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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2020

or

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

For the transition period from ______ to ______

Commission file number 001-39028

CROSSFIRST BANKSHARES, INC.
(Exact Name of Registrant as Specified in its Charter)

Kansas26-3212879
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
11440 Tomahawk Creek Parkway
Leawood,KS66211
(Address of principal executive offices)(Zip Code)
(913) 312-6822
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.01 per shareCFBThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☒Smaller reporting company☐
Emerging growth company☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 2, 2020, the registrant had 52,195,778 shares of common stock, par value $0.01, outstanding.


CrossFirst Bankshares, Inc.
Form 10-Q for the Quarter Ended September 30, 2020
Index
Part I. Financial Information
Item 1. Financial Statements
Notes to Consolidated Financial Statements (unaudited)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Part II. Other Information
Signatures

2
Table of Contents
Forward-Looking Information
This report may contain forward-looking statements that reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “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. Such possible events or factors include: risks associated with the current outbreak of the novel coronavirus, or the COVID-19 pandemic, changes in economic conditions in the Company’s market area, changes in policies by regulatory agencies, governmental legislation and regulation, fluctuations in interest rates, changes in liquidity requirements, demand for loans in the Company’s market area, changes in accounting and tax principles, estimates made on income taxes, competition with other entities that offer financial services, cybersecurity threats, and such other factors as discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the Securities and Exchange Commission (“SEC”) on March 10, 2020, any subsequent Form 10-Q as well as in our other filings with the SEC.
We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
3
Table of Contents
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CROSSFIRST BANKSHARES, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 2020December 31, 2019
(Unaudited)
(Dollars in thousands)
Assets
Cash and cash equivalents$223,636 $187,320 
Available-for-sale securities - taxable214,735 298,208 
Available-for-sale securities - tax-exempt437,411 443,426 
 Loans, net of allowance for loan losses of $76,035 and $56,896 at September 30, 2020 and December 31, 2019, respectively
4,401,774 3,795,348 
Premises and equipment, net70,599 70,210 
Restricted equity securities20,923 17,278 
Interest receivable19,003 15,716 
Foreclosed assets held for sale2,349 3,619 
Deferred tax asset15,864 13,782 
Goodwill and other intangible assets, net227 7,694 
Bank-owned life insurance67,063 65,689 
Other32,112 12,943 
Total assets$5,505,696 $4,931,233 
Liabilities and stockholders’ equity
Deposits
Noninterest-bearing$754,172 $521,826 
Savings, NOW and money market2,597,691 2,162,187 
Time1,140,686 1,239,746 
Total deposits4,492,549 3,923,759 
Federal funds purchased and repurchase agreements13,531 14,921 
Federal Home Loan Bank advances336,100 358,743 
Other borrowings952 921 
Interest payable and other liabilities44,681 31,245 
Total liabilities4,887,813 4,329,589 
Stockholders’ equity
Redeemable preferred stock, $0.01 par value, $25.00 liquidation value:
authorized - 5,000,000 shares, issued - 0 shares at September 30, 2020 and December 31, 2019, respectively
— — 
Common stock, $0.01 par value:
authorized - 200,000,000 shares, issued - 52,195,778 and 51,969,203 shares at September 30, 2020 and December 31, 2019, respectively
521 520 
Additional paid-in capital522,226 519,870 
Retained earnings69,355 64,803 
Accumulated other comprehensive income25,781 16,451 
Total stockholders’ equity617,883 601,644 
Total liabilities and stockholders’ equity$5,505,696 $4,931,233 

See Notes to Consolidated Financial Statements (unaudited)
4
Table of Contents
CROSSFIRST BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
(Dollars in thousands except per share data)
Interest Income
Loans, including fees$43,929 $49,327 $138,591 $142,319 
Available-for-sale securities - taxable1,042 1,991 4,174 6,646 
Available-for-sale securities - tax-exempt3,186 2,969 9,758 8,820 
Deposits with financial institutions47 970 583 2,452 
Dividends on bank stocks248 272 808 801 
Total interest income48,452 55,529 153,914 161,038 
Interest Expense
Deposits7,298 18,003 29,975 51,421 
Fed funds purchased and repurchase agreements54 74 162 501 
Federal Home Loan Bank Advances1,749 1,629 4,980 4,739 
Other borrowings24 37 85 112 
Total interest expense9,125 19,743 35,202 56,773 
Net Interest Income39,327 35,786 118,712 104,265 
Provision for Loan Losses10,875 4,850 45,825 10,550 
Net Interest Income after Provision for Loan Losses28,452 30,936 72,887 93,715 
Non-Interest Income
Service charges and fees on customer accounts792 72 1,947 441 
Gain on sale of available-for-sale debt securities1,012 34 1,725 467 
Impairment of premises and equipment held for sale— — — (424)
Gain on sale of loans— 49 — 207 
Income from bank-owned life insurance464 476 1,373 1,416 
Swap fee income, net121 1,879 80 2,415 
ATM and credit card interchange income1,482 476 2,863 1,312 
Other non-interest income192 226 804 695 
Total non-interest income4,063 3,212 8,792 6,529 
Non-Interest Expense
Salaries and employee benefits14,628 14,256 43,022 43,296 
Occupancy2,144 2,080 6,274 6,301 
Professional fees1,132 427 3,098 1,923 
Deposit insurance premiums1,096 302 3,151 2,020 
Data processing652 649 2,065 1,868 
Advertising147 580 870 1,770 
Software and communication959 900 2,772 2,407 
Foreclosed assets, net20 8 1,174 33 
Goodwill impairment— — 7,397 — 
Other non-interest expense2,233 1,970 6,421 6,145 
Total non-interest expense23,011 21,172 76,244 65,763 
Net Income Before Taxes9,504 12,976 5,435 34,481 
Income tax expense 1,498 2,592 928 5,308 
Net Income$8,006 $10,384 $4,507 $29,173 
Basic Earnings Per Share$0.15 $0.22 $0.09 $0.63 
Diluted Earnings Per Share$0.15 $0.21 $0.09 $0.61 

See Notes to Consolidated Financial Statements (unaudited)
5
Table of Contents
CROSSFIRST BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - UNAUDITED
Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
(Dollars in thousands)
Net Income$8,006 $10,384 $4,507 $29,173 
Other Comprehensive Income
Unrealized gain on available-for-sale debt securities1,923 5,757 14,073 28,084 
Less: income tax472 1,410 3,440 6,890 
Unrealized gain on available-for-sale debt securities, net of income tax
1,451 4,347 10,633 21,194 
Reclassification adjustment for realized gains included in income
1,012 34 1,725 467 
Less: income tax248 9 422 115 
Less: reclassification adjustment for realized gains included in income, net of income tax
764 25 1,303 352 
Other comprehensive income687 4,322 9,330 20,842 
Comprehensive Income$8,693 $14,706 $13,837 $50,015 

See Notes to Consolidated Financial Statements (unaudited)
6
Table of Contents
CROSSFIRST BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED
Accumulated
AdditionalOther
Preferred StockCommon StockPaid inRetainedComprehensive
SharesAmountSharesAmountCapitalEarningsIncomeTotal
(Dollars in thousands)
Balance at June 30, 2019
— $— 45,367,641 $453 $430,347 $54,816 $13,579 $499,195 
Net income— — — — — 10,384 — 10,384 
Change in unrealized appreciation on available-for-sale securities
— — — — — — 4,322 4,322 
Issuance of shares— — 6,600,245 67 87,154 (1)— 87,220 
Issuance of shares from equity-based awards
— — 1,317 — (10)— — (10)
Employee receivables from sale of stock
— — — — 1 (1)— — 
Stock-based compensation— — — — 1,324 — — 1,324 
Balance at September 30, 2019
— $— 51,969,203 $520 $518,816 $65,198 $17,901 $602,435 

Accumulated
AdditionalOther
Preferred StockCommon StockPaid inRetainedComprehensive
SharesAmountSharesAmountCapitalEarningsIncomeTotal
(Dollars in thousands)
Balance at June 30, 2020
— $— 52,167,573 $521 $521,133 $61,344 $25,094 $608,092 
Net income— — — — — 8,006 — 8,006 
Change in unrealized appreciation on available-for-sale securities
— — — — — — 687 687 
Issuance of shares from equity-based awards
— — 28,205 — (115)— — (115)
Employee receivables from sale of stock
— — — — 1 5 — 6 
Stock-based compensation
— — — — 1,186 — — 1,186 
Employee stock purchase additions— — — — 21 — — 21 
Balance at September 30, 2020
— $— 52,195,778 $521 $522,226 $69,355 $25,781 $617,883 

See Notes to Consolidated Financial Statements (unaudited)
7
Table of Contents
Accumulated
AdditionalOther
Preferred StockCommon StockPaid inRetainedComprehensive
SharesAmountSharesAmountCapitalEarningsIncome (Loss)Total
(Dollars in thousands)
Balance at December 31, 20181,200,000 $12 45,074,322 $451 $454,512 $38,371 $(3,010)$490,336 
Net income
— — — — — 29,173 — 29,173 
Change in unrealized appreciation on available-for-sale securities
— — — — — — 20,842 20,842 
Issuance of shares— — 6,851,213 68 88,869 — — 88,937 
Issuance of shares from equity-based awards
— — 53,668 1 (246)— — (245)
Retired shares(1,200,000)(12)(10,000)— (30,088)(55)— (30,155)
Preferred dividends declared— — — — — (175)— (175)
Employee receivables from sale of stock
— — — — 5 112 — 117 
Stock-based compensation
— — — — 3,569 — — 3,569 
Employee stock purchase plan additions
— — — — 36 — — 36 
Adoption of ASU 2016-01— — — — — (69)69 — 
Adoption of ASU 2018-07— — — — 2,159 (2,159)— — 
Balance at September 30, 2019
— $— 51,969,203 $520 $518,816 $65,198 $17,901 $602,435 

Accumulated
AdditionalOther
Preferred StockCommon StockPaid inRetainedComprehensive
SharesAmountSharesAmountCapitalEarningsIncomeTotal
(Dollars in thousands)
Balance at December 31, 2019— $— 51,969,203 $520 $519,870 $64,803 $16,451 $601,644 
Net income— — — — — 4,507 — 4,507 
Change in unrealized appreciation on available-for-sale securities
— — — — — — 9,330 9,330 
Issuance of shares from equity-based awards
— — 226,575 1 (869)— — (868)
Employee receivables from sale of stock
— — — — 2 45 — 47 
Stock-based compensation
— — — — 3,202 — — 3,202 
Employee stock purchase plan additions— — — — 21 — — 21 
Balance at September 30, 2020
— $— 52,195,778 $521 $522,226 $69,355 $25,781 $617,883 

See Notes to Consolidated Financial Statements (unaudited)
8
Table of Contents
CROSSFIRST BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
Nine Months Ended
September 30,
20202019
(Dollars in thousands)
Operating Activities
Net income$4,507 $29,173 
Items not requiring (providing) cash
Depreciation and amortization3,888 4,015 
Provision for loan losses45,825 10,550 
Accretion of discounts and amortization of premiums on securities4,632 4,098 
Equity based compensation3,223 3,606 
Foreclosed asset impairment1,270 — 
Deferred income taxes(5,098)2,088 
Net realized gains on available-for-sale debt securities(1,725)(467)
Goodwill impairment7,397 — 
Changes in
Interest receivable(3,287)(1,817)
Other assets(2,845)(9,837)
Other liabilities(4,599)13,261 
Net cash provided by operating activities53,188 54,670 
Investing Activities
Net change in loans(652,251)(576,897)
Purchases of available-for-sale securities(35,326)(157,492)
Proceeds from maturities of available-for-sale securities102,529 48,658 
Proceeds from sale of available-for-sale securities31,810 63,515 
Purchase of premises and equipment(4,849)(649)
Proceeds from the sale of fixed assets121 3,324 
Purchase of restricted equity securities, net(2,839)(732)
Net cash used in investing activities(560,805)(620,273)
Financing Activities
Net increase in demand deposits, savings, NOW and money market accounts
667,849 237,934 
Net increase (decrease) in time deposits(99,060)212,077 
Net decrease in repurchase agreements and federal funds purchased(1,390)(50,596)
Net increase in federal funds sold— 25,000 
Proceeds from Federal Home Loan Bank advances138,000 45,000 
Repayment of Federal Home Loan Bank advances(160,643)(50,181)
Retirement of preferred stock— (30,000)
Issuance of common shares, net of issuance cost— 88,782 
Acquisition of common stock for tax withholding obligations(869)(245)
Net decrease in employee receivables46 117 
Dividends paid on preferred stock— (700)
Net cash provided by financing activities543,933 477,188 
Increase (Decrease) in Cash and Cash Equivalents36,316 (88,415)
Cash and Cash Equivalents, Beginning of Period187,320 216,541 
Cash and Cash Equivalents, End of Period$223,636 $128,126 
Supplemental Cash Flows Information
Interest paid$37,238 $54,998 
Income taxes paid7,335 1,030 
Foreclosed assets in settlement of loans$— $2,471 

See Notes to Consolidated Financial Statements (unaudited)
9
Notes to Consolidated Financial Statements (unaudited)
Note 1:Nature of Operations and Summary of Significant Accounting Policies
Organization and Nature of Operations
CrossFirst Bankshares, Inc. (the “Company”) is a bank holding company whose principal activities are the ownership and management of its wholly-owned subsidiaries, CrossFirst Bank (the “Bank”) and CFSA, LLC, which holds cash. In addition, CrossFirst Investments, Inc. (“CFI”) is a wholly-owned subsidiary of the Bank, which holds investments in marketable securities.
Basis of Presentation
The Company’s accounting and reporting policies conform to accounting principles generally accepted in the United States (“GAAP”). The consolidated financial statements include the accounts of the Company, the Bank, CFI and CFSA, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation.
The consolidated interim financial statements are unaudited and certain information and footnote disclosures presented in accordance with GAAP have been condensed or omitted and should be read in conjunction with the Company’s consolidated financial statements, and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”), filed with the Securities and Exchange Commission (the “SEC”) on March 10, 2020.
In the opinion of management, the interim financial statements include all adjustments which are of a normal, recurring nature necessary for the fair presentation of the financial position, results of operations, and cash flows of the Company and the disclosures made are adequate to make the interim financial information not misleading. The consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q adopted by the SEC.
Except for the accounting changes mentioned under “Coronavirus Aid, Relief, and Economic Security Act” and “Change in Accounting Principle” section below, no other significant changes in the accounting policies of the Company occurred since December 31, 2019, the most recent date financial statements were provided within the Company’s 2019 Form 10-K.  The information contained in the financial statements and footnotes for the period ended December 31, 2019 included in the Company’s 2019 Form 10-K should be referred to in connection with these unaudited interim consolidated financial statements. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.
Use of Estimates
The Company identified accounting policies and estimates that, due to the difficult, subjective or complex judgments and assumptions inherent in those policies and estimates and the potential sensitivity of the Company’s financial statements to those judgments and assumptions, are critical to an understanding of the Company’s financial condition and results of operations. Actual results could differ from those estimates. In particular, the novel coronavirus (“COVID-19”) pandemic and resulting impacts to economic conditions, as well as, adverse impacts to the Company’s operations may impact future estimates. The Allowance for Loan and Lease Losses, Deferred Tax Asset, and Fair Value of Financial Instruments are particularly susceptible to significant change.
Cash Equivalents
The Company had $176 million of cash and cash equivalents at the Federal Reserve Bank of Kansas City as of September 30, 2020. The reserve required at September 30, 2020 was $0.
Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)
The CARES Act allows financial institutions to elect not to consider whether loan modifications relating to the COVID-19 pandemic that they make between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the national emergency related to the COVID-19 pandemic ends are troubled debt restructurings (“TDRs”), which require additional disclosures. The relief can be applied to modifications of loans to borrowers that were not more than 30 days past due as of December 31, 2019. The Company elected to apply the guidance during the first quarter of 2020. The review of loans that meet the criteria is overseen by the Office of the Chief Credit Officer and his team.
Loans Individually Evaluated for Impairment
Prior to the quarter ended June 30, 2020, loans risk rated substandard or lower were considered impaired and evaluated on an individual basis. As of June 30, 2020 and periods going forward, loans risk rated substandard and on accrual were evaluated collectively. The new approach provided a better estimate of potential losses inherent in the substandard portfolio.
10
Notes to Consolidated Financial Statements (unaudited)
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. The Company’s definition of a substandard credit was unchanged. Substandard loans exhibit a well-defined weakness or weaknesses that jeopardize repayment. A distinct possibility exists that the Company will sustain some loss if deficiencies are not corrected.
Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual loans classified substandard. As a result, the Company revised its allowance methodology to evaluate substandard, performing loans collectively for impairment as opposed to evaluating these loans individually for impairment. At June 30, 2020, the change in methodology impacted $200 million of performing, substandard loans that were reviewed on a collective basis.
Change in Accounting Principle
On January 1, 2020, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standard Update (“ASU”) 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which was applied on a prospective basis. A description of the nature and reason for the change in accounting principle is provided below in the recent accounting pronouncements section.
On January 1, 2020, the Company adopted FASB ASU 2019-12, Simplifying the Accounting for Income Taxes, which was applied as of the adoption date. A description of the nature and reason for the change in accounting principle is provided below in the recent accounting pronouncements section.
Changes Affecting Comparability
Beginning with the quarter ended June 30, 2020, the Company separated the “Foreclosed assets, net” from the “other non-interest expense” category within the Consolidated Statements of Income. The separation was due to an increase in foreclosed asset expenses during 2020. The change had no impact on net income or total stockholders’ equity.
Beginning with the quarter ended June 30, 2020, the Company changed loans individually evaluated for impairment. A discussion regarding this change is provided above under “Loans Individually Evaluated for Impairment” and in “Note 4: Loans and Allowance for Loan Losses (“ALLL”)” within the Notes to the Unaudited Consolidated Financial Statements. The Company separated substandard loans into performing and nonperforming categories that were previously consolidated within the loan footnote disclosures. The change in disclosure did not impact the Company's impaired loan information at December 31, 2019 or ALLL information for the three and nine months ended September 30, 2019 as presented in “Note 4: Loans and Allowance for Loan Losses (“ALLL”)” within the Notes to the Unaudited Consolidated Financial Statements.
Beginning with the quarter ended March 31, 2020, the Company consolidated the “Other” line item previously included in stockholders’ equity into retained earnings within the Consolidated Balance Sheets and the Consolidated Statements of Stockholders’ Equity. The consolidation was made due to the immateriality of the “Other” line item. The change had no impact on net income or total stockholders’ equity.
Emerging Growth Company (“EGC”)
The Company is currently an EGC. An EGC may take advantage of reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. Among the reductions and reliefs, the Company elected to extend the transition period for complying with new or revised accounting standards affecting public companies. This means that the financial statements the Company files or furnishes, will not be subject to all new or revised accounting standards generally applicable to public companies for the transition period for so long as the Company remains an EGC or until the Company affirmatively and irrevocably opts out of the extended transition period under the JOBS Act.

11
Notes to Consolidated Financial Statements (unaudited)
Recent Accounting Pronouncements
The Company has implemented the following ASUs during 2020:
StandardDate of AdoptionDescriptionEffect on Financial Statements or Other Significant Matters
ASU 2020-04:

Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
June 30, 2020The ASU provides optional expedients and exceptions to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The ASU only applies to transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments include:

(1) Optional expedients to contract modifications that allow the Company to adjust the effective interest rate of receivables and debt, account for lease modifications as a continuation of the existing lease, and remove the requirement to reassess its original conclusions for contract modifications about whether that contract contains an embedded derivative that is clearly and closely related to the economic characteristics and risks of the host contract under Subtopic 815-15, Derivatives and Hedging—Embedded Derivatives;

(2) Exceptions to the guidance in Topic 815 related to changes in the critical terms of a hedging relationship due to reference rate reform; and

(3) Optional expedients for cash flow and fair value hedges.
The Company had more than $1 billion in loans tied to LIBOR as of September 30, 2020.

The Company does not believe the adoption will have a material accounting impact on the Company’s consolidated financial position or results of operations. Additionally, LIBOR fallback language has been included in key loan provisions of new and renewed loans in preparation for transition from LIBOR to the new benchmark rate when such transition occurs. This standard is expected to ease the administrative burden in accounting for the future effects of reference rate reform.

The ASU allows the Company to recognize the modification related to LIBOR as a continuation of the old contract, rather than a cancellation of the old contract resulting in a write off of unamortized fees and creation of a new contract.
ASU 2019-12:

Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
January 1, 2020

(Early Adoption)		The ASU simplifies the accounting for income taxes. Among other changes, the ASU:

(1) Removes the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items;

(2) Removes the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year;

(3) Requires an entity to recognize a franchise tax that is partially based on income as an income-based tax and account for any incremental amount incurred as a nonincome based tax; and

(4) Requires an entity to reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date.		The amendments in the ASU did not have a material impact on the Company’s tax methodology, processes, or the Company’s financial statements.
12
Notes to Consolidated Financial Statements (unaudited)
StandardDate of AdoptionDescriptionEffect on Financial Statements or Other Significant Matters
ASU 2018-13:

Fair Value Measurement (Topic 820): Disclosure Framework
January 1, 2020Improves the effectiveness of disclosures in the notes to financial statements by facilitating clear communication of the information. The amendments modify certain disclosure requirements of fair value measurements in Topic 820, Fair Value Measurement.

Entities are no longer required to disclose transfers between Level 1 and Level 2 of the fair value hierarchy or qualitatively disclose the valuation process for Level 3 fair value measurements. The updated guidance requires disclosure of the changes in unrealized gains and losses for the period included in Other Comprehensive Income for recurring Level 3 fair value measurements. Entities are required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The additional provisions of the guidance should be adopted prospectively. The eliminated requirements should be adopted retrospectively.		The adoption did not have a material impact to the Company’s financial statements.

No transfers between Level 1 and Level 2 occurred in 2019 or 2020 and the Company did not have any recurring Level 3 fair value measurements that created an unrealized gain or loss in Other Comprehensive Income. In addition, the Company previously disclosed the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements.
ASU 2017-04:

Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
January 1, 2020

(Early Adoption)		Eliminates Step 2 from the goodwill impairment test which required entities to compute the implied fair value of goodwill. An entity should perform an annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.On the date of adoption there was no impact to the Company’s financial statements.

The Company’s process for evaluating goodwill impairment was modified to align with the elimination of Step 2. In the second quarter of 2020, the Company performed a Step 0 analysis then a Step 1 analysis and determined that goodwill was fully impaired.
The Company provided updates to the following ASUs that have not been adopted. A complete list of recent, applicable accounting pronouncements was provided in the Company’s 2019 Form 10-K:
StandardAnticipated Date of AdoptionDescriptionEffect on Financial Statements or Other Significant Matters
ASU 2016-13

Financial Instruments-Credit Losses
If the Company maintains its EGC status, the Company is not required to implement this standard until January 2023. The Company will continue to monitor its progress and the requirements related to adoption.Requires an entity to utilize a new impairment model known as the current expected credit loss (“CECL”) model to estimate its lifetime expected credit loss and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset.The Company established a committee of individuals from applicable departments to oversee the implementation process. The Company completed the third party software implementation phase that included data capture and portfolio segmentation amongst other items.

The Company completed parallel runs in 2019. During the first nine months of 2020, the Company continued to perform parallel runs using 2020 data and continued to recalibrate inputs as necessary. The Company is evaluating the internal control changes that will be necessary to transition to the third-party platform.

At this time, an estimate of the impact cannot be established as the Company continues to evaluate the inputs into the model. The actual impact could be significantly affected by the composition, characteristics, and quality of the underlying loan portfolio at the time of adoption.
13
Notes to Consolidated Financial Statements (unaudited)
StandardAnticipated Date of AdoptionDescriptionEffect on Financial Statements or Other Significant Matters
ASU 2016-02

Leases (Topic 842)
The Company expects to implement this standard on January 1, 2022, unless the Company loses its EGC status during 2021. If EGC status changes, the Company would therefore be required to implement the ASU as of the beginning of 2021. Requires lessees and lessors to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements.

The update requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach with the option to elect certain practical expedients.

The update will also increase disclosures around leases, including qualitative and specific quantitative measures. 		The Company expects to apply the update as of the beginning of the period of adoption and the Company does not plan to restate comparative periods. The Company expects to elect certain optional practical expedients.

The Company gathered all potential lease and embedded lease agreements during 2019 and 2020 and is evaluating the applicability and impact to the financial statements.

The Company’s current operating leases relate primarily to four branch locations. Based on the current leases, the Company anticipates recognizing a lease liability and related right-to-use asset on its balance sheet, with an immaterial impact to its income statement compared to the current lease accounting model. However, the ultimate impact of the standard will depend on the Company's lease portfolio as of the adoption date.

Note 2:Earnings Per Share
The following table presents the computation of basic and diluted earnings per share:
Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
(Dollars in thousands except per share data)
Earnings per Share
Net income$8,006 $10,384 $4,507 $29,173 
Less: preferred stock dividends