition include capital, asset quality, earnings and liquidity.

Capital

We manage capital based upon factors that include the level and quality of capital and our overall financial condition, the trend and volume of problem assets, the adequacy of discounts and reserves, the level and quality of earnings, the risk exposures in our balance sheet, the levels of Tier 1 (core), risk-based and tangible equity capital, the ratios of Tier 1 (core), risk-based and tangible equity capital to total assets and risk-weighted assets and other factors.

Asset Quality

We manage the diversification and quality of our assets based upon factors that include the level, distribution, severity and trend of problem, classified, delinquent, nonaccrual, nonperforming and restructured assets, the adequacy of our allowance, discounts and reserves for unfunded loan commitments, the diversification and quality of loan and investment portfolios and credit risk concentrations.

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Earnings

We manage earnings to sufficiently support operations, fund organizational expenses, augment capital, fund growth and investments, adequately fund the allowance for loan and lease losses, support debt payments and provide returns to stockholders. Earnings are a core component of performance and the overall safety and soundness of the Company. We manage our earnings through maintaining our net interest margins, interest rate risk and market fluctuation, managing overall expenses and managing enterprise risk.

Liquidity

We manage liquidity based upon factors that include the amount of core deposits as a percentage of total deposits, the level of diversification of our funding sources, the allocation and amount of our deposits among deposit types, the short-term funding sources used to fund assets, the amount of non-deposit funding used to fund assets, the availability of unused funding sources, off-balance sheet obligations, the availability of assets to be readily converted into cash without undue loss, the amount of cash and liquid securities we hold and the repricing characteristics and maturities of our assets when compared to the repricing characteristics of our liabilities and other factors.

Highlights as of and for Three Months Ended March 31, 2019 vs. Three Months Ended March 31, 2018

The financial results as of and for the three months ended March 31, 2019 reflect our commitment to improve our earnings, while continuing to grow our loan portfolio.

Balance Sheet Changes

•Total assets grew $159.2 million or 3.9% during the quarter ended March 31, 2019 and increased $1.1 billion or 33.0% year-over-year, primarily from loan growth.
•Gross loans, net of unearned income, increased $216.9 million or 7.1% between December 31, 2018 and March 31, 2019 and increased $1.1 billion or 53.3% from March 31, 2018.
•Stockholders’ equity decreased $9.8 million or 2.0% during the quarter ended March 31, 2019 primarily due to the redemption of $30.0 million in preferred stock on January 30, 2019. Year-over-year stockholders’ equity increased $197.6 million or 69.8%, primarily due to our issuance and sale of capital stock.

Operating and Financial Performance

•Earnings per share (diluted) was $0.20 for the three months ended March 31, 2019 compared to $0.07 for the three months ended March 31, 2018.
•Our return on average assets was 0.91% for the three months ended March 31, 2019 compared to 0.35% for the three months ended March 31, 2018.
•Our return on average stockholders’ equity was 7.98% for the three months ended March 31, 2019 compared to 3.38% for the three months ended March 31, 2018.
•Net income was $9.4 million for the three months ended March 31, 2019 compared to $2.6 million for the three months ended March 31, 2018. The increase in net income included a $10.5 million or 45.2% year-over-year increase in net interest income and a $150.0 thousand or 5.0% decrease in the provision for loan losses, partially offset by a $327.8 thousand or 16.6% decline in non-interest income, a $2.5 million or 12.3% increase in non-interest expense and a $1.1 million increase in tax expense.
•Net interest income was $33.6 million for the three months ended March 31, 2019 compared to $23.1 million for the three months ended March 31, 2018. The improvement in net interest income is primarily attributable to our interest-earning asset growth.
•Non-interest income was $1.6 million for the three months ended March 31, 2019 compared to $2.0 million for the three months ended March 31, 2018. The decrease in non-interest income is primarily attributable to a $278.1 thousand decrease on gain on available-for-sale securities and a $230.0 thousand decline in deposit service charges, partially offset by a $284.4 thousand increase in other non-interest income, which primarily related to the Company’s interest rate swap program.

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•Non-interest expense was $22.6 million for the three months ended March 31, 2019 compared to $20.2 million for the same period in the prior year. Non-interest expense increased primarily from a $1.6 million increase in salary and employment-related expenses as a result of our growth strategy.
•Our efficiency ratio was 64.2% for the three months ended March 31, 2019 compared to 80.28% for the three months ended March 31, 2018.

Credit Quality

•Nonperforming assets to total assets was 0.36% as of March 31, 2019. The ratio is primarily attributable to our energy loan portfolio. Management believes the allowance for loan loss is adequate to support the nonperforming assets.
•Annualized net charge-offs to average loans were 0.09% for the three months ended March 31, 2019. The $1.3 million in charge-offs primarily related to one commercial and industrial loan relationship and the $589.4 thousand in recoveries primarily related to one energy loan relationship.

Highlights For Fiscal Year 2018

The financial results for the fiscal year ended December 31, 2018 reflect our strategy to invest in people, places and technology in order to grow our balance sheet while attempting to maintain stable returns for investors. Our performance resulted in the following highlights:

Balance Sheet Growth

•Total assets grew by $1.1 billion or 38.7% to $4.1 billion as of December 31, 2018 from $3.0 billion as of December 31, 2017. Asset growth was primarily attributable to the increase in the size of our loan portfolio.
•Gross loans, net of unearned income, were $3.1 billion at December 31, 2018, an increase of $1.1 billion or 53.3% from $2.0 billion at December 31, 2017. Our loan portfolio has primarily grown organically in each of our markets.
•Stockholders’ equity increased $203.2 million or 70.8% to $490.3 million at December 31, 2018 from $287.1 million at December 31, 2017. This increase is primarily attributable to our issuance and sale of capital stock and our earnings during fiscal year 2018, partially offset by a decrease of $10.0 million in accumulated other comprehensive income due to changes in the market prices of available-for-sale securities.

Operating and Financial Performance

•Earnings per share (diluted) was $0.47 for the year ended December 31, 2018 compared to $0.12 for the year ended December 31, 2017.
•We had a return on average assets of 0.56% for the year ended December 31, 2018 compared to a return on average assets of 0.24% for the year ended December 31, 2017. We had a return on average stockholders’ equity of 5.34% for the year ended December 31, 2018 compared to a return on average stockholders’ equity of 1.53% for the year ended December 31, 2017.
•Net income was $19.6 million for the year ended December 31, 2018 compared to $5.8 million for the year ended December 31, 2017. The increase in net income included a $35.6 million or 47.5% year-over-year increase in net interest income and a $2.4 million or 65.3% year-over-year increase in non-interest income, partially offset by a $23.7 million or 38.1% year-over-year increase in non-interest expense and a $952.9 thousand year-over-year decrease in taxes.
•Net interest income was $110.4 million for the year ended December 31, 2018 compared to $74.8 million for the year ended December 31, 2017. The improvement in net interest income is primarily attributable to our loan growth.
•Non-interest income was $6.1 million for the year ended December 31, 2018 compared to $3.7 million for the year ended December 31, 2017. The change in non-interest income is primarily attributable to a $1.9 million impairment taken in the second half of 2017 associated with property held-for-sale, as well as a $517.0 thousand increase in bank-owned life insurance earnings and $369.9 thousand earned from our back-to-back swap program that was initiated in 2018. Non-interest expense was $85.8 million for the year ended December 31, 2018 compared to $62.1 million for the year ended December 31, 2017. Non-interest

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expense increased as a result of our asset growth and our continued investment in people, places and technology to support the growth of the Company.

•Our efficiency ratio was 73.64% for the year ended December 31, 2018 compared to 79.10% for the year ended December 31, 2017.

Credit Quality

•Nonperforming assets to total assets was 0.43% as of December 31, 2018 compared to 0.18% for the year ended December 31, 2017. The ratios are primarily attributable to our energy loan portfolio. Management believes the allowance for loan losses is adequate to support the nonperforming loans.
•Net charge-offs to average loans were 0.07% for the year ended December 31, 2018, compared to 0.44% for the year ended December 31, 2017. In 2017, the Bank experienced one significant commercial and industrial loan charge-off of approximately $5.2 million, representing 0.34% of average loans.

Discussion and Analysis of Results of Operations

Three Months Ended March 31, 2019 vs. Three Months Ended March 31, 2018

Net Interest Income and Net Interest Margin

The following table presents, for the periods indicated, average balance sheet information, interest income, interest expense and the corresponding average yield earned and rates paid.

 
For the Three Months Ended March 31,
 
2019
2018
 
Average
Balance
Interest
 Income/
 Expense
Average
Yield/
 Rate
Average
Balance
Interest
 Income/
 Expense
Average
 Yield/
Rate
 
(Dollars in thousands)
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities - taxable
$
322,630
 
$
2,573
 
 
3.23
%
$
206,791
 
$
1,567
 
 
3.07
%
Securities - tax-exempt(1)
 
368,291
 
 
3,551
 
 
3.91
 
 
499,225
 
 
4,799
 
 
3.90
 
Federal funds sold
 
24,756
 
 
159
 
 
2.61
 
 
3,227
 
 
12
 
 
1.59
 
Interest-bearing deposits in other banks
 
121,945
 
 
647
 
 
2.15
 
 
175,977
 
 
642
 
 
1.48
 
Gross loans, net of unearned income(2)(3)
 
3,176,346
 
 
45,003
 
 
5.75
 
 
2,065,497
 
 
25,944
 
 
5.09
 
Total interest-earning assets(1)
 
4,013,968
 
 
51,933
 
 
5.25
 
 
2,950,717
 
 
32,964
 
 
4.53
 
Allowance for loan losses
 
(39,340
)
 
 
 
 
 
 
 
(27,625
)
 
 
 
 
 
 
Other non-interest-earning assets
 
193,615
 
 
 
 
 
 
 
 
148,362
 
 
 
 
 
 
 
Total assets
$
4,168,243
 
 
 
 
 
 
 
$
3,071,454
 
 
 
 
 
 
 
Interest-bearing liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Transaction deposits
$
104,008
 
$
276
 
 
1.08
%
$
50,000
 
$
34
 
 
0.27
%
Savings and money market deposits
 
1,543,925
 
 
8,818
 
 
2.32
 
 
1,273,739
 
 
4,104
 
 
1.31
 
Time deposits
 
1,164,613
 
 
6,827
 
 
2.38
 
 
794,316
 
 
3,292
 
 
1.68
 
Total interest-bearing deposits
 
2,812,546
 
 
15,921
 
 
2.30
 
 
2,118,055
 
 
7,430
 
 
1.42
 
FHLB and short-term borrowings
 
383,114
 
 
1,753
 
 
1.86
 
 
360,214
 
 
1,534
 
 
1.73
 
Trust preferred securities, net of fair value adjustments
 
885
 
 
38
 
 
17.41
 
 
851
 
 
30
 
 
14.39
 
Demand deposits
 
477,236
 
 
 
 
 
 
 
 
302,974
 
 
 
 
 
 
 
Cost of funds
 
3,673,781
 
 
17,712
 
 
1.96
 
 
2,782,094
 
 
8,994
 
 
1.31
 
Other liabilities
 
18,289
 
 
 
 
 
 
 
 
7,656
 
 
 
 
 
 
 
Stockholders’ equity
 
476,173
 
 
 
 
 
 
 
 
281,704
 
 
 
 
 
 
 
Total liabilities and stockholders’ equity
$
4,168,243
 
 
 
 
 
 
 
$
3,071,454
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income(1)
 
 
 
$
34,221
 
 
 
 
 
 
 
$
23,970
 
 
 
 
Net interest spread(1)
 
 
 
 
 
 
 
3.29
%
 
 
 
 
 
 
 
3.22
%
Net interest margin(1)
 
 
 
 
 
 
 
3.46
%
 
 
 
 
 
 
 
3.29
%
(1)Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal taxes. The incremental rate used is 21.0%.

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(2)Loans, net of unearned income includes nonaccrual loans of $13.0 million and $17.9 million as of March 31, 2019 and 2018, respectively.
(3)Loan interest income includes loans fees of $2.1 million and $1.4 million for the three months ended March 31, 2019 and 2018, respectively.

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 period 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).

 
Changes in Interest Income and Interest Expense
For the Three Months Ended
March 31, 2019 over 2018
 
Average
Volume
Yield/Rate
Net Change(2)
 
(Dollars in thousands)
Interest Income
 
 
 
 
 
 
 
 
 
Securities - taxable
$
730
 
$
276
 
$
1,006
 
Securities - tax-exempt(1)
 
(1,297
)
 
49
 
 
(1,248
)
Federal funds sold
 
106
 
 
41
 
 
147
 
Interest-bearing deposits in other banks
 
(337
)
 
342
 
 
5
 
Gross loans, net of unearned income
 
9,637
 
 
9,422
 
 
19,059
 
Total interest income(1)
 
8,839
 
 
10,130
 
 
18,969
 
Interest Expense
 
 
 
 
 
 
 
 
 
Transaction deposits
 
20
 
 
222
 
 
242
 
Savings and money market deposits
 
299
 
 
4,415
 
 
4,714
 
Time deposits
 
764
 
 
2,771
 
 
3,535
 
Total interest-bearing deposits
 
1,083
 
 
7,408
 
 
8,491
 
FHLB and short-term borrowings
 
38
 
 
181
 
 
219
 
Trust preferred securities, net of fair value adjustments
 
—
 
 
8
 
 
8
 
Total interest expense
 
1,121
 
 
7,597
 
 
8,718
 
Net interest income(1)
$
7,718
 
$
2,533
 
$
10,251
 
(1)Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal taxes. The incremental rate used is 21.0%.
(2)The change in interest not due solely to volume or rate has been allocated in proportion to the respective absolute dollar amounts of the change in volume or rate.

Tax equivalent net interest income was $34.2 million for the three months ended March 31, 2019, an increase of $10.3 million or 42.8% from the three months ended March 31, 2018. The increase was driven by a 17 basis point improvement in the tax equivalent net interest margin, as well as a $1.1 billion increase in average earning assets.

Tax equivalent interest income increased $19.0 million or 57.5% for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. The increase was primarily attributable to $1.1 billion in average loan growth between March 31, 2018 and March 31, 2019 that resulted in $9.6 million in additional interest income. Interest income also improved because of increases in interest rates. The yield on loans increased 66 basis points, driven by three rate increases made by the Federal Open Market Committee between March 31, 2018 and March 31, 2019 and our mixture of variable and fixed rate loans. The yield on taxable securities increased by 16 basis points driven by the purchase of higher yielding securities, while the yield on tax-exempt securities remained flat, increasing one basis point as the Company moved funds to higher yielding assets.

For the three-month period ended March 31, 2019, interest expense increased $8.7 million or 96.9% from the same period in 2018. $1.1 million of the interest expense increase was the result of a $694.5 million increase in average interest bearing deposits in order to support our loan growth. Average FHLB and short-term borrowings, which includes FHLB borrowings, repurchase agreements, fed funds purchased, and a line of credit,

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increased $22.9 million, which resulted in an additional $37.8 thousand of interest expense. Interest expense increased $7.6 million as a result of the rising interest rate environment and competition within our markets. Our average savings and money market deposit rate increased 101 basis points to 2.32% at March 31, 2019 and our average time deposit rate increased 70 basis points to 2.38% at March 31, 2019.

Provision for Loan Losses

The provision for loan losses is a charge to earnings to maintain the allowance for loan and lease losses at a level that reflects management’s assessment of the collectability of the loan portfolio. Loan losses are charged against the allowance when management believes the loan balance is not collectible. Subsequent recoveries, if any, are credited to the allowance.

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

The provision for loan losses for the three months ended March 31, 2019 was $2.9 million, a decrease of $150.0 thousand or 5.0% from the same period in 2018. The allowance for loan losses as of March 31, 2019 was $40.0 million compared to $27.8 million as of March 31, 2018. The increase of $12.2 million or 43.9% was primarily due to growth in our loan portfolio. The allowance for loan losses as a percentage of loans was 1.22% at March 31, 2019 compared to 1.30% at March 31, 2018.

Non-interest Income

Non-interest income for the three months ended March 31, 2019 was $1.6 million compared to $2.0 million for the same period in 2018, a decrease of $328.0 thousand or 16.6%. The following table sets forth the major components of our non-interest income for the three months ended March 31, 2019 and 2018:

 
For the Three Months Ended
March 31,
Increase
(Decrease)
Increase
(Decrease)
 
2019
2018
 
(Dollar in thousands)
Non-interest income:
 
 
 
 
 
 
 
 
 
 
 
 
Service charges and fees on customer accounts
$
158
 
$
388
 
$
(230
)
 
(59.3
)%
Income from bank-owned life insurance
 
467
 
 
492
 
 
(25
)
 
(5.1
)
Gain on sale of loans
 
79
 
 
158
 
 
(79
)
 
(50.0
)
Gain on sale of available-for-sale securities
 
53
 
 
331
 
 
(278
)
 
(84.0
)
Swap fee income, net
 
377
 
 
47
 
 
330
 
 
702.1
 
Other non-interest income
 
511
 
 
557
 
 
(46
)
 
(8.3
)
Total non-interest income
$
1,645
 
$
1,973
 
$
(328
)
 
(16.6
)%

Service charges and fees on customer accounts decreased $230.0 thousand from the three months ended March 31, 2018 to March 31, 2019. The primary reason for the decline was the Company’s rebate program that attracts additional funding for the Bank.

Gains on sales of available-for-sale securities decreased $278.2 thousand from the prior year period. The sale of securities in 2018 was a strategic decision by management to capitalize on attractive market conditions, reduce the concentration in tax-free municipal securities, and redeploy the proceeds into higher yielding loans.

During 2018, the Company started executing interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a counter-party, such that the Company minimizes its net risk exposure resulting from such transactions. As a part of this strategy, the Company receives a swap fee that is immediately recorded to income; a portion of this fee is then paid back to the third-party broker. In addition, the Company records changes to the value of our swaps based on underlying interest rates and credit valuation adjustments. The Company executed several large swap agreements during the three months ended March 31, 2019. As a result of the interest rate swaps, swap fee income increased $330.2 thousand year-over-year.

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Other non-interest income decreased $45.9 thousand from the same period in the prior year due to a $116.6 thousand decline in international fees due to a reduction in the number and size of these transactions, partially offset by a $43.6 thousand increase in credit card income as a result of the expansion of our credit card program.

Non-interest Expense

Non-interest expense for the three months ended March 31, 2019 was $22.6 million compared to $20.2 million for the same period in 2018, an increase of $2.5 million or 12.3%. The following table sets forth the major components of our non-interest expense for the three months ended March 31, 2019 and 2018:

 
For the Three Months Ended
March 31,
Increase
(Decrease)
Increase
(Decrease)
 
2019
2018
 
(Dollars in thousands)
Non-interest expense:
 
 
 
 
 
 
 
 
 
 
 
 
Salary and employee benefits
$
14,590
 
$
12,943
 
$
1,647
 
 
12.7
%
Occupancy
 
2,159
 
 
2,024
 
 
135
 
 
6.7
 
Professional fees
 
782
 
 
738
 
 
44
 
 
6.0
 
Deposit insurance premiums
 
837
 
 
743
 
 
94
 
 
12.7
 
Data processing
 
594
 
 
435
 
 
159
 
 
36.6
 
Advertising
 
713
 
 
756
 
 
(43
)
 
(5.7
)
Software and communication
 
679
 
 
720
 
 
(41
)
 
(5.7
)
Depreciation and amortization
 
473
 
 
386
 
 
87
 
 
22.5
 
Other non-interest expense
 
1,804
 
 
1,413
 
 
391
 
 
27.7
 
Total non-interest expense
$
22,631
 
$
20,158
 
$
2,473
 
 
12.3
%

Quarter-to-date salary and employee benefits increased $1.6 million or 12.7% from the same period in the prior year. The increase was driven by adding approximately 40 employees between March 31, 2018 and 2019 to support our growth strategy.

Quarter-to-date occupancy costs increased $134.9 thousand or 6.7% from the same period in the prior year. The increase is primarily attributable to our expansions into Dallas, Texas; Kansas City, Missouri; and our corporate headquarters in Leawood, Kansas.

Deposit insurance premiums increased $94.4 thousand or 12.7% from the prior year period. The FDIC uses a risk-based premium system to calculate the quarterly fee. Between March 31, 2018 and 2019, our rate was impacted by our strong asset growth and changes to our loan mix.

Data processing costs increased $158.5 thousand or 36.6% from the prior year period. Data processing includes our core system provided by a third-party, as well as other operational support systems, including newly added support computer systems. As our customer base, transaction volume and asset size has grown, the data processing costs have increased.

Depreciation and amortization, excluding expense within the occupancy category, increased $87.0 thousand or 22.5% year-over-year. This category includes our core deposit intangible amortization, as well as, depreciation of automobiles and equipment. The increase is primarily attributable to increases in equipment to support operations in our newest market, Dallas, Texas, and our corporate headquarters in Leawood, Kansas.

Other non-interest expense increased $390.5 thousand or 27.7% from the prior year period. The increase is primarily attributable to a $262.2 thousand increase related to changes in the frequency of board fees from quarterly in 2018 to annually in the first quarter of 2019. Operational loan costs increased $125.6 thousand due to increased loan volumes and types of loans originated or renewed.

Income Taxes

We recorded income tax expense from continuing operations of $418.9 thousand for the three months ended March 31, 2019 compared to a $672.3 thousand income tax benefit for the same period in 2018.

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Our tax benefit differs from the amount that would be calculated using the federal statutory tax rate, primarily from investments in tax advantaged assets, such as bank-owned life insurance and tax-exempt municipal securities. The $1.1 million increase between year-to-date March 31, 2018 and 2019 primarily relates to our $7.8 million increase in income before income taxes that was partially offset by a $1.4 million state tax credit recorded in the first quarter of 2019.

Year Ended December 31, 2018 vs. Year Ended December 31, 2017

Net Interest Income and Net Interest Margin

The following table presents, for the periods indicated, average balance sheet information, interest income, interest expense and the corresponding daily average yield earned and rates paid.

 
For the Years Ended December 31,
 
2018
2017
 
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
 
(Dollars in thousands)
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities - taxable
$
281,709
 
$
8,952
 
 
3.18
%
$
202,323
 
$
5,602
 
 
2.77
%
Securities - tax-exempt(1)
 
459,231
 
 
17,856
 
 
3.89
 
 
488,828
 
 
20,978
 
 
4.29
 
Federal funds sold
 
16,377
 
 
339
 
 
2.07
 
 
263
 
 
3
 
 
1.03
 
Interest-bearing deposits in other banks
 
159,279
 
 
2,757
 
 
1.73
 
 
133,027
 
 
1,427
 
 
1.07
 
Gross loans, net of unearned income(2)(3)
 
2,435,424
 
 
130,075
 
 
5.34
 
 
1,538,926
 
 
75,245
 
 
4.89
 
Total interest-earning assets(1)
 
3,352,020
 
 
159,979
 
 
4.77
 
 
2,363,367
 
 
103,255
 
 
4.37
 
Allowance for loan losses
 
(30,921
)
 
 
 
 
 
 
 
(26,069
)
 
 
 
 
 
 
Other non-interest-earning assets
 
173,556
 
 
 
 
 
 
 
 
115,499
 
 
 
 
 
 
 
Total assets
$
3,494,655
 
 
 
 
 
 
 
$
2,452,797
 
 
 
 
 
 
 
Interest-bearing liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Transaction deposits
$
56,321
 
$
175
 
 
0.31
%
$
45,030
 
$
108
 
 
0.24
%
Savings and money market deposits
 
1,410,727
 
 
23,405
 
 
1.66
 
 
1,007,568
 
 
9,934
 
 
0.99
 
Time deposits
 
835,595
 
 
15,792
 
 
1.89
 
 
610,333
 
 
8,634
 
 
1.41
 
Total interest-bearing deposits
 
2,302,643
 
 
39,372
 
 
1.71
 
 
1,662,931
 
 
18,676
 
 
1.12
 
Other borrowings
 
395,825
 
 
7,004
 
 
1.77
 
 
282,552
 
 
4,215
 
 
1.49
 
Trust preferred securities, net of fair value adjustments
 
864
 
 
136
 
 
15.69
 
 
832
 
 
107
 
 
12.89
 
Demand deposits
 
425,243
 
 
—
 
 
—
 
 
224,480
 
 
—
 
 
—
 
Cost of funds
 
3,124,575
 
 
46,512
 
 
1.49
 
 
2,170,795
 
 
22,998
 
 
1.06
 
Other liabilities
 
12,634
 
 
 
 
 
 
 
 
6,808
 
 
 
 
 
 
 
Stockholders’ equity
 
357,446
 
 
 
 
 
 
 
 
275,194
 
 
 
 
 
 
 
Total liabilities and stockholders’ equity
$
3,494,655
 
 
 
 
 
 
 
$
2,452,797
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income(1)
 
 
 
$
113,467
 
 
 
 
 
 
 
$
80,257
 
 
 
 
Net interest spread(1)
 
 
 
 
 
 
 
3.28
%
 
 
 
 
 
 
 
3.31
%
Net interest margin(1)
 
 
 
 
 
 
 
3.39
%
 
 
 
 
 
 
 
3.40
%
(1)Tax-exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal taxes. The incremental rate used is 21% in 2018 and 35% in 2017.
(2)Gross loans, net of unearned income includes nonaccrual loans of $17.8 million and $5.4 million in 2018 and 2017, respectively.
(3)Loan interest income includes loans fees of $7.2 million and $4.4 million in 2018 and 2017, 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 period 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).

 
For the Year Ended
 
December 31, 2018 over 2017
 
Average
Volume
Yield/Rate
Net Change(2)
 
(Dollars in thousands)
Interest Income
 
 
 
 
 
 
 
 
 
Securities - taxable
$
2,432
 
$
918
 
$
3,350
 
Securities - tax-exempt(1)
 
(1,229
)
 
(1,893
)
 
(3,122
)
Federal funds sold
 
331
 
 
5
 
 
336
 
Interest-bearing deposits in other banks
 
323
 
 
1,007
 
 
1,330
 
Gross loans, net of unearned income
 
47,350
 
 
7,480
 
 
54,830
 
Total interest income(1)
 
49,207
 
 
7,517
 
 
56,724
 
Interest Expense
 
 
 
 
 
 
 
 
 
Transaction deposits
 
31
 
 
36
 
 
67
 
Savings and money market deposits
 
5,005
 
 
8,466
 
 
13,471
 
Time deposits
 
3,724
 
 
3,434
 
 
7,158
 
Total interest-bearing deposits
 
8,760
 
 
11,936
 
 
20,696
 
Other borrowings
 
1,899
 
 
890
 
 
2,789
 
Trust preferred securities, net of fair value adjustments
 
4
 
 
25
 
 
29
 
Total interest expense
 
10,663
 
 
12,851
 
 
23,514
 
Net interest income(1)
$
38,544
 
$
(5,334
)
$
33,210
 
(1)Tax-exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal taxes. The incremental rate used is 21% in 2018 and 35% in 2017.
(2)The change in interest not due solely to volume or rate has been allocated in proportion to the respective absolute dollar amounts of the change in volume or rate.

Tax equivalent net interest income was $113.5 million for the year ended December 31, 2018, an increase of $33.2 million or 41.4% from the year ended December 31, 2017. Our net interest margin declined one basis point during the same period as improved yields on loans were offset by increases in deposit costs and a reduction in the tax equivalent yield on tax-exempt securities due to the reduction in the federal income tax rate.

Tax equivalent interest income increased $56.7 million or 54.9% for the year ended December 31, 2018 compared to the year ended December 31, 2017. The increase was primarily attributable to $896.5 million in average loan growth between December 31, 2017 and December 31, 2018 that resulted in $47.4 million in additional interest income. Interest income also improved as a result of increases in interest rates. The yield on loans improved by 45 basis points, driven by four rate increases made by the Federal Open Market Committee between December 31, 2017 and December 31, 2018 and by a change in our mixture of loans and securities. The tax-equivalent yield on tax-exempt securities was impacted by the federal income tax rate change that lowered the tax rate from a maximum of 35% to 21% between 2017 and 2018. The impact of the tax rate change was a decline in tax equivalent interest income of $2.1 million in 2018.

Interest expense increased $23.5 million or 102.2% for the year ended December 31, 2018 compared to the year ended December 31, 2017. $8.8 million of the interest expense increase was the result of a $639.7 million increase in average interest-bearing deposits. In order to support our loan growth, we also increased our average other borrowings by $113.3 million, which resulted in an additional $1.9 million of interest expense. $12.9 million of interest expense was the result of rate increases due to the rising interest rate environment and competition within our markets. Our average savings and money market deposit rate increased 67 basis points to 1.7% and our average time deposit rate increased 48 basis points to 1.9%.

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Provision for Loan Losses

The provision for loan losses for the year ended December 31, 2018 was $13.5 million compared to $12.0 million for 2017, an increase of $1.5 million or 12.5%. The allowance as a percentage of loans was 1.23% at December 31, 2018 and 1.30% as of December 31, 2017.

Non-interest Income

The following table sets forth the major components of our non-interest income for the years ended December 31, 2018 and 2017:

 
For the Years Ended
December 31,
Increase
(Decrease)
Increase
(Decrease)
 
2018
2017
 
(Dollars in thousands)
Non-interest income:
 
 
 
 
 
 
 
 
 
 
 
 
Service charges and fees on client accounts
$
444
 
$
1,201
 
$
(757
)
 
(63.0
)%
Income from bank-owned life insurance
 
1,969
 
 
1,452
 
 
517
 
 
35.6
 
Gain on sale of loans
 
827
 
 
827
 
 
—
 
 
—
 
Gain on sale of available-for-sale securities
 
538
 
 
406
 
 
132
 
 
32.5
 
Impairment of premises and equipment held for sale
 
(171
)
 
(1,903
)
 
1,732
 
 
(91.0
)
Swap fee income
 
370
 
 
—
 
 
370
 
 
—
 
Other non-interest income
 
2,106
 
 
1,696
 
 
410
 
 
24.2
 
Total non-interest income
$
6,083
 
$
3,679
 
$
2,404
 
 
65.3
%

Service charges and fees on client accounts decreased $757.3 thousand for the year ended December 31, 2018 compared to the year ended December 31, 2017. The primary reason for the decline was the impact of a large account analysis credit reimbursement agreement introduced in 2018.

The $517.0 thousand increase in income from bank-owned life insurance was the result of an additional $25.0 million purchase of the underlying asset in the third quarter of 2017, representing a 69.0% increase to the underlying asset.

Gain on sale of loans remained flat between December 31, 2017 and December 31, 2018. We have a dedicated small business lending team that provides Small Business Administration-guaranteed (“SBA-guaranteed”) loans to eligible clients. Management strategically sells SBA-guaranteed portions of loans to investors when market conditions will provide a favorable return.

Gain on sale of available-for-sale securities increased $132.3 thousand for the year ended December 31, 2018 compared to the year ended December 31, 2017. The sale of securities in 2018 was a strategic decision by management to capitalize on attractive market conditions, reduce the concentration in tax-free municipal securities, and redeploy the proceeds into higher yielding loans.

During the year ended December 31, 2017, we relocated our services and support teams into a newly acquired headquarters building. As a result, we listed two support buildings for sale. An impairment charge of $1.9 million in 2017 was made after an evaluation of both buildings. During the year ended December 31, 2018, we sold one of the two held for sale buildings. The sale resulted in an additional $171.1 thousand in impairment costs. The impairment of premises and equipment held for sale improved by $1.7 million for the year ended December 31, 2018 compared to the year ended December 31, 2017 as a result of these events.

During 2018, we started executing interest rate swaps with commercial banking clients to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that we execute with a counter-party, such that we minimize our net risk exposure resulting from such transactions. As a part of this strategy, we receive a swap fee that is immediately recorded to income; a portion of this fee is then paid back to the third-party advisor. As a result of the interest rate swaps, non-interest income increased $369.9 thousand for the year ended December 31, 2018 compared to the year ended December 31, 2017.

Other non-interest income increased $410.4 thousand for the year ended December 31, 2018 compared to the year ended December 31, 2017. This category includes credit card fees, ATM fees and letter of credit fees

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among other revenue generating services. As a result of our continued expansion of our credit card program to current and new clients, we experienced a $434.4 thousand increase in other non-interest income, which was partially offset by decreases in other fees.

Non-interest Expense

The following table sets forth the major components of our non-interest expense for the years ended December 31, 2018 and 2017:

 
For the Years Ended
December 31,
Increase
Increase
 
2018
2017
 
(Dollars in thousands)
Non-interest expense:
 
 
 
 
 
 
 
 
 
 
 
 
Salary and employee benefits
$
56,118
 
$
39,461
 
$
16,657
 
 
42.2
%
Occupancy
 
8,214
 
 
5,803
 
 
2,411
 
 
41.5
 
Professional fees
 
3,320
 
 
3,060
 
 
260
 
 
8.5
 
Deposit insurance premiums
 
3,186
 
 
1,575
 
 
1,611
 
 
102.3
 
Data processing
 
1,995
 
 
1,441
 
 
554
 
 
38.4
 
Advertising
 
2,691
 
 
2,648
 
 
43
 
 
1.6
 
Software and communication
 
2,630
 
 
1,961
 
 
669
 
 
34.1
 
Depreciation and amortization
 
1,788
 
 
1,272
 
 
516
 
 
40.6
 
Other non-interest expense
 
5,813
 
 
4,868
 
 
945
 
 
19.4
 
Total non-interest expense
$
85,755
 
$
62,089
 
$
23,666
 
 
38.1
%

Salary and employee benefits increased $16.7 million or 42.2% to $56.1 million for the year ended December 31, 2018 from $39.5 million for the year ended December 31, 2017. $5.5 million of the increase related to the Chairman Emeritus Agreement with our former chief executive officer. The remaining increase is the result of adding approximately 50 full time equivalent employees during 2018 as part of our strategic growth strategy.

Occupancy increased $2.4 million or 41.5% to $8.2 million for the year ended December 31, 2018 from $5.8 million for the year ended December 31, 2017. In July 2017, we acquired a 130,000 square foot building in Leawood, Kansas for our corporate headquarters. An interim lease agreement was obtained to begin the buildout and relocation of current operational employees which added interim lease expense of $491.8 thousand during 2018. In addition, furniture, equipment, maintenance costs and improvements led to additional depreciation and occupancy expense for 2018 of $902.9 thousand. In May 2017, our Dallas operations moved into permanent space to support the expected expansion in Dallas and we received branch approval and leased space in Kansas City, Missouri to expand our footprint. The expense increase related to this expansion was $865.7 thousand and $146.4 thousand, respectively, for 2018.

Deposit insurance premiums expense increased $1.6 million or 102.3% to $3.2 million for the year ended December 31, 2018 from $1.6 million for the year ended December 31, 2017. The FDIC uses a risk-based premium system to calculate the quarterly fee. During 2018 our rate was impacted by our strong asset growth, changes to our loan mix, and a lower leverage ratio prior to our most recent capital raise.

Data processing costs increased $553.6 thousand or 38.4% to $2.0 million for the year ended December 31, 2018 from $1.4 million for the year ended December 31, 2017. Data processing includes our core system provided by a third-party, as well as other operational support systems, including newly added support computer systems. As our client base, transaction volume and asset size has grown, the data processing costs have increased.

Software and communication expense increased $668.9 thousand or 34.1% to $2.6 million for the year ended December 31, 2018 from $2.0 million for the year ended December 31, 2017. We invested significant resources over the past year to improve the client experience, as well as increase efficiency by using technology. Our technology resources now cover beginning-to-end loan originations, as well as detailed reporting statements to analyze our performance.

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Depreciation and amortization, excluding expense within the occupancy category, increased $516.0 thousand or 40.6% to $1.8 million for the year ended December 31, 2018 from $1.3 million for the year ended December 31, 2017. This category includes our core deposit intangible amortization, as well as depreciation of automobiles and equipment. The increase is primarily attributable to increases in equipment to support operations in our Dallas, Texas market, as well as at our recently acquired corporate headquarters.

Other non-interest expense increased $944.5 thousand or 19.4% to $5.8 million for the year ended December 31, 2018 from $4.9 million for the year ended December 31, 2017. The increase is primarily attributable to credit card service fees, loan preparation and service costs, and ATM costs, which is the result of our loan and deposit growth, as well as the number of transactions made by our clients.

Income Taxes

We recorded a tax benefit from continuing operations of $2.4 million for the year ended December 31, 2018 compared to $1.4 million in 2017.

Our tax benefit differs from the amount that would be calculated using the federal statutory tax rate, primarily from investments in tax advantaged assets, such as bank-owned life insurance and tax-exempt municipal securities. The $1.0 million increase in the year ended December 31, 2018 compared to the year ended December 31, 2017 is attributable to a $3.1 million state tax credit offset by a $12.8 million increase in our income before taxes and a $29.6 million reduction in average tax-exempt municipal securities.

Discussion and Analysis of Financial Condition

Overview

The following table summarizes select components of our balance sheet as of March 31, 2019 and December 31, 2018, 2017 and 2016:

 
As of
 
March 31,
December 31,
 
2019
2018
2017
2016
 
(Dollars in thousands)
Total assets
$
4,266,369
 
$
4,107,215
 
$
2,961,118
 
$
2,133,106
 
Available-for-sale securities - taxable
 
336,089
 
 
296,133
 
 
179,851
 
 
181,496
 
Available-for-sale securities - tax-exempt
 
371,341
 
 
367,545
 
 
523,730
 
 
411,516
 
Gross loans, net of unearned income
 
3,277,598
 
 
3,060,747
 
 
1,996,029
 
 
1,296,886
 
Total deposits
 
3,399,899
 
 
3,208,097
 
 
2,303,364
 
 
1,694,301
 
Federal Home Loan Bank (FHLB) borrowings(1)
 
312,926
 
 
312,985
 
 
319,215
 
 
185,433
 
Short-term borrowings
 
55,671
 
 
75,406
 
 
38,622
 
 
31,276
 
Total stockholders’ equity
 
480,514
 
 
490,336
 
 
287,147
 
 
214,837
 
(1)Includes FHLB advances and FHLB line of credit.

Total assets were $4.3 billion at March 31, 2019, an increase of $159.2 million or 3.9% from December 31, 2018. Asset growth was primarily attributable to a $216.9 million or 7.1% increase in our loan portfolio between December 31, 2018 and March 31, 2019. Our available-for-sale securities portfolio increased $43.8 million or 6.6% to $707.4 million at March 31, 2019 due to the purchase of mortgage-backed securities for liquidity purposes. Deposits totaled $3.4 billion at March 31, 2019, an increase of $191.8 million or 6.0% from December 31, 2018. Deposit growth was primarily attributable to a $272.1 million or 27.0% increase in time deposits partially offset by an $84.4 million or 4.9% decrease in transaction, savings and money market accounts. Stockholders' equity decreased $9.8 million or 2.0% between December 31, 2018 and March 31, 2019 primarily due to the redemption of the Series A Preferred Shares, partially offset by the Company’s net income during the period and an increase in accumulated other comprehensive income.

Total assets were $4.1 billion at December 31, 2018, an increase of $1.1 billion or 38.7% from December 31, 2017. Asset growth was primarily attributable to a $1.1 billion or 53.3% increase in our loan portfolio between December 31, 2017 and December 31, 2018. Our available-for-sale securities portfolio declined $39.9 million or 5.7% to $663.7 million at December 31, 2018 due to maturities, principal payments and

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strategic sales. Deposits totaled $3.2 billion at December 31, 2018, an increase of $904.7 million or 39.3% from December 31, 2017. Deposit growth was primarily attributable to a $453.3 million or 35.9% increase in transaction, savings and money market accounts and a $258.1 million or 34.3% increase in time deposits. FHLB advances and other borrowings are used to supplement deposit growth and increased $30.6 million or 8.5% between December 31, 2017 and December 31, 2018. Other borrowings primarily consist of overnight client repurchase agreements. Stockholders’ equity increased $203.2 million or 70.8% between December 31, 2017 and December 31, 2018 primarily due to our issuance and sale of capital stock during 2018.

Total assets were $3.0 billion at December 31, 2017 an increase of $828.0 million or 38.8% from fiscal year end 2016. Asset growth was primarily attributable to a $699.1 million or 53.9% increase in our loan portfolio, as well as a $110.6 million or 18.6% increase in our available-for-sale securities portfolio. The securities portfolio’s growth was primarily attributable to the purchase of additional tax-exempt securities, which are used to lower our effective tax rate. December 31, 2017 deposits totaled $2.3 billion, an increase of $609.1 million or 35.9% from December 31, 2016. Deposit growth was primarily attributable to money market accounts and time deposits, including a $104.4 million or 77.3% increase in brokered deposits. Stockholders’ equity increased $72.3 million or 33.7% from the prior year primarily due to our issuance and sale of capital stock during 2017.

Investment Portfolio

Our investment portfolio is governed by our investment policy that sets our objectives, limits, and liquidity requirements among other items. The investment strategy is generally updated annually in coordination with our investment advisor. The portfolio is maintained to serve as a contingent, on-balance sheet source of liquidity. The objective of our investment portfolio is to optimize earnings, manage credit risk, ensure adequate liquidity, manage interest rate risk, meet pledging requirements, and meet regulatory capital requirements. Our investment portfolio is generally comprised of government sponsored entity securities and U.S. state and political subdivision securities; limits are set on all types of securities.

At the date of purchase, all debt and equity securities are classified as available-for-sale securities. Since interest rates move in cycles, having an available-for-sale portfolio allows management to (i) protect against additional unrealized market valuation losses, (ii) provide more liquidity as rates rise, which often coincides with increasing loan demand and slower deposit growth and (iii) generate more money to reinvest when rates are higher giving the institution an opportunity to lock in higher yields. In the event the available-for-sale portfolio becomes too large given the constraints set in the policy, investments may be classified as held-to-maturity. Held-to-maturity classification will only be used if we have the intent and ability to hold the investment to its maturity.

Our available-for-sale debt securities portfolio is measured at fair value in the financial statements with unrealized gains and losses reported, net of tax, as accumulated other comprehensive income or loss until realized. Interest earned on securities is included in total interest income.

On January 1, 2019, the Company adopted ASU 2016-01 that included changes to financial disclosures and required changes in the fair value of equity securities to be recognized in net income. Prior to adoption, unrealized gains and losses, net of tax, were reported in accumulated other comprehensive income or loss until realized.

Available-for-sale investments totaled $707.4 million at March 31, 2019, $663.7 million at December 31, 2018, $703.6 million at December 31, 2017 and $593.0 million at December 31, 2016. During the quarter ended March 31, 2019, our available-for-sale holdings increased $43.8 million or 6.6% due to purchases of mortgage-backed securities which complements our current liquidity strategy.

Prior to fiscal year 2018, we purchased securities of states of the U.S. and political subdivisions as part of our corporate tax and liquidity strategies. As a result, our holdings of these types of securities increased $107.9 million during 2017 and $132.6 million in 2016.

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The following table presents the fair value of our investment portfolio as of the dates included:

 
March 31, 2019
December 31, 2018
December 31, 2017
December 31, 2016
 
Fair
 Value
% of
 Total
Fair
Value
% of
Total
Fair
Value
% of
Total
Fair
 Value
% of
 Total
 
(Dollars in thousands)
Available for sale debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government sponsored entities mortgage-backed securities
$
153,647
 
 
21.7
%
$
129,287
 
 
19.5
%
$
69,895
 
 
9.9
%
$
90,830
 
 
15.3
%
U.S. Government sponsored entities collateralized mortgage obligations
 
168,148
 
 
23.8
 
 
152,626
 
 
23.0
 
 
94,282
 
 
13.4
 
 
70,523
 
 
11.9
 
States of the U.S. and political subdivisions
 
381,895
 
 
54.0
 
 
378,058
 
 
57.0
 
 
533,351
 
 
75.8
 
 
425,496
 
 
71.8
 
Corporate bonds
 
1,652
 
 
0.2
 
 
1,657
 
 
0.2
 
 
4,006
 
 
0.6
 
 
4,159
 
 
0.7
 
Total available-for-sale debt securities
 
705,342
 
 
99.7
 
 
661,628
 
 
99.7
 
 
701,534
 
 
99.7
 
 
591,008
 
 
99.7
 
Available-for-sale equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
 
2,088
 
 
0.3
 
 
2,050
 
 
0.3
 
 
2,047
 
 
0.3
 
 
2,004
 
 
0.3
 
Total available-for-sale equity securities
 
2,088
 
 
0.3
 
 
2,050
 
 
0.3
 
 
2,047
 
 
0.3
 
 
2,004
 
 
0.3
 
Total available-for-sale securities
$
707,430
 
 
100.0
%
$
663,678
 
 
100.0
%
$
703,581
 
 
100.0
%
$
593,012
 
 
100.0
%

At March 31, 2019 and December 31, 2018, 2017 and 2016, we did not own any one issuer (other than the U.S. Government and its agencies or sponsored entities) for which aggregate adjusted cost exceeded 10 percent of the consolidated stockholders’ equity at the reporting dates noted.

Securities of states of U.S. and political subdivisions include bonds issued by the fifty states of the United States and the District of Columbia and their counties, municipalities, school districts, irrigation districts, and draining and sewer securities; also called municipal bonds. These bonds include: (i) general obligation bonds, which are securities where the principal and interest will be paid from the general tax revenue of the state or political subdivision and (ii) revenue bonds, which are securities where the principal and interest is paid solely from the revenues derived from the projects financed by such securities rather than from the state or political subdivision’s general tax revenues. Most municipal bonds allow for call dates earlier than the maturity date. As a result, the stated maturity of municipal bonds may not be a reliable indicator of their expected lives.

Mortgage-backed securities are bonds secured by home and other real estate loans. They are created when a number of these loans, usually with similar characteristics, are pooled together. Pools are sold to a federal government agency like the Government National Mortgage Association (“Ginnie Mae”) or a government sponsored-enterprise (“GSE”) such as the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation or to a securities firm to use as the collateral for the mortgage-backed security.

The majority of mortgage-backed securities are guaranteed by an agency of the U.S. government such as Ginnie Mae or by GSEs. Most mortgage-backed securities receive monthly interest payments, scheduled principal payments, and prepayments that reduce the balance of the security. As a result, the stated maturity of mortgage-backed securities is not a reliable indicator of their expected lives because borrowers have the right to prepay their obligations at any time.

Premiums paid for mortgage-backed securities are amortized over the earliest callable date, while discounts are accreted over the expected life of the security. The premium and discount may be impacted by prepayments. As such, mortgage-backed securities which are purchased at a premium will generally produce decreasing net yields as interest rates drop because home owners tend to refinance their mortgages resulting in prepayments and an acceleration of premium amortization. Securities purchased at a discount will reflect higher net yields in a decreasing interest rate environment as prepayments result in an acceleration of discount accretion.

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The following tables present the fair value of our investment portfolio by their stated maturities, as well as the weighted average yields for each maturity range at March 31, 2019 and December 31, 2018 and 2017. Expected maturities may differ from stated maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Certain securities, primarily mortgage-backed securities and collateralized mortgage obligations, do not have a single maturity date as reflected below.

 
March 31, 2019
 
Due in one year
or less
Due after one
year
through five
years
Due after five
years
through
ten years
Due after ten
years
Total
 
Fair
value
Yield
Fair
value
Yield
Fair
value
Yield
Fair
value
Yield
Fair
value
Yield
 
(Dollars in thousands)
Available-for-sale debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
States of the U.S. and political subdivisions
$
55
 
 
6.06
%
$
3,368
 
 
3.64
%
$
34,016
 
 
3.72
%
$
344,456
 
 
3.11
%
$
381,895
 
 
3.17
%
Corporate bonds
 
—
 
 
—
 
 
—
 
 
—
 
 
1,652
 
 
5.41
 
 
—
 
 
—
 
 
1,652
 
 
5.41
 
U.S. Government sponsored entities mortgage-backed securities
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
153,647
 
 
2.99
 
U.S. Government sponsored entities collateralized mortgage obligations
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
168,148
 
 
2.86
 
Total available-for-sale debt securities
 
55
 
 
6.06
 
 
3,368
 
 
3.64
 
 
35,668
 
 
3.80
 
 
344,456
 
 
3.11
 
 
705,342
 
 
3.06
 
Available-for-sale equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
2,088
 
 
2.40
 
Total available-for-sale equity securities
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
2,088
 
 
2.40
 
Total available-for-sale securities
$
55
 
 
6.06
%
$
3,368
 
 
3.64
%
$
35,668
 
 
3.80
%
$
344,456
 
 
3.11
%
$
707,430
 
 
3.06
%
 
December 31, 2018
 
Due in one year
 or less
Due after one
 year
 through five
 years
Due after five
 years
 through ten
 years
Due after ten
 years
Total
 
Fair
 value
Yield
Fair
 value
Yield
Fair
 value
Yield
Fair
 value
Yield
Fair
 value
Yield
 
(Dollars in thousands)
Available-for-sale debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
States of the U.S. and political subdivisions
$
55
 
 
6.34
%
$
3,065
 
 
3.64
%
$
30,773
 
 
3.81
%
$
344,165
 
 
3.18
%
$
378,058
 
 
3.23
%
Corporate bonds
 
—
 
 
—
 
 
—
 
 
—
 
 
1,470
 
 
5.50
 
 
187
 
 
5.08
 
 
1,657
 
 
5.45
 
U.S. Government sponsored entities mortgage-backed securities
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
129,287
 
 
2.90
 
U.S. Government sponsored entities collateralized mortgage obligations
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
152,626
 
 
2.95
 
Total available-for-sale debt securities
 
55
 
 
6.34
 
 
3,065
 
 
3.64
 
 
32,243
 
 
3.89
 
$
344,352
 
 
3.18
 
 
661,628
 
 
3.11
 
Available-for-sale equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
2,050
 
 
2.31
 
Total available-for-sale equity securities
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
2,050
 
 
2.31
 
Total available-for-sale securities
$
55
 
 
6.34
%
$
3,065
 
 
3.64
%
$
32,243
 
 
3.89
%
$
344,352
 
 
3.18
%
$
663,678
 
 
3.11
%

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December 31, 2017
 
Due in one year
or less
Due after one
year
through five
years
Due after five
years
through ten
years
Due after ten
years
Total
 
Fair
value
Yield
Fair
value
Yield
Fair
value
Yield
Fair
value
Yield
Fair
value
Yield
 
(Dollars in thousands)
Available-for-sale debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
States of the U.S. and political subdivisions
$
708
 
 
2.06
%
$
4,915
 
 
3.15
%
$
64,524
 
 
3.56
%
$
463,204
 
 
3.16
%
$
533,351
 
 
3.21
%
Corporate bonds
 
—
 
 
—
 
 
265
 
 
6.20
 
 
3,550
 
 
4.23
 
 
191
 
 
5.08
 
 
4,006
 
 
4.40
 
U.S. Government sponsored entities mortgage-backed securities
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
69,895
 
 
2.45
 
U.S. Government sponsored entities collateralized mortgage obligations
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
94,282
 
 
2.48
 
Total available-for-sale debt securities
 
708
 
 
2.06
 
 
5,180
 
 
3.31
 
 
68,074
 
 
3.60
 
 
463,395
 
 
3.16
 
 
701,534
 
 
3.04
 
Available-for-sale equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
2,047
 
 
2.15
 
Total available-for-sale equity securities
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
2,047
 
 
2.15
 
Total available-for-sale securities
$
708
 
 
2.06
%
$
5,180
 
 
3.31
%
$
68,074
 
 
3.60
%
$
463,395
 
 
3.16
%
$
703,581
 
 
3.04
%

The fair market value of our securities portfolio primarily decreases as interest rates increase and increases as interest rates decrease. The difference between amortized cost and fair value is called the unrealized gain or loss, which flows through accumulated other comprehensive income for debt securities. Prior to January 1, 2019, available-for-sale equity securities unrealized gains and losses flowed through accumulated other comprehensive income. On January 1, 2019, the Company adopted ASU 2016-01. A net unrealized loss, net of tax, of $68.7 thousand had been recognized in accumulated other comprehensive income as of December 31, 2018. On January 1, 2019, the unrealized loss was reclassified out of accumulated other comprehensive income and into retained earnings with subsequent changes in fair value being recognized in other non-interest income. Net gains recognized for the three months ended March 31, 2019 was $25.9 thousand. The following tables present the amortized cost and fair value of our securities as of the dates indicated:

 
March 31, 2019
 
Amortized Cost
Gross Unrealized
 Gains
Gross Unrealized
 Losses
Approximate Fair
Value
 
(Dollars in thousands)
Available-for-sale debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government sponsored entities mortgage-backed securities
$
153,741
 
$
883
 
$
977
 
$
153,647
 
U.S. Government sponsored entities collateralized mortgage obligations
 
168,388
 
 
753
 
 
993
 
 
168,148
 
States of the U.S. and political
 
373,205
 
 
9,518
 
 
828
 
 
381,895
 
Corporate bonds
 
1,590
 
 
69
 
 
7
 
 
1,652
 
Total available-for-sale debt securities
 
696,924
 
 
11,223
 
 
2,805
 
 
705,342
 
Available-for-sale equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
 
2,153
 
 
—
 
 
65
 
 
2,088
 
Total available-for-sale equity securities
 
2,153
 
 
—
 
 
65
 
 
2,088
 
Total available-for-sale securities
$
699,077
 
$
11,223
 
$
2,870
 
$
707,430
 

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December 31, 2018
 
Amortized Cost
Gross Unrealized
Gains
Gross Unrealized
Losses
Approximate Fair
Value
 
(Dollars in thousands)
Available-for-sale debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government sponsored entities mortgage-backed securities
$
131,215
 
$
162
 
$
2,090
 
$
129,287
 
U.S. Government sponsored entities collateralized mortgage obligations
 
154,110
 
 
287
 
 
1,771
 
 
152,626
 
States of the U.S. and political
 
378,595
 
 
3,908
 
 
4,445
 
 
378,058
 
Corporate bonds
 
1,613
 
 
70
 
 
26
 
 
1,657
 
Total available-for-sale debt securities
 
665,533
 
 
4,427
 
 
8,332
 
 
661,628
 
Available-for-sale equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
 
2,141
 
 
—
 
 
91
 
 
2,050
 
Total available-for-sale equity securities
 
2,141
 
 
—
 
 
91
 
 
2,050
 
Total available-for-sale securities
$
667,674
 
$
4,427
 
$
8,423
 
$
663,678
 
 
December 31, 2017
 
Amortized Cost
Gross Unrealized
Gains
Gross Unrealized
Losses
Approximate Fair
Value
 
(Dollars in thousands)
Available-for-sale debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government sponsored entities mortgage-backed securities
$
70,681
 
$
15
 
$
801
 
$
69,895
 
U.S. Government sponsored entities collateralized mortgage obligations
 
95,478
 
 
94
 
 
1,290
 
 
94,282
 
States of the U.S. and political
 
522,131
 
 
12,961
 
 
1,741
 
 
533,351
 
Corporate bonds
 
3,900
 
 
106
 
 
—
 
 
4,006
 
Total available-for-sale debt securities
 
692,190
 
 
13,176
 
 
3,832
 
 
701,534
 
Available-for-sale equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
 
2,094
 
 
—
 
 
47
 
 
2,047
 
Total available-for-sale equity securities
 
2,094
 
 
—
 
 
47
 
 
2,047
 
Total available-for-sale securities
$
694,284
 
$
13,176
 
$
3,879
 
$
703,581
 
 
December 31, 2016
 
Amortized Cost
Gross Unrealized
 Gains
Gross Unrealized
 Losses
Approximate Fair
 Value
 
(Dollars in thousands)
Available-for-sale debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government sponsored entities mortgage-backed securities
$
91,987
 
$
2
 
$
1,159
 
$
90,830
 
U.S. Government sponsored entities collateralized mortgage obligations
 
70,534
 
 
480
 
 
491
 
 
70,523
 
States of the U.S. and political
 
431,176
 
 
3,733
 
 
9,413
 
 
425,496
 
Corporate bonds
 
4,097
 
 
62
 
 
—
 
 
4,159
 
Total available-for-sale debt securities
 
597,794
 
 
4,277
 
 
11,063
 
 
591,008
 
Available-for-sale equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
 
2,051
 
 
—
 
 
47
 
 
2,004
 
Total available-for-sale equity securities
 
2,051
 
 
—
 
 
47
 
 
2,004
 
Total available-for-sale securities
$
599,845
 
$
4,277
 
$
11,110
 
$
593,012
 

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Restricted Equity Securities

The Company had $14.5 million, $14.5 million, $14.7 million and $8.6 million of restricted equity securities as of March 31, 2019 and December 31, 2018, 2017 and 2016, respectively. Restricted equity securities are primarily made up of FHLB stock. The FHLB requires members to maintain a certain minimum amount of Class A and Class B common stock depending on borrowings with the FHLB. The FHLB may declare and pay non-cumulative dividends in either cash or Class B common stock. Total income earned from restricted equity securities was $253.0 thousand, $979.9 thousand, $676.3 thousand and $364.9 thousand representing a yield of 7.2%, 6.7%, 6.2% and 5.5% for the quarter ended March 31, 2019 and the years ended December 31, 2018, 2017 and 2016, respectively.

Loan Portfolio

Loans represent our largest portion of earning assets and typically provide higher yields than other assets. The quality and diversification of the loan portfolio is an important consideration when reviewing our financial condition. We established an internal loan policy that outlines a standard lending philosophy and provides consistent direction to achieve goals and objectives, which include maximizing earnings over the short and long term by managing risks through the policy. Internal concentration limits exist on all loans, including commercial real estate, energy, and land development. We established strong underwriting practices and procedures to assess our borrowers, including review of debt service, collateral value, and evaluation of guarantors. Ongoing third-party reviews are performed on our loan portfolio to monitor the health of our borrowers. Appropriate actions are taken when a borrower is no longer able to service its debt.

Our loan portfolio consists of various types of loans, primarily made up of commercial and industrial and commercial real estate loans. Commercial and industrial loans are generally paid back through normal business operations. Commercial real estate loans, which include both construction and limited term financing are typically paid back through normal income from operations, the sale of the underlying property or refinancing by other institutional sources. Most of our loans are made to borrowers within the states we operate, which include Kansas, Missouri, Oklahoma and Texas. In addition, we occasionally invest in syndicated shared national credits and participations.

As of March 31, 2019 and December 31, 2018, 2017, and 2016, our gross loans were $3.3 billion, $3.1 billion, $2.0 billion and $1.3 billion, respectively. The following table presents the balance and associated percentage of each major product type within our portfolio as of the dates indicated:

 
March 31,
December 31,
 
2019
2018
2017
2016
2015
2014
 
Amount
% of total
 loans
Amount
% of total
loans
Amount
% of total
loans
Amount
% of total
loans
Amount
% of total
loans
Amount
% of total
 loans
 
(Dollars in thousands)
Commercial and industrial
$
1,163,315
 
 
35.4
%
$
1,134,414
 
 
37.0
%
$
771,208
 
 
38.5
%
$
420,227
 
 
32.3
%
$
343,683
 
 
34.5
%
$
259,694
 
 
33.0
%
Energy
 
376,059
 
 
11.4
 
 
358,283
 
 
11.7
 
 
242,655
 
 
12.1
 
 
168,546
 
 
13.0
 
 
137,492
 
 
13.8
 
 
73,885
 
 
9.4
 
Commercial real estate
 
947,694
 
 
28.8
 
 
846,561
 
 
27.6
 
 
535,503
 
 
26.7
 
 
396,203
 
 
30.5
 
 
306,911
 
 
30.9
 
 
234,290
 
 
29.8
 
Construction and land development
 
426,647
 
 
13.0
 
 
440,032
 
 
14.3
 
 
255,362
 
 
12.8
 
 
138,165
 
 
10.6
 
 
101,428
 
 
10.2
 
 
113,957
 
 
14.5
 
Residential real estate
 
330,588
 
 
10.1
 
 
246,275
 
 
8.0
 
 
163,531
 
 
8.2
 
 
97,802
 
 
7.5
 
 
47,259
 
 
4.8
 
 
55,371
 
 
7.1
 
Mortgage warehouse
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
58,504
 
 
4.5
 
 
42,006
 
 
4.2
 
 
38,840
 
 
4.9
 
Equity lines of credit
 
20,293
 
 
0.6
 
 
20,286
 
 
0.6
 
 
17,461
 
 
0.9
 
 
10,637
 
 
0.8
 
 
6,872
 
 
0.7
 
 
5,132
 
 
0.6
 
Consumer installment
 
22,023
 
 
0.7
 
 
23,528
 
 
0.8
 
 
16,325
 
 
0.8
 
 
9,613
 
 
0.8
 
 
8,863
 
 
0.9
 
 
5,268
 
 
0.7
 
Gross loans
 
3,286,619
 
 
 
 
 
3,069,379
 
 
 
 
 
2,002,045
 
 
 
 
 
1,299,697
 
 
 
 
 
994,514
 
 
 
 
 
786,437
 
 
 
 
Less: unearned income
 
9,021
 
 
 
 
 
8,632
 
 
 
 
 
6,016
 
 
 
 
 
2,811
 
 
 
 
 
1,788
 
 
 
 
 
1,244
 
 
 
 
Gross loans (net of unearned income)
$
3,277,598
 
 
100.0
%
$
3,060,747
 
 
100.0
%
$
1,996,029
 
 
100.0
%
$
1,296,886
 
 
100.0
%
$
992,726
 
 
100.0
%
$
785,193
 
 
100.0
%

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From December 31, 2018 to March 31, 2019, total loans increased $216.9 million or 7.1%. Commercial and industrial loans increased $28.9 million or 2.5% as of March 31, 2019 compared to December 31, 2018. Total real estate loans increased $172.1 million or 11.2% and included a $101.1 million increase in commercial real estate loans and an $84.3 million increase in residential real estate loans. Energy loans increased $17.8 million or 5.0% during the same three-month period.

From December 31, 2017 to December 31, 2018, total loans increased $1.1 billion or 53.3%. Commercial and industrial loans increased $363.2 million or 47.1% as of December 31, 2018 compared to December 31, 2017. Total real estate loans increased $578.5 million or 60.6% and included a $311.1 million increase in commercial real estate loans and a $184.7 million increase in construction and land development loans. $250.9 million of the commercial real estate growth is attributable to our Dallas branch. Energy loans increased $115.6 million or 47.7% during the same time period. Our energy portfolio is primarily made up of upstream, exploration and production of oil and gas loans.

Gross loans, net of unearned income, at December 31, 2017 increased $699.1 million from December 31, 2016. Commercial and industrial loans increased $351.0 million or 83.5%. Total real estate loans increased $322.2 million or 51.0%, which included a $139.3 million increase in commercial real estate loans and a $117.2 million increase in construction and land development loans. The energy portfolio increased $74.1 million or 44.0%. Increases were offset by a $58.5 million decline in mortgage warehouse lines, which was the result of a strategic management decision to discontinue these participations.

Gross loans, net of unearned income, at December 31, 2016 increased $304.2 million or 30.6% from December 31, 2015. Commercial and industrial loans grew $76.5 million or 22.3%. Energy loans increased $31.1 million or 22.6%. Total real estate loans increased $176.6 million or 38.8%, which included a $50.5 million or 106.9% increase in residential real estate and an $89.3 million increase in commercial real estate loans.

Year-over-year loan growth is facilitated by our experienced lending staff. We select lenders that have existing relationships and a strong emphasis on lending to professionals in small and medium companies located within our markets. As a result of this, we have been able to attract new clients from other financial institutions, build banking relationships, and grow each of our markets while keeping marketing costs low.

The following tables show the contractual maturities of our gross loans and sensitivity to interest rate changes as of the periods below:

 
As of March 31, 2019
 
Due in one year or less
Due after one year
 through five years
Due after five years
 
 
Fixed
 Rate
Adjustable
 Rate
Fixed
 Rate
Adjustable
 Rate
Fixed
 Rate
Adjustable
 Rate
Total
 
(Dollars in thousands)
Commercial and industrial
$
49,705
 
$
280,562
 
$
359,728
 
$
401,994
 
$
14,118
 
$
57,208
 
$
1,163,315
 
Energy
 
992
 
 
222,404
 
 
304
 
 
152,359
 
 
—
 
 
—
 
 
376,059
 
Commercial real estate
 
22,843
 
 
45,791
 
 
310,521
 
 
314,649
 
 
37,216
 
 
216,674
 
 
947,694
 
Construction and land development
 
6,386
 
 
62,114
 
 
32,687
 
 
255,896
 
 
21,004
 
 
48,560
 
 
426,647
 
Residential real estate
 
4,507
 
 
37,900
 
 
22,036
 
 
30,492
 
 
82,488
 
 
153,165
 
 
330,588
 
Mortgage warehouse
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Equity lines of credit
 
—
 
 
170
 
 
—
 
 
375
 
 
—
 
 
19,748
 
 
20,293
 
Consumer installment
 
120
 
 
11,471
 
 
4,041
 
 
6,391
 
 
—
 
 
—
 
 
22,023
 
Gross loans
$
84,553
 
$
660,412
 
$
729,317
 
$
1,162,156
 
$
154,826
 
$
495,355
 
$
3,286,619
 

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As of December 31, 2018
 
Due in one year or less
Due after one year
through five years
Due after five years
 
 
Fixed
Rate
Adjustable
Rate
Fixed
Rate
Adjustable
Rate
Fixed
Rate
Adjustable
Rate
Total
 
(Dollars in thousands)
Commercial and industrial
$
66,390
 
$
266,033
 
$
335,940
 
$
395,610
 
$
13,407
 
$
57,034
 
$
1,134,414
 
Energy
 
1,233
 
 
219,538
 
 
287
 
 
137,225
 
 
—
 
 
—
 
 
358,283
 
Commercial real estate
 
21,521
 
 
34,642
 
 
273,131
 
 
309,936
 
 
44,032
 
 
163,299
 
 
846,561
 
Construction and land development
 
6,321
 
 
98,276
 
 
41,812
 
 
201,098
 
 
24,632
 
 
67,893
 
 
440,032
 
Residential real estate
 
6,829
 
 
5,737
 
 
20,636
 
 
5,821
 
 
80,360
 
 
126,892
 
 
246,275
 
Mortgage warehouse
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Equity lines of credit
 
—
 
 
101
 
 
—
 
 
721
 
 
—
 
 
19,464
 
 
20,286
 
Consumer installment
 
1,947
 
 
10,111
 
 
4,054
 
 
7,381
 
 
—
 
 
35
 
 
23,528
 
Gross loans
$
104,241
 
$
634,438
 
$
675,860
 
$
1,057,792
 
$
162,431
 
$
434,617
 
$
3,069,379
 
 
As of December 31, 2017
 
Due in one year or less
Due after one year
through five years
Due after five years
 
 
Fixed
Rate
Adjustable
Rate
Fixed
Rate
Adjustable
Rate
Fixed
Rate
Adjustable
Rate
Total
 
(Dollars in thousands)
Commercial and industrial
$
31,914
 
$
178,926
 
$
279,147
 
$
224,013
 
$
13,216
 
$
43,992
 
$
771,208
 
Energy
 
1,690
 
 
122,407
 
 
771
 
 
117,787
 
 
—
 
 
—
 
 
242,655
 
Commercial real estate
 
31,553
 
 
26,075
 
 
273,614
 
 
50,798
 
 
35,213
 
 
118,250
 
 
535,503
 
Construction and land development
 
6,530
 
 
25,031
 
 
30,240
 
 
130,887
 
 
15,036
 
 
47,638
 
 
255,362
 
Residential real estate
 
5,998
 
 
5,521
 
 
22,120
 
 
2,487
 
 
44,326
 
 
83,079
 
 
163,531
 
Mortgage warehouse
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Equity lines of credit
 
—
 
 
716
 
 
—
 
 
2,065
 
 
—
 
 
14,680
 
 
17,461
 
Consumer installment
 
3,376
 
 
4,862
 
 
3,671
 
 
4,362
 
 
—
 
 
54
 
 
16,325
 
Gross loans
$
81,061
 
$
363,538
 
$
609,563
 
$
532,399
 
$
107,791
 
$
307,693
 
$
2,002,045
 
 
As of December 31, 2016
 
Due in one year or less
Due after one year
through five years
Due after five years
 
 
Fixed
Rate
Adjustable
Rate
Fixed
Rate
Adjustable
Rate
Fixed
Rate
Adjustable
Rate
Total
 
(Dollars in thousands)
Commercial and industrial
$
26,831
 
$
85,866
 
$
183,701
 
$
97,667
 
$
7,251
 
$
18,911
 
$
420,227
 
Energy
 
447
 
 
146,685
 
 
1,004
 
 
20,410
 
 
—
 
 
—
 
 
168,546
 
Commercial real estate
 
43,243
 
 
10,778
 
 
194,217
 
 
35,555
 
 
36,460
 
 
75,950
 
 
396,203
 
Construction and land development
 
6,004
 
 
26,096
 
 
25,889
 
 
41,867
 
 
3,490
 
 
34,819
 
 
138,165
 
Residential real estate
 
8,297
 
 
2,006
 
 
31,435
 
 
1,231
 
 
14,691
 
 
40,142
 
 
97,802
 
Mortgage warehouse
 
—
 
 
58,504
 
 
—
 
 
—
 
 
—
 
 
—
 
 
58,504
 
Equity lines of credit
 
—
 
 
400
 
 
—
 
 
2,691
 
 
—
 
 
7,546
 
 
10,637
 
Consumer installment
 
2,405
 
 
5,421
 
 
1,479
 
 
198
 
 
71
 
 
39
 
 
9,613
 
Gross loans
$
87,227
 
$
335,756
 
$
437,725
 
$
199,619
 
$
61,963
 
$
177,407
 
$
1,299,697
 

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Back-to-Back Swaps

During fiscal year 2018, we started offering our commercial banking clients the ability to execute interest rate swaps 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 we minimize the net risk exposure resulting from such transactions. Because the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the client derivatives and the offsetting derivatives are recognized directly in earnings. The following table shows the fair value of the Company’s derivative financial instruments as well as their classification on the balance sheet as of the years presented:

 
Fair Values of Derivative Instruments
 
 
 
Asset Derivatives
Liability Derivatives
 
Number of
Transactions
Notional
Amount
Balance Sheet
Location
Fair Value
Balance Sheet
Location
Fair Value
 
(Dollars in thousands)
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate products
 
28
 
$
179,495
 
Other assets
$
3,050
 
Other liabilities
$
3,386
 
Total derivatives not designated as hedging instruments
 
 
 
 
 
 
 
$
3,050
 
 
$
3,386
 
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate products
 
20
 
$
77,709
 
Other assets
$
1,051
 
Other liabilities
$
1,136
 
Total derivatives not designated as hedging instruments
 
 
 
 
 
 
 
$
1,051
 
 
$
1,136
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate products
 
0
 
$
—
 
Other assets
$
—
 
Other liabilities
$
—
 
Total derivatives not designated as hedging instruments
 
 
 
 
 
 
 
$
—
 
 
$
—
 

Allowance for Loan and Lease Losses

The allowance for loan and lease losses is an amount required to cover net loan charge-offs plus the amount which, in the opinion of the Bank’s management, is considered necessary to bring the balance in the allowance to, or maintain the balance in the allowance at, a level adequate to absorb expected loan losses in the existing loan portfolio. Management uses available information to analyze losses on loans; however, future additions to the allowance may be necessary based on changes in economic conditions, the size of the loan portfolio, or the composition of the portfolio.

To evaluate the adequacy of the allowance, management uses a loan grading system to determine the potential risk in loans. Loan grades are issued at origination of a loan and monitored throughout the loan’s life cycle. Loans are further segmented by loan type. Each segment is evaluated individually and adjusted for changes in historical trends that may impact the segment. Our analysis of trends include historical losses in the segment, management’s assessment of collateral value, economic conditions, lending policies and procedures, loan review process, management changes, delinquencies, non-accruals, portfolio trends, and portfolio concentrations.

The allowance was $40.0 million as of March 31, 2019, $37.8 million as of December 31, 2018, $26.1 million as of December 31, 2017, and $20.8 million as of December 31, 2016. The allowance increased $2.2 million between December 31, 2018 and March 31, 2019. The increase was primarily attributable to our loan growth, partially offset by a reduction in the energy portfolio’s qualitative factors primarily due to stabilized oil prices.

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The allowance increased $11.7 million between December 31, 2017 and December 31, 2018 primarily due to our loan growth and included $13.5 million associated with the provision for loan losses, offset by $1.8 million in net charge-offs. $1.3 million of loans charged off in 2018 related to one energy credit. $439.2 thousand of loans recovered related to one commercial and industrial credit.

The allowance increased $5.3 million between December 31, 2016 and December 31, 2017. The increase was primarily attributable to our loan growth and included $12.0 million associated with the provision for loan losses, offset by $6.7 million in net charge-offs. $1.1 million of loans charged off in 2017 related to one energy credit and $5.2 million related to one commercial and industrial credit.

The following table provides an analysis of the activity in our allowance for the periods indicated:

 
Analysis of the Allowance for Loan and Lease Losses
For the Period Ended
 
March 31,
December 31,
 
2019
2018
2017
2016
2015
2014
 
(Dollars in thousands)
Balance at beginning of period
$
37,826
 
$
26,091
 
$
20,786
 
$
15,526
 
$
9,905
 
$
6,088
 
Provision for loan losses
 
2,850
 
 
13,500
 
 
12,000
 
 
6,500
 
 
5,975
 
 
3,915
 
Charge-offs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
(1,254
)
 
(976
)
 
(5,822
)
 
(1,078
)
 
—
 
 
(15
)
Energy
 
—
 
 
(1,256
)
 
(1,090
)
 
—
 
 
—
 
 
—
 
Commercial real estate
 
—
 
 
—
 
 
—
 
 
—
 
 
(47
)
 
—
 
Construction and land development
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Residential real estate
 
—
 
 
—
 
 
—
 
 
(13
)
 
(206
)
 
(112
)
Mortgage warehouse
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Equity lines of credit
 
—
 
 
(25
)
 
—
 
 
—
 
 
(99
)
 
—
 
Consumer installment
 
(10
)
 
(46
)
 
(108
)
 
(177
)
 
(13
)
 
(18
)
Total charge-offs
 
(1,264
)
 
(2,303
)
 
(7,020
)
 
(1,268
)
 
(365
)
 
(145
)
Recoveries:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
13
 
 
462
 
 
301
 
 
—
 
 
—
 
 
32
 
Energy
 
576
 
 
75
 
 
—
 
 
—
 
 
—
 
 
—
 
Commercial real estate
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Construction and land development
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Residential real estate
 
—
 
 
—
 
 
—
 
 
18
 
 
1
 
 
5
 
Mortgage warehouse
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Equity lines of credit
 
—
 
 
—
 
 
6
 
 
10
 
 
—
 
 
—
 
Consumer installment
 
—
 
 
1
 
 
18
 
 
—
 
 
10
 
 
10
 
Total recoveries
 
589
 
 
538
 
 
325
 
 
28
 
 
11
 
 
47
 
Net charge-offs
 
(675
)
 
(1,765
)
 
(6,695
)
 
(1,240
)
 
(354
)
 
(98
)
Balance at end of period
$
40,001
 
$
37,826
 
$
26,091
 
$
20,786
 
$
15,526
 
$
9,905
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ratio of net charge-offs during the period to average loans outstanding during the period(1)
 
0.09
%
 
0.07
%
 
0.44
%
 
0.11
%
 
0.04
%
 
0.02
%
(1)Interim period annualized.

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While no portion of our allowance for loan and lease losses is in any way restricted to any individual loan or group of loans and the entire allowance is available to absorb losses from any and all loans, the following tables represent management’s allocation of our allowance to specific loan categories for the periods indicated:

 
March 31,
December 31,
 
2019
2018
2017
2016
2015
2014
 
(Dollars in thousands)
Commercial and industrial
$
20,506
 
$
16,584
 
$
11,378
 
$
9,315
 
$
7,959
 
$
3,148
 
Energy
 
7,090
 
 
10,262
 
 
7,726
 
 
6,053
 
 
3,391
 
 
740
 
Commercial real estate
 
7,471
 
 
6,755
 
 
4,668
 
 
3,755
 
 
2,860
 
 
3,417
 
Construction and land development
 
2,585
 
 
2,475
 
 
1,200
 
 
661
 
 
599
 
 
1,413
 
Residential real estate
 
2,047
 
 
1,464
 
 
905
 
 
851
 
 
439
 
 
1,030
 
Mortgage warehouse
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Equity lines of credit
 
159
 
 
159
 
 
122
 
 
79
 
 
55
 
 
84
 
Consumer installment
 
143
 
 
127
 
 
92
 
 
72
 
 
223
 
 
73
 
Total allowance for loan and lease losses
$
40,001
 
$
37,826
 
$
26,091
 
$
20,786
 
$
15,526
 
$
9,905
 
 
March 31,
December 31,
 
2019
2018
2017
2016
2015
2014
Commercial and industrial
 
51.2
%
 
43.8
%
 
43.6
%
 
44.8
%
 
51.3
%
 
31.8
%
Energy
 
17.7
 
 
27.1
 
 
29.6
 
 
29.1
 
 
21.8
 
 
7.5
 
Commercial real estate
 
18.7
 
 
17.9
 
 
17.9
 
 
18.1
 
 
18.4
 
 
34.5
 
Construction and land development
 
6.5
 
 
6.5
 
 
4.6
 
 
3.2
 
 
3.9
 
 
14.3
 
Residential real estate
 
5.1
 
 
3.9
 
 
3.4
 
 
4.1
 
 
2.8
 
 
10.4
 
Mortgage warehouse
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Equity lines of credit
 
0.4
 
 
0.4
 
 
0.5
 
 
0.4
 
 
0.4
 
 
0.8
 
Consumer installment
 
0.4
 
 
0.4
 
 
0.4
 
 
0.3
 
 
1.4
 
 
0.7
 
Total allowance for loan and lease losses
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%

Nonperforming Assets

Loans

Nonperforming loans are loans for which we do not accrue interest income. The accrual of interest on mortgage, commercial, and other loans is discontinued at the time the loan is 90 days past due unless the credit is well secured and in process of collection. A credit is considered well secured if it is secured by collateral in the form of liens or pledges of real or personal property, including securities, that have a realizable value sufficient to discharge the debt (including accrued interest) in full or is secured by the guaranty of a financially responsible party. A debt is in the process of collection if collection of the debt is proceeding in due course either through legal action, including enforcement procedures, or in appropriate circumstances, through collection efforts not involving legal action which are reasonably expected to result in repayment of the debt or in its restoration to a current status. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date, if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off are reversed against interest income. The interest on these loans is accounted for on the cash basis or cost-recovery method, until qualifying for return to accrual. When payments are received on non-accrual loans, payments are applied to principal unless there is a clear indication that the quality of the loan has improved to the point that it can be placed back on accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Impairment is measured on an individual loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral, if the loan is collateral dependent. Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans.

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A troubled debt restructuring (“TDR”) is a restructuring in which the Bank, for economic reasons related to a borrower’s financial difficulties, grants a concession (either imposed by court order, law, or agreement between the borrower and the Bank) to the borrower that it would not otherwise consider. When the Bank grants a concession to a borrower as part of a restructured loan, the transaction is classified as a TDR. Concessions include (i) the reduction (absolute or contingent) of the stated interest rate, (ii) the extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar risk, (iii) the reduction (absolute or contingent) of the face amount or maturity amount of the debt as stated in the instrument or other agreement or (iv) the reduction (absolute or contingent) of accrued interest. A TDR may also exist if the borrower transfers to the Bank: (w) receivables for third parties, (x) real estate, (y) other assets or (z) an equity position in the borrower to fully or partially satisfy a loan or the issuance or other granting of an equity position to the Bank to fully or partially satisfy a debt unless the equity position is granted pursuant to existing terms for converting the debt into an equity position.

Once an obligation has been restructured because of such credit problems, it continues to be considered restructured until (i) the obligation is paid in full or (ii) the borrower is in compliance with its modified terms for at least 12 consecutive months, the loan has a market rate, and the borrower could obtain similar terms from another bank. When a loan undergoes a TDR, the determination of whether the loan would remain on accrual status depends on several factors including, (x) the loan was on accrual status prior to the restructuring, (y) the borrower demonstrated performance under the previous terms and (z) the bank’s credit evaluation shows the borrower’s capacity to continue to perform under the restructured terms.

Loans identified as TDRs are evaluated for impairment using the present value of the expected cash flows or the estimated fair value of the collateral, if the loan is collateral dependent. The fair value is determined, when possible, by an appraisal of the property less estimated costs related to liquidation of the collateral. The appraisal amount may also be adjusted for current market conditions. Adjustments to reflect the present value of the expected cash flows or the estimated fair value of collateral dependent loans are a component in determining an appropriate allowance, and as such, may result in increases or decreases to the provision for loan losses in current and future earnings.

Other real estate owned (“OREO”) consists of all real estate owned or controlled by the institution and its consolidated subsidiaries, acquired through foreclosure or through deed-in-lieu of foreclosure actions, even if the institution has not yet received title to the property and foreclosed real estate sold under contract and accounted for under the deposit method of accounting. OREO is initially recorded at fair value less costs to sell when acquired, establishing a new cost basis.

Nonperforming loans include nonaccrual 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. Nonperforming assets consist of nonperforming loans plus OREO, repossessed assets, and impaired securities.

Securities

Nonperforming securities are securities for which we do not accrue interest income. The accrual of interest on securities is discontinued at the time the security does not pay its required interest payment. All interest accrued but not collected for securities placed on nonaccrual are reversed against interest income.

The accounting guidance for beneficial interests in securitized financial assets provides incremental impairment guidance for a subset of the debt securities within the scope of the guidance for investments in debt and equity securities. For securities where the security is a beneficial interest in securitized financial assets, the Company uses the beneficial interests in securitized financial asset impairment model. For securities where the security is not a beneficial interest in securitized financial assets, the Company uses the debt and equity securities impairment model.

The Company routinely conducts periodic reviews to identify and evaluate each investment security to determine whether an OTTI has occurred. For available-for-sale securities that management has no intent to sell and believes that it more likely than not will not be required to sell prior to recovery, only the credit loss component of the impairment is recognized in earnings, while the noncredit loss is recognized in accumulated other comprehensive income.

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The following table presents our nonperforming assets for the dates indicated:

 
March 31,
December 31,
 
2019
2018
2017
2016
2015
2014
 
(Dollars in thousands)
Nonaccrual loans
$
13,018
 
$
17,818
 
$
5,417
 
$
4,215
 
$
1,162
 
$
3,095
 
Loans past due 90 days or more and still accruing
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
96
 
Total nonperforming loans
 
13,018
 
 
17,818
 
 
5,417
 
 
4,215
 
 
1,162
 
 
3,191
 
Foreclosed assets held for sale
 
2,471
 
 
—
 
 
—
 
 
61
 
 
21
 
 
129
 
Repossessed assets
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Impaired securities
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Total nonperforming assets
$
15,489
 
$
17,818
 
$
5,417
 
$
4,276
 
$
1,183
 
$
3,320
 
Allowance for loan and lease losses to period end loans
 
1.22
%
 
1.23
%
 
1.30
%
 
1.60
%
 
1.56
%
 
1.26
%
Allowance for loan and lease losses to period end nonperforming loans
 
307.27
 
 
212.30
 
 
481.68
 
 
493.14
 
 
1,336.38
 
 
310.43
 
Nonperforming loans to period end loans
 
0.40
 
 
0.58
 
 
0.27
 
 
0.33
 
 
0.12
 
 
0.41
 
Nonperforming assets to period end assets
 
0.36
%
 
0.43
%
 
0.18
%
 
0.20
%
 
0.08
%
 
0.27
%

During the three months ended March 31, 2019, $170.3 thousand of interest income was recognized related to the $13.0 million in nonaccrual loans above. If the loans had been current in accordance with their original terms and had been outstanding through the period or since inception, the gross interest income that would have been recorded for the three months ended March 31, 2019 would have been $302.6 thousand.

During the year ended December 31, 2018, $467.6 thousand of interest income was recognized related to the $17.8 million in nonaccrual loans above. If the loans had been current in accordance with their original terms and had been outstanding throughout the period or since inception, the gross interest income that would have been recorded for the year ended December 31, 2018 would have been $2.7 million.

The following tables present an aging analysis of loans as of the dates indicated:

 
As of March 31, 2019
 
Loans
 30-59 days
 past due
Loans
 60-89 days
 past due
Loans
 90+ days
 past due
Total past
 due
 loans
Current
 loans
Gross
 loans
 
(Dollars in thousands)
Commercial and industrial
$
1,140
 
$
98
 
$
2,588
 
$
3,826
 
$
1,159,489
 
$
1,163,315
 
Energy
 
26,335
 
 
—
 
 
9,130
 
 
35,465
 
 
340,594
 
 
376,059
 
Commercial real estate
 
316
 
 
425
 
 
—
 
 
741
 
 
946,953
 
 
947,694
 
Construction and land development
 
—
 
 
—
 
 
—
 
 
—
 
 
426,647
 
 
426,647
 
Residential real estate
 
2,659
 
 
93
 
 
—
 
 
2,752
 
 
327,836
 
 
330,588
 
Mortgage warehouse
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Equity lines of credit
 
—
 
 
—
 
 
—
 
 
—
 
 
20,293
 
 
20,293
 
Consumer installment
 
—
 
 
—
 
 
—
 
 
—
 
 
22,023
 
 
22,023
 
Total
$
30,450
 
$
616
 
$
11,718
 
$
42,784
 
$
3,243,835
 
$
3,286,619
 
 
As of December 31, 2018
 
Loans
30-59 days
past due
Loans
60-89 days
past due
Loans
90+ days
past due
Total past
due
loans
Current
loans
Gross
loans
 
(Dollars in thousands)
Commercial and industrial
$
1,040
 
$
—
 
$
4,137
 
$
5,177
 
$
1,129,237
 
$
1,134,414
 
Energy
 
1,994
 
 
—
 
 
9,218
 
 
11,212
 
 
347,071
 
 
358,283
 
Commercial real estate
 
—
 
 
425
 
 
2,253
 
 
2,678
 
 
843,883
 
 
846,561
 
Construction and land development
 
—
 
 
—
 
 
—
 
 
—
 
 
440,032
 
 
440,032
 
Residential real estate
 
28
 
 
194
 
 
—
 
 
222
 
 
246,053
 
 
246,275
 
Mortgage warehouse
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Equity lines of credit
 
—
 
 
—
 
 
—
 
 
—
 
 
20,286
 
 
20,286
 
Consumer installment
 
—
 
 
—
 
 
—
 
 
—
 
 
23,528
 
 
23,528
 
Total
$
3,062
 
$
619
 
$
15,608
 
$
19,289
 
$
3,050,090
 
$
3,069,379
 

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As of December 31, 2017
 
Loans
30-59 days
past due
Loans
60-89 days
past due
Loans
90+ days
past due
Total past
due
loans
Current
loans
Gross
loans
 
(Dollars in thousands)
Commercial and industrial
$
194
 
$
—
 
$
—
 
$
194
 
$
771,014
 
$
771,208
 
Energy
 
—
 
 
15,297
 
 
1,224
 
 
16,521
 
 
226,134
 
 
242,655
 
Commercial real estate
 
662
 
 
51
 
 
—
 
 
713
 
 
534,790
 
 
535,503
 
Construction and land development
 
—
 
 
—
 
 
—
 
 
—
 
 
255,362
 
 
255,362
 
Residential real estate
 
1,726
 
 
—
 
 
240
 
 
1,966
 
 
161,565
 
 
163,531
 
Mortgage warehouse
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Equity lines of credit
 
—
 
 
—
 
 
—
 
 
—
 
 
17,461
 
 
17,461
 
Consumer installment
 
—
 
 
—
 
 
—
 
 
—
 
 
16,325
 
 
16,325
 
Total
$
2,582
 
$
15,348
 
$
1,464
 
$
19,394
 
$
1,982,651
 
$
2,002,045
 
 
As of December 31, 2016
 
Loans
30-59 days
past due
Loans
60-89 days
past due
Loans
90+ days
past due
Total past
due
loans
Current
loans
Gross
loans
 
(Dollars in thousands)
Commercial and industrial
$
—
 
$
      —
 
$
1,045
 
$
1,045
 
$
419,182
 
$
420,227
 
Energy
 
4,464
 
 
—
 
 
—
 
 
4,464
 
 
164,082
 
 
168,546
 
Commercial real estate
 
69
 
 
—
 
 
—
 
 
69
 
 
396,134
 
 
396,203
 
Construction and land development
 
—
 
 
—
 
 
—
 
 
—
 
 
138,165
 
 
138,165
 
Residential real estate
 
183
 
 
—
 
 
125
 
 
308
 
 
97,494
 
 
97,802
 
Mortgage warehouse
 
—
 
 
—
 
 
—
 
 
—
 
 
58,504
 
 
58,504
 
Equity lines of credit
 
—
 
 
—
 
 
—
 
 
—
 
 
10,637
 
 
10,637
 
Consumer installment
 
—
 
 
—
 
 
—
 
 
—
 
 
9,613
 
 
9,613
 
Total
$
4,716
 
$
—
 
$
1,170
 
$
5,886
 
$
1,293,811
 
$
1,299,697
 

In addition to the past due and nonaccrual criteria, the Company evaluates loans according to its internal risk grading system. Loans are segregated between categories. The categories and definitions are described below:

Loan grades are numbered 1 through 8. Grades 1 through 3 are considered pass grades. The grade of 4 is considered satisfactory but on our “Watch” list. The grade of 5, (Special Mention), represents loans of lower quality and are considered criticized. The grades of 6, (Substandard) and 7, (Doubtful), refer to assets that are adversely classified. The Company attempts to apply and use these grades in a uniform manner.

Excellent (1) Credits in this category represent minimal loss exposure to the Company and the probability of a serious, rapid deterioration is extremely small. Loans graded as “1” are generally secured by certificates of deposit, savings accounts or U.S. Government securities.

Superior (2) Borrowers for credits in this category generally maintain a high degree of liquidity and sound financial condition. In addition, they generally reflect a long history of earnings, high-quality collateral and availability of alternative funding sources under all economic circumstances.

Good (3) Borrowers for credits in this category generally maintain good liquidity and financial condition. Debt is programmed and timely repayment is expected. Alternative funding sources are generally available through other financial institutions.

Watch (4) While credits in this category are currently protected, sales trends may be flat or declining, gross margins may be below average but operating profits appear to be satisfactory to meet debt service. Most ratios compare favorably with industry norms and Company policies.

Special Mention (5) Borrowers for credits in this category generally exhibit adverse trends in their operations or an imbalanced position in their balance sheet that has not reached a point where repayment is

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jeopardized. Credits with this rating 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 some future date. These credits are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard (6) Credits which exhibit a well-defined weakness or weaknesses that jeopardize repayment. Credits so rated are inadequately protected by the current sound 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.

Doubtful (7) Credits which exhibit all the weaknesses inherent in a substandard credit with the added characteristic that these weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently 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. Loans rated 7 should be placed on non-accrual. Pending factors include proposed merger, acquisition or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans.

Loss (8) Credits which are considered uncollectible or of such little value that their continuance as a bankable asset is not warranted. There may be salvage value, but it is not practical or desirable to defer writing off the asset. The Company typically does not attempt long-term recoveries while the asset is booked.

The following tables summarize outstanding loan balances categorized by internal risk grades as of the dates indicated:

 
As of March 31, 2019
 
Pass
Watch
Special
 Mention
Substandard
Doubtful
Total
 
(Dollars in thousands)
Commercial and industrial
$
1,001,648
 
$
80,397
 
$
4,238
 
$
73,043
 
$
3,989
 
$
1,163,315
 
Energy
 
344,871
 
 
13,715
 
 
5,266
 
 
12,207
 
 
—
 
 
376,059
 
Commercial real estate
 
925,908
 
 
8,828
 
 
6,950
 
 
4,914
 
 
1,094
 
 
947,694
 
Construction and land development
 
426,647
 
 
—
 
 
—
 
 
—
 
 
—
 
 
426,647
 
Residential real estate
 
327,772
 
 
460
 
 
70
 
 
2,286
 
 
—
 
 
330,588
 
Mortgage warehouse
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Equity lines of credit
 
20,293
 
 
—
 
 
—
 
 
—
 
 
—
 
 
20,293
 
Consumer installment
 
22,015
 
 
8
 
 
—
 
 
—
 
 
—
 
 
22,023
 
Total
$
3,069,154
 
$
103,408
 
$
16,524
 
$
92,450
 
$
5,083
 
$
3,286,619
 
 
As of December 31, 2018
 
Pass
Watch
Special
Mention
Substandard
Doubtful
Total
 
(Dollars in thousands)
Commercial and industrial
$
972,396
 
$
84,109
 
$
—
 
$
73,824
 
$
4,085
 
$
1,134,414
 
Energy
 
330,297
 
 
9,423
 
 
5,376
 
 
13,187
 
 
—
 
 
358,283
 
Commercial real estate
 
827,365
 
 
3,925
 
 
6,950
 
 
7,209
 
 
1,112
 
 
846,561
 
Construction and land development
 
439,005
 
 
1,027
 
 
—
 
 
—
 
 
—
 
 
440,032
 
Residential real estate
 
243,716
 
 
462
 
 
70
 
 
2,027
 
 
—
 
 
246,275
 
Mortgage warehouse
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Equity lines of credit
 
20,286
 
 
—
 
 
—
 
 
—
 
 
—
 
 
20,286
 
Consumer installment
 
23,520
 
 
8
 
 
—
 
 
—
 
 
—
 
 
23,528
 
Total
$
2,856,585
 
$
98,954
 
$
12,396
 
$
96,247
 
$
5,197
 
$
3,069,379
 

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As of December 31, 2017
 
Pass
Watch
Special
Mention
Substandard
Doubtful
Total
 
(Dollars in thousands)
Commercial and industrial
$
718,068
 
$
41,035
 
$
1,285
 
$
10,820
 
$
—
 
$
771,208
 
Energy
 
155,202
 
 
49,417
 
 
11,553
 
 
25,259
 
 
1,224
 
 
242,655
 
Commercial real estate
 
524,540
 
 
5,119
 
 
4,295
 
 
1,549
 
 
—
 
 
535,503
 
Construction and land development
 
252,925
 
 
2,437
 
 
—
 
 
—
 
 
—
 
 
255,362
 
Residential real estate
 
155,375
 
 
5,551
 
 
—
 
 
2,605
 
 
—
 
 
163,531
 
Mortgage warehouse
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Equity lines of credit
 
17,404
 
 
7
 
 
—
 
 
50
 
 
—
 
 
17,461
 
Consumer installment
 
16,306
 
 
19
 
 
—
 
 
—
 
 
—
 
 
16,325
 
Total
$
1,839,820
 
$
103,585
 
$
17,133
 
$
40,283
 
$
1,224
 
$
2,002,045
 
 
As of December 31, 2016
 
Pass
Watch
Special
Mention
Substandard
Doubtful
Total
 
(Dollars in thousands)
Commercial and industrial
$
340,857
 
$
58,501
 
$
5,823
 
$
15,046
 
$
   —
 
$
420,227
 
Energy
 
79,898
 
 
22,639
 
 
40,146
 
 
25,863
 
 
—
 
 
168,546
 
Commercial real estate
 
382,975
 
 
10,062
 
 
638
 
 
2,528
 
 
—
 
 
396,203
 
Construction and land development
 
138,165
 
 
—
 
 
—
 
 
—
 
 
—
 
 
138,165
 
Residential real estate
 
93,577
 
 
3,138
 
 
—
 
 
1,087
 
 
—
 
 
97,802
 
Mortgage warehouse
 
58,504
 
 
—
 
 
—
 
 
—
 
 
—
 
 
58,504
 
Equity lines of credit
 
10,479
 
 
108
 
 
—
 
 
50
 
 
—
 
 
10,637
 
Consumer installment
 
9,598
 
 
15
 
 
—
 
 
—
 
 
—
 
 
9,613
 
Total
$
1,114,053
 
$
94,463
 
$
46,607
 
$
44,574
 
$
—
 
$
1,299,697
 

Troubled Debt Restructurings

As described above under “—Nonperforming Assets”, a TDR is a restructuring in which the Bank, for economic reasons related to a borrower’s financial difficulties, grants a concession (either imposed by court order, law, or agreement between the borrower and bank) to the borrower that it would not otherwise consider.

The following table presents loans restructured as TDRs as of March 31, 2019 and December 31, 2018, 2017 and 2016:

 
Troubled Debt Restructurings
 
As of March 31,
As of December 31,
 
2019
2018
2017
2016
 
#
 of
loans
Outstanding
 balance
#
of
loans
Outstanding
balance
#
of
loans
Outstanding
balance
#
of
loans
Outstanding
balance
 
(Dollars in thousands)
Commercial and industrial
 
5
 
$
5,188
 
 
6
 
$
5,022
 
 
8
 
$
5,165
 
 
2
 
$
1,045
 
Energy
 
2
 
 
3,517
 
 
2
 
 
3,631
 
 
2
 
 
3,190
 
 
1
 
 
2,584
 
Commercial real estate
 
3
 
 
5,122
 
 
2
 
 
1,382
 
 
—
 
 
—
 
 
1
 
 
2,732
 
Construction and land development
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Residential real estate
 
—
 
 
—
 
 
1
 
 
237
 
 
1
 
 
283
 
 
1
 
 
342
 
Mortgage warehouse
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Equity lines of credit
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Consumer installment
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Total
 
10
 
$
13,827
 
 
11
 
$
10,272
 
 
11
 
$
8,638
 
 
5
 
$
6,703
 

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The troubled debt restructurings described above increased the allowance for loan losses by $1.9 million for the three months ended March 31, 2019 and did not result in any charge-offs or recoveries. As of March 31, 2019, no troubled debt restructurings modified within the previous twelve months defaulted.

The troubled debt restructurings described above increased the allowance for loans losses by $2.4 million and $2.3 million for the years ended December 31, 2018 and 2017, respectively. The troubled debt restructurings resulted in charge-offs of $1.3 million and $6.3 million and recoveries of $439.2 thousand and $0 during the years ended December 31, 2018 and 2017, respectively. During 2018, one commercial troubled debt restructuring modified within the previous twelve months defaulted with an outstanding balance of $55.2 thousand as of December 31, 2018. During 2017, two commercial and one energy troubled debt restructurings modified within the previous twelve months defaulted with an outstanding balance of $3.3 million as of December 31, 2017. The Company received a $1.0 million payment that resulted in a $300.0 thousand recovery associated with one of the commercial loans.

During the three months ended March 31, 2019, $182.5 thousand of interest income was recognized related to the $13.8 million in troubled debt restructurings above. If the loans had been current in accordance with their original terms and had been outstanding throughout the period or since inception, the gross interest income that would have been recorded for the three months ended March 31, 2019 would have been $176.3 thousand. Actual interest income exceeded the potential interest income primarily due to an extension of the original term or an interest-only period.

During the year ended December 31, 2018, $529.3 thousand of interest income was recognized related to the $10.3 million in troubled debt restructurings above. If the loans had been current in accordance with their original terms and had been outstanding throughout the period or since inception, the gross interest income that would have been recorded for the year ended December 31, 2018 would have been $596.4 thousand.

Bank-Owned Life Insurance

We maintain investments in bank-owned life insurance policies to help control employee benefit costs, as a protection against loss of certain employees and as a tax planning strategy. At March 31, 2019, bank-owned life insurance totaled $64.3 million compared to $63.8 million, $61.8 million and $35.4 million at December 31, 2018, 2017 and 2016, respectively. The tax equivalent yield on these products were 3.69%, 3.91%, 4.55% and 4.69% for the quarter ended March 31, 2019 and the years ended December 31, 2018, 2017 and 2016, respectively. The decline between 2017 and 2018 was driven by the 2017 Tax Act, which lowered the tax rate for corporations. The decline between December 31, 2018 and March 31, 2019 is primarily attributable to the insurance carrier’s underlying investments and operating costs that decreased overall income on the underlying asset.

Deposits

Deposits come through our five markets as well as through participation in certain online programs. The Company offers a variety of deposit products including non-interest-bearing demand deposits and interest-bearing deposits that include transaction accounts (including NOW accounts), savings accounts, money market accounts, and certificates of deposit. The Bank also acquires brokered deposits, QwickRate certificates of deposit, and reciprocal deposits through the Promontory network. The reciprocal deposits include both the Certificate of Deposit Account Registry Service and Insured Cash Sweep program. The Company is a member of the Promontory network which effectively allows depositors to receive FDIC insurance on amounts greater than the FDIC insurance limit, which is currently $250.0 thousand. Promontory allows institutions to break large deposits into smaller amounts and place them in a network of other Promontory institutions to ensure full FDIC insurance is gained on the entire deposit.

Our strong asset growth requires us to place a greater emphasis on both interest and non-interest-bearing deposits. Deposit accounts are added by loan cross-selling, client referrals, and involvement within our community. In addition, we attract and retain deposits by aggressively setting our deposit rates within our markets.

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Total deposits as of March 31, 2019 and December 31, 2018, 2017 and 2016 were $3.4 billion, $3.2 billion, $2.3 billion and $1.7 billion, respectively. The following table sets forth deposit balances by certain categories as of the dates indicated and the percentage of each deposit category to total deposits.

 
As of March 31,
As of December 31,
 
2019
2018
2017
2016
 
Amount
%
of
 total
Amount
%
 of
total
Amount
%
 of
total
Amount
%
 of
total
 
(Dollars in thousands)
Non-interest-bearing demand deposits
$
488,375
 
 
14.4
%
$
484,284
 
 
15.1
%
$
290,906
 
 
12.6
%
$
198,088
 
 
11.7
%
Transaction deposits
 
118,597
 
 
3.5
 
 
82,593
 
 
2.6
 
 
51,788
 
 
2.3
 
 
40,619
 
 
2.4
 
Savings and money market deposits
 
1,511,166
 
 
44.4
 
 
1,631,543
 
 
50.8
 
 
1,209,092
 
 
52.5
 
 
940,854
 
 
55.5
 
Time deposits(1)
 
1,281,761
 
 
37.7
 
 
1,009,677
 
 
31.5
 
 
751,578
 
 
32.6
 
 
514,740
 
 
30.4
 
Total deposits
$
3,399,899
 
 
100.0
%
$
3,208,097
 
 
100.0
%
$
2,303,364
 
 
100.0
%
$
1,694,301
 
 
100.0
%
(1)Includes $423.8 million, $343.0 million, $239.5 million and $135.1 million of brokered deposits representing 33.1%, 34.0%, 31.9% and 26.2% of time deposits for the quarter ended March 31, 2019 and the years ended December 31, 2018, 2017 and 2016, respectively.

The following table summarizes our average deposit balances and weighted average rates for the quarter ended March 31, 2019 and the years ended December 31, 2018, 2017 and 2016:

 
As of March 31,
As of December 31,
 
2019
2018
2017
2016
 
Average
 balance
Weighted
 average
 rate
Average
balance
Weighted
average
rate
Average
balance
Weighted
average
rate
Average
balance
Weighted
average
rate
 
(Dollars in thousands)
Non-interest-bearing demand deposits
$
477,236
 
 
—
%
$
425,243
 
 
—
%
$
224,480
 
 
—
%
$
149,252
 
 
—
%
Transaction deposits
 
104,008
 
 
1.08
 
 
56,321
 
 
0.31
 
 
45,030
 
 
0.24
 
 
31,497
 
 
0.24
 
Savings and money market deposits
 
1,543,925
 
 
2.32
 
 
1,410,727
 
 
1.66
 
 
1,007,568
 
 
0.99
 
 
869,225
 
 
0.85
 
Time deposits
 
1,164,613
 
 
2.38
 
 
835,595
 
 
1.89
 
 
610,333
 
 
1.41
 
 
427,659
 
 
1.25
 
Total deposits
$
3,289,782
 
 
1.96
%
$
2,727,886
 
 
1.44
%
$
1,887,411
 
 
0.99
%
$
1,477,634
 
 
0.87
%

The following tables set forth the maturity of time deposits as of the dates indicated below:

 
As of March 31, 2019
Maturity within:
 
Three months
or less
Three to
 six months
Six to
 twelve months
After
 twelve months
Total
 
(Dollars in thousands)
Time deposits (more than $100,000)
$
72,514
 
$
64,822
 
$
316,351
 
$
247,096
 
$
700,783
 
Time deposits ($100,000 or less)
 
80,387
 
 
61,974
 
 
167,528
 
 
271,089
 
 
580,978
 
Total time deposits
$
152,901
 
$
126,796
 
$
483,879
 
$
518,185
 
$
1,281,761
 
 
As of December 31, 2018
Maturity within:
 
Three months
or less
Three to
six months
Six to
twelve months
After
twelve months
Total
 
(Dollars in thousands)
Time deposits (more than $100,000)
$
20,955
 
$
43,135
 
$
79,557
 
$
311,616
 
$
455,263
 
Time deposits ($100,000 or less)
 
60,697
 
 
65,071
 
 
175,409
 
 
253,237
 
 
554,414
 
Total time deposits
$
81,652
 
$
108,206
 
$
254,966
 
$
564,853
 
$
1,009,677
 

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As of December 31, 2017
Maturity within:
 
Three months
or less
Three to
six months
Six to
twelve months
After
twelve months
Total
 
(Dollars in thousands)
Time deposits (more than $100,000)
$
65,631
 
$
52,254
 
$
171,301
 
$
385,058
 
$
674,244
 
Time deposits ($100,000 or less)
 
13,958
 
 
8,538
 
 
24,756
 
 
30,082
 
 
77,334
 
Total time deposits
$
79,589
 
$
60,792
 
$
196,057
 
$
415,140
 
$
751,578
 
 
As of December 31, 2016
Maturity within:
 
Three months
or less
Three to
six months
Six to
twelve months
After
twelve months
Total
 
(Dollars in thousands)
Time deposits (more than $100,000)
$
59,637
 
$
31,664
 
$
147,077
 
$
209,548
 
$
447,926
 
Time deposits ($100,000 or less)
 
10,449
 
 
9,380
 
 
19,110
 
 
27,875
 
 
66,814
 
Total time deposits
$
70,086
 
$
41,044
 
$
166,187
 
$
237,423
 
$
514,740
 

Other Borrowed Funds

Since it may not be possible to achieve the institution’s overall funding needs through core deposit funding, other borrowings may be used to support asset growth. Management has in place a funds management policy and committee, which facilitate the use of other borrowings. The risks associated with other borrowings are addressed in the same fashion as other balance sheet risks incurred by the Bank. Credit risk, interest rate risk, concentration risk, capital adequacy and liquidity are measured for the balance sheet as a whole, including any wholesale funding strategies that have been implemented or are expected to be implemented.

The following table sets forth the amounts outstanding and weighted average interest rate as of the dates indicated:

 
As of March 31,
As of December 31,
 
2019
2018
2017
2016
 
Amount
Weighted
 average
 interest
rate
Amount
Weighted
average
interest
rate
Amount
Weighted
average
interest
rate
Amount
Weighted
average
interest
rate
 
(Dollars in thousands)
Repurchase agreements
$
55,671
 
 
1.82
%
$
75,406
 
 
1.54
%
$
38,622
 
 
0.94
%
$
21,276
 
 
0.27
%
Federal funds purchased
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
FHLB borrowings(1)
 
312,926
 
 
1.94
 
 
312,985
 
 
1.89
 
 
319,215
 
 
1.75
 
 
185,433
 
 
1.45
 
TIB line of credit
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
10,000
 
 
4.25
 
Trust preferred securities
 
893
 
 
4.35
 
 
884
 
 
4.53
 
 
850
 
 
3.33
 
 
819
 
 
2.70
 
Total other borrowings
$
369,490
 
 
1.93
%
$
389,275
 
 
1.83
%
$
358,687
 
 
1.67
%
$
217,528
 
 
1.47
%
(1)Includes FHLB advances and FHLB line of credit.

Repurchase Agreements

Securities sold under agreements to repurchase are a form of short-term funding in which the Bank agrees to sell a security to a counterparty and repurchase the same or an identical security from the counterparty at a specified future date and price. Repurchase agreements generally have one-day maturities. The obligations are collateralized by securities of U.S. government sponsored enterprises and mortgage-backed securities and such collateral is held by a third-party custodian. These balances are all client repurchase agreements with our core clients that require or prefer to have collateral pledged to their funding.

Federal Funds Purchased

Federal funds purchased include short-term funds that are borrowed from another bank. The Bank is part of a third-party service that allows us to borrow amounts from another bank if the bank has approved us for credit. Federal funds purchased generally have one-day maturities.

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FHLB Advances

FHLB advances and line of credit are collateralized by a blanket floating lien on certain loans, as well as unrestricted securities. FHLB advances are at a fixed rate and are subject to restrictions or penalties in the event of prepayment. The FHLB line of credit has a variable interest rate that reprices daily based on the FHLB’s cost of funds. The FHLB line of credit had an outstanding balance of $0, $0, $25.0 million and $0 as of March 31, 2019 and December 31, 2018, 2017 and 2016, respectively.

TIB Line of Credit

The Company has a $10.0 million line of credit with TIB-The Independent BankersBank, which matures August 26, 2020. The line of credit is collateralized by 100% of the capital stock of CrossFirst Bank and all business assets of the Company. The line includes various financial and nonfinancial covenants. The line of credit has a variable interest rate equal to the Wall Street Journal prime rate, plus 0.25%, adjusted daily. The line requires quarterly payments and is generally used for short-term funding and to assist the Company as a source of strength to the Bank. See “Description of Certain Indebtedness.”

Trust Preferred Securities

On June 30, 2010, the Company assumed a liability with a fair value of $1.0 million related to the assumption of trust preferred securities issued by Leawood Bancshares Statutory Trust I for $4.0 million on September 30, 2005. In 2012, the Company settled litigation related to the trust preferred securities which decreased the principal balance by $1.5 million and the recorded balance by approximately $400 thousand. The difference between the recorded amount and the contract value of $2.5 million is being accreted to the maturity date of 2035. Distributions will be paid on each security at a variable annum rate of interest, equal to LIBOR, plus 1.74%.

The following tables set forth the maximum amount of other borrowed funds at any month-end during the reporting period, and the average balance during the reported period for the years indicated:

 
March 31, 2019
 
Maximum amount
 outstanding at any
 month end
Average amount
Weighted average
 interest rate
 
(Dollars in thousands)
Repurchase agreements
$
72,048
 
$
74,891
 
 
1.58
%
Federal funds purchased
 
—
 
 
278
 
 
2.63
 
FHLB borrowings(1)
 
312,965
 
 
307,946
 
 
1.92
 
TIB line of credit
 
—
 
 
—
 
 
—
 
Trust preferred security
 
893
 
 
885
 
 
13.27
 
Total other borrowings
 
 
 
$
384,000
 
 
1.88
%
(1)Includes FHLB advances and FHLB line of credit.
 
December 31, 2018
 
Maximum amount
outstanding at any
month end
Average amount
Weighted average
interest rate
 
(Dollars in thousands)
Repurchase agreements
$
124,765
 
$
77,232
 
 
1.30
%
Federal funds purchased
 
55,000
 
 
2,781
 
 
2.36
 
FHLB borrowings(1)
 
313,024
 
 
313,979
 
 
1.86
 
TIB line of credit
 
10,000
 
 
1,833
 
 
5.19
 
Trust preferred securities
 
884
 
 
864
 
 
11.77
 
Total other borrowings
 
 
 
$
396,689
 
 
1.79
%
(1)Includes FHLB advances and FHLB line of credit.

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December 31, 2017
 
Maximum amount
outstanding at any
month end
Average amount
Weighted average
interest rate
 
(Dollars in thousands)
Repurchase agreements
$
59,407
 
$
42,269
 
 
0.69
%
Federal funds purchased
 
—
 
 
—
 
 
—
 
FHLB borrowings(1)
 
319,252
 
 
239,899
 
 
1.63
 
TIB line of credit
 
10,000
 
 
384
 
 
4.25
 
Trust preferred securities