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, 2021

or

☐

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

For the transition period from ______ to ______

Commission file number

001-39028

CROSSFIRST BANKSHARES, INC.

(Exact Name of Registrant as Specified in its Charter)

Kansas

26-3212879

(State or other jurisdiction of incorporation or organization)

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

11440 Tomahawk Creek Parkway

Leawood

,

KS

66211

(Address of principal executive offices)

(Zip Code)

(

913

)

312-6822

(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 class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

CFB

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities

Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and

(2) has been subject to such filing requirements for the past 90 days. 

Yes

☒

 No 

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to

Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant

was required to submit such files). 

Yes

☒

 No 

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting

company, or an emerging growth company. See the definitions of “large 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 1, 2021, the registrant had

50,918,788

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

2

CrossFirst Bankshares, Inc.

Form 10-Q for the Quarter Ended September 30, 2021 

Index

Part I. Financial Information

Item 1. Financial Statements

Forward-Looking Information

4

5

6

7

9

Notes to Consolidated Financial Statements (unaudited)

10

13

14

18

30

30

31

31

32

34

34

38

38

38

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

39

41

41

45

47

48

49

49

49

50

53

55

57

57

57

58

59

60

Part II. Other Information

60

60

61

62

63

3

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, 2020, filed with the Securities and

Exchange Commission (“SEC”) on February 26, 2021, any subsequent quarterly report on 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.

See Notes to Consolidated Financial Statements (unaudited)

4

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CROSSFIRST BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS

September 30, 2021

December 31, 2020

(Unaudited)

(Dollars in thousands)

Assets

Cash and cash equivalents

$

316,722

$

408,810

Available-for-sale securities - taxable

168,182

177,238

Available-for-sale securities - tax-exempt

539,924

477,350

Loans, net of allowance for loan losses of $

64,152

 and $

75,295

 at September 30,

2021 and December 31, 2020, respectively

4,168,965

4,366,602

Premises and equipment, net

66,598

70,509

Restricted equity securities

12,885

15,543

Interest receivable

15,928

17,236

Foreclosed assets held for sale

1,148

2,347

Bank-owned life insurance

67,104

67,498

Other

43,695

56,170

Total assets

$

5,401,151

$

5,659,303

Liabilities and stockholders’ equity

Deposits

Noninterest-bearing

$

960,999

$

718,459

Savings, NOW and money market

2,774,477

2,932,799

Time

701,121

1,043,482

Total deposits

4,436,597

4,694,740

Federal funds purchased and repurchase agreements

-

2,306

Federal Home Loan Bank advances

276,600

293,100

Other borrowings

997

963

Interest payable and other liabilities

34,550

43,766

Total liabilities

4,748,744

5,034,875

Stockholders’ equity

Common stock, $

0.01

 par value:

authorized -

200,000,000

 shares, issued -

52,576,504

 and

52,289,129

 shares at

September 30, 2021 and December 31, 2020, respectively

526

523

Treasury stock, at cost:

1,573,806

 and

609,613

 shares held at September 30, 2021 and December 31, 2020,

respectively

(20,000)

(6,061)

Additional paid-in capital

525,676

522,911

Retained earnings

126,299

77,652

Accumulated other comprehensive income

19,906

29,403

Total stockholders’ equity

652,407

624,428

Total liabilities and stockholders’ equity

$

5,401,151

$

5,659,303

See Notes to Consolidated Financial Statements (unaudited)

5

CROSSFIRST BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED

Three Months Ended

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

(Dollars in thousands except per share data)

Interest Income

Loans, including fees

$

42,664

$

43,929

$

130,268

$

138,591

Available-for-sale securities - taxable

803

1,042

2,423

4,174

Available-for-sale securities - tax-exempt

3,562

3,186

10,410

9,758

Deposits with financial institutions

121

47

359

583

Dividends on bank stocks

161

248

488

808

Total interest income

47,311

48,452

143,948

153,914

Interest Expense

Deposits

4,211

7,298

14,789

29,975

Fed funds purchased and repurchase agreements

-

54

3

162

Federal Home Loan Bank Advances

1,275

1,749

3,838

4,980

Other borrowings

24

24

72

85

Total interest expense

5,510

9,125

18,702

35,202

Net Interest Income

41,801

39,327

125,246

118,712

Provision for Loan Losses

(10,000)

10,875

1,000

45,825

Net Interest Income after Provision for Loan Losses

51,801

28,452

124,246

72,887

Non-Interest Income (Loss)

Service charges and fees on customer accounts

1,196

792

3,330

1,947

Realized gains on available-for-sale securities

1,046

1,012

1,043

1,725

Unrealized gains (losses), net on equity securities 

(6,210)

-

(6,243)

53

Income from bank-owned life insurance

427

464

3,088

1,373

Swap fees and credit valuation adjustments, net

31

121

156

80

ATM and credit card interchange income

1,735

1,482

5,569

2,863

Other non-interest income

670

192

1,921

751

Total non-interest income (loss)

(1,105)

4,063

8,864

8,792

Non-Interest Expense

Salaries and employee benefits

15,399

14,628

44,612

43,022

Occupancy

2,416

2,144

7,307

6,274

Professional fees

618

1,132

2,538

3,098

Deposit insurance premiums

927

1,096

2,995

3,151

Data processing

700

652

2,136

2,065

Advertising

596

147

1,334

870

Software and communication

999

959

3,098

2,772

Foreclosed assets, net

(35)

20

680

1,174

Goodwill impairment

-

-

-

7,397

Other non-interest expense

2,416

2,233

7,967

6,421

Total non-interest expense

24,036

23,011

72,667

76,244

Net Income Before Taxes

26,660

9,504

60,443

5,435

Income tax expense

5,660

1,498

11,831

928

Net Income

$

21,000

$

8,006

$

48,612

$

4,507

Basic Earnings Per Share

$

0.41

$

0.15

$

0.95

$

0.09

Diluted Earnings Per Share

$

0.41

$

0.15

$

0.93

$

0.09

See Notes to Consolidated Financial Statements (unaudited)

6

CROSSFIRST BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - UNAUDITED

Three Months Ended

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

(Dollars in thousands)

Net Income

$

21,000

$

8,006

$

48,612

$

4,507

Other Comprehensive Income (Loss)

Unrealized gain (loss) on available-for-sale securities

(7,989)

1,923

(11,532)

14,073

Less: income tax expense (benefit)

(1,956)

472

(2,823)

3,440

Unrealized gain (loss) on available-for-sale securities, net of

income tax

(6,033)

1,451

(8,709)

10,633

Reclassification adjustment for realized gains included in income

1,046

1,012

1,043

1,725

Less: income tax expense

256

248

255

422

Less: reclassification adjustment for realized gains included in

income, net of income tax

790

764

788

1,303

Other comprehensive income (loss)

(6,823)

687

(9,497)

9,330

Comprehensive Income

$

14,177

$

8,693

$

39,115

$

13,837

See Notes to Consolidated Financial Statements (unaudited)

7

CROSSFIRST BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED

Common Stock

Additional

Paid-in

Capital

Retained

Earnings

Accumulated Other

Comprehensive

Income

Treasury Stock

Total

Shares

Amount

(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

-

-

1,207

-

-

-

1,207

Balance at September 30, 2020

52,195,778

$

521

$

522,226

$

69,355

$

25,781

$

-

$

617,883

Common Stock

Additional

Paid-in

Capital

Retained

Earnings

Accumulated Other

Comprehensive

Income

Treasury Stock

Total

Shares

Amount

(Dollars in thousands)

Balance at June 30, 2021

50,958,680

$

525

$

524,637

$

105,299

$

26,729

$

(20,000)

$

637,190

Net income

-

-

-

21,000

-

-

21,000

Change in unrealized depreciation of available-

for-sale securities

-

-

-

-

(6,823)

-

(6,823)

Issuance of shares from equity-based awards

44,018

1

(110)

-

-

-

(109)

Stock-based compensation

-

-

1,149

-

-

-

1,149

Balance September 30, 2021

51,002,698

$

526

$

525,676

$

126,299

$

19,906

$

(20,000)

$

652,407

See Notes to Consolidated Financial Statements (unaudited)

8

Common Stock

Additional

Paid-in

Capital

Retained

Earnings

Accumulated Other

Comprehensive

Income

Treasury Stock

Total

Shares

Amount

(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

-

-

3,223

-

-

-

3,223

Balance at September 30, 2020

52,195,778

$

521

$

522,226

$

69,355

$

25,781

$

-

$

617,883

Common Stock

Additional

Paid-in Capital

Retained

Earnings

Accumulated Other

Comprehensive

Income

Treasury Stock

Total

Shares

Amount

(Dollars in thousands)

Balance at December 31, 2020

51,679,516

$

523

$

522,911

$

77,652

$

29,403

$

(6,061)

$

624,428

Net income

-

-

-

48,612

-

-

48,612

Change in unrealized depreciation of available-

for-sale securities

-

-

-

-

(9,497)

-

(9,497)

Issuance of shares from equity-based awards

287,375

3

(608)

-

-

-

(605)

Open market common share repurchases

(964,193)

-

-

-

-

(13,939)

(13,939)

Employee receivables from sale of stock

-

-

-

35

-

-

35

Stock-based compensation

-

-

3,373

-

-

-

3,373

Balance September 30, 2021

51,002,698

$

526

$

525,676

$

126,299

$

19,906

$

(20,000)

$

652,407

See Notes to Consolidated Financial Statements (unaudited)

9

CROSSFIRST BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

Nine Months Ended

September 30,

2021

2020

(Dollars in thousands)

Operating Activities

Net income

$

48,612

$

4,507

Items not requiring (providing) cash

Depreciation and amortization

3,993

3,888

Provision for loan losses

1,000

45,825

Accretion of discounts and amortization of premiums on securities

3,876

4,632

Equity based compensation

3,373

3,223

Foreclosed asset impairment

630

1,270

Deferred income taxes

2,233

(5,098)

Net increase in bank owned life insurance

(3,088)

(1,373)

Net recognized gains (losses) on equity securities

6,243

(53)

Net realized gains on available-for-sale securities

(1,043)

(1,725)

Goodwill impairment

-

7,397

Changes in

Interest receivable

1,308

(3,287)

Other assets

(1,753)

(1,472)

Other liabilities

(541)

(4,546)

Net cash provided by operating activities

64,843

53,188

Investing Activities

Net change in loans

196,637

(652,251)

Purchases of available-for-sale securities

(168,705)

(35,326)

Proceeds from maturities of available-for-sale securities

83,546

102,529

Proceeds from sale of available-for-sale securities

15,923

31,810

Proceeds from the sale of foreclosed assets

628

-

Purchase of premises and equipment

(671)

(4,849)

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

547

121

Purchase of restricted equity securities

-

(2,839)

Proceeds from sale of restricted equity securities

3,143

-

Proceeds from death benefit on bank owned life insurance

3,483

-

Net cash provided by (used in) investing activities

134,531

(560,805)

Financing Activities

Net increase in demand deposits, savings, NOW and money market accounts

84,218

667,849

Net decrease in time deposits

(342,361)

(99,060)

Net decrease in fed funds purchased and repurchase agreements

(2,306)

(1,390)

Proceeds from Federal Home Loan Bank advances

-

138,000

Repayment of Federal Home Loan Bank advances

(16,500)

(160,643)

Issuance of common shares, net of issuance cost

3

-

Proceeds from employee stock purchase plan

172

-

Repurchase of common stock

(13,939)

-

Acquisition of common stock for tax withholding obligations

(784)

(869)

Net decrease in employee receivables

35

46

Net cash provided by (used in) financing activities

(291,462)

543,933

Increase (Decrease) in Cash and Cash Equivalents

(92,088)

36,316

Cash and Cash Equivalents, Beginning of Period

408,810

187,320

Cash and Cash Equivalents, End of Period

$

316,722

$

223,636

Supplemental Cash Flows Information

Interest paid

$

19,402

$

37,238

Income taxes paid

$

8,370

$

7,335

Notes to Consolidated Financial Statements (unaudited)

10

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

Organization and Nature of Operations

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

management of its wholly-owned subsidiary, CrossFirst Bank (the “Bank”). In addition, the Bank has

three

 subsidiaries including

CrossFirst Investments, Inc. (“CFI”) that holds investments in marketable securities, CFBSA I, LLC that holds foreclosed assets and

CFBSA II, LLC that holds foreclosed assets.

The Bank is primarily engaged in providing a full range of banking and financial services to individual and corporate customers

through its branches in: (i) Leawood, Kansas; (ii) Wichita, Kansas; (iii) Kansas City, Missouri; (iv) Oklahoma City, Oklahoma; (v)

Tulsa, Oklahoma; (vi) Dallas, Texas; (vii) Frisco, Texas; and (viii) Phoenix, Arizona.

Basis of Presentation

The Company’s accounting and reporting policies conform to accounting principles generally accepted in the United States

(“GAAP”). The consolidated financial statements include the accounts of the Company, the Bank, CFI, CFBSA I, LLC and CFBSA II,

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

The 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, 2020 (the “2020

Form 10-K”), filed with the Securities and Exchange Commission (the “SEC”) on February 26, 2021.

 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.

No significant changes in the accounting policies of the Company occurred since December 31, 2020, the most recent date

financial statements were provided within the Company’s 2020 Form 10-K. Operating results for the interim periods disclosed herein are

not necessarily indicative of the results that may be expected for a full year or any future period.

Use of Estimates

The Company identified accounting policies and estimates that, due to the difficult, subjective or complex judgments and

assumptions inherent in those policies and estimates and the potential sensitivity of the Company’s financial statements to those

judgments and assumptions, are critical to an understanding of the Company’s financial condition and results of operations. Actual

results could differ from those estimates. 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

losses, deferred tax asset, and fair value of financial instruments are particularly susceptible to significant change.

Cash Equivalents

The Company had $

253

 million of cash and cash equivalents at the Federal Reserve Bank of Kansas City as of September 30,

2021. The reserve required at September 30, 2021 was $

0

.

Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)

The CARES Act gave financial institutions the right to elect to suspend GAAP principles and regulatory determinations for loan

modifications relating to COVID-19 that would otherwise be categorized as troubled debt restructurings (“TDRs”) from March 1, 2020,

through December 31, 2020. On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law, which extended

the period during which the Company may suspend GAAP principles and regulatory determinations for loan modifications relating to

Notes to Consolidated Financial Statements (unaudited)

11

COVID-19 that would otherwise be categorized as TDRs through January 1, 2022. The Company elected to apply the guidance starting

in the first quarter of 2020.

Changes Affecting Comparability

Beginning with the quarter ended March 31, 2021, the Company consolidated the “Goodwill and other intangible assets, net” into

“other assets” within the Consolidated Balance Sheets. The consolidation was due to the immateriality of the remaining intangible

assets. The change had no impact on net income.

For the quarter ended September 30, 2021, the Company broke out “unrealized gains (losses), net on equity securities” that was

previously consolidated in “other non-interest income”. As a result, changes within the Consolidated Statements of Income in the prior

periods were made to conform to the current period presentation. The changes provided additional detail about the Company’s

operations. The changes had no impact on net income.

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.

Notes to Consolidated Financial Statements (unaudited)

12

Recent Accounting Pronouncements

The following table provides information about Accounting Standard Updates (“ASUs”) the Company anticipates to adopt in the

future:

Standard

Anticipated

Date of

Adoption

Description

Effect 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

expects to

implement this

standard on

January 1, 2022.

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

amortized cost basis

of the financial asset,

presents the net

amount expected to

be collected on the

financial asset.

The Company established a committee to formulate and oversee the

implementation process including selection, implementation and testing of

third-party software.

The Company began parallel processing with the existing allowance for loan

losses model during the first quarter of 2019 recalibrating inputs as

necessary. The Company is formulating changes to policies, procedures,

disclosures and internal controls that will be necessary to transition to the

new standard. A third-party completed validation of the completeness,

accuracy and reasonableness of the model in the fourth quarter of 2021. 

The Company plans to use a loss-rate ("cohort") method to estimate the

expected allowance for credit losses ("ACL") for all loan pools. Upon

adoption in 2022, a cumulative-effect adjustment for the change in the ACL

will be recognized in retained earnings. Based on our forecasted economic

conditions and portfolio balances at September 30, 2021, the adoption of the

standard could result in an overall cumulative-effect adjustment of up to a

5% change in the ACL, as compared to our current reserve levels. These

results include the adoption of a forecast based on several economic

assumptions, including unemployment rates and management judgments. 

Adoption will not materially impact reporting for debt securities as the

Company does not currently own held-to-maturity debt securities within the

scope of ASU 2016-13.

The actual impact could be significantly affected by the composition,

characteristics, and quality of the underlying loan portfolio and economic

assumptions at the time of adoption.

The Company does not expect the adoption to have a significant impact on

capital or capital ratios and will continue to evaluate the impact the adoption

of ASU 2016-13 will have on the Company's consolidated financial

statements.

Notes to Consolidated Financial Statements (unaudited)

13

Standard

Anticipated

Date of

Adoption

Description

Effect on Financial Statements or Other Significant Matters

ASU 2016-02

Leases (Topic

842)

The Company

expects to

implement this

standard on

January 1, 2022.

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 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 Ended

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

(Dollars in thousands except per share data)

Earnings per Share

Net income available to common stockholders

$

21,000

$

8,006

$

48,612

$

4,507

Weighted average common shares

50,990,113

52,136,286

51,368,957

52,104,372

Earnings per share

$

0.41

$

0.15

$

0.95

$

0.09

Diluted Earnings per Share

Net income available to common stockholders

$

21,000

$

8,006

$

48,612

$

4,507

Weighted average common shares

50,990,113

52,136,286

51,368,957

52,104,372

Effect of dilutive shares

615,608

423,840

699,257

463,219

Weighted average dilutive common shares

51,605,721

52,560,126

52,068,214

52,567,591

Diluted earnings per share

$

0.41

$

0.15

$

0.93

$

0.09

Stock-based awards not included because to do so would be

antidilutive

587,200

1,214,433

657,887

1,053,393

Notes to Consolidated Financial Statements (unaudited)

14

Note 3: Securities

The amortized cost and approximate fair values, together with gross unrealized gains and losses, of period end available-for-sale

securities consisted of the following:

September 30, 2021

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Approximate

Fair Value

(Dollars in thousands)

Available-for-sale securities

Mortgage-backed - GSE residential

$

132,059

$

2,326

$

1,421

$

132,964

Collateralized mortgage obligations - GSE residential

22,122

498

16

22,604

State and political subdivisions

523,324

27,922

2,968

548,278

Corporate bonds

4,242

85

67

4,260

Total available-for-sale securities

$

681,747

$

30,831

$

4,472

$

708,106

December 31, 2020

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Approximate

Fair Value

(Dollars in thousands)

Available-for-sale securities

Mortgage-backed - GSE residential

$

104,839

$

4,277

$

-

$

109,116

Collateralized mortgage obligations - GSE residential

52,070

984

42

53,012

State and political subdivisions

454,486

33,642

31

488,097

Corporate bonds

4,259

104

-

4,363

Total available-for-sale securities

$

615,654

$

39,007

$

73

$

654,588

Notes to Consolidated Financial Statements (unaudited)

15

The amortized cost and fair value of available-for-sale securities at September 30, 2021, by contractual maturity, are shown

below:

September 30, 2021

Within

After One to

After Five to

After

One Year

Five Years

Ten Years

Ten Years

Total

(Dollars in thousands)

Available-for-sale securities

Mortgage-backed - GSE residential

(1)

Amortized cost

$

-

$

40

$

148

$

131,871

$

132,059

Estimated fair value

$

-

$

41

$

159

$

132,764

$

132,964

Weighted average yield

(2)

0.00

%

4.68

%

3.96

%

1.60

%

1.60

%

Collateralized mortgage obligations -

GSE residential

(1)

Amortized cost

$

-

$

-

$

2,438

$

19,684

$

22,122

Estimated fair value

$

-

$

-

$

2,608

$

19,996

$

22,604

Weighted average yield

(2)

0.00

%

0.00

%

2.77

%

1.16

%

1.34

%

State and political subdivisions

Amortized cost

$

522

$

6,115

$

78,231

$

438,456

$

523,324

Estimated fair value

$

524

$

6,319

$

84,402

$

457,033

$

548,278

Weighted average yield

(2)

3.25

%

3.88

%

3.35

%

2.76

%

2.86

%

Corporate bonds

Amortized cost

$

-

$

355

$

3,887

$

-

$

4,242

Estimated fair value

$

-

$

360

$

3,900

$

-

$

4,260

Weighted average yield

(2)

0.00

%

4.22

%

4.54

%

0.00

%

4.52

%

Total available-for-sale securities

Amortized cost

$

522

$

6,510

$

84,704

$

590,011

$

681,747

Estimated fair value

$

524

$

6,720

$

91,069

$

609,793

$

708,106

Weighted average yield

(2)

3.25

%

3.90

%

3.39

%

2.44

%

2.58

%

(1)

 Actual maturities may differ from contractual maturities because issuers may have the rights to call or prepay obligations with or

without prepayment penalties.

(2)

Yields are calculated based on amortized cost.

Notes to Consolidated Financial Statements (unaudited)

16

The following tables show the number of securities, unrealized loss, and fair value of the Company’s investments with unrealized

losses that are not deemed to be other-than-temporarily impaired (“OTTI”), aggregated by investment class and length of time that

individual securities have been in a continuous unrealized loss position at September 30, 2021 and December 31, 2020:

September 30, 2021

Less than 12 Months

12 Months or More

Total

Fair Value

Unrealized

Losses

Number of

Securities

Fair Value

Unrealized

Losses

Number of

Securities

Fair Value

Unrealized

Losses

Number of

Securities

(Dollars in thousands)

Available-for-sale

securities

Mortgage-backed -

GSE residential

$

70,590

$

1,421

15

$

-

$

-

-

$

70,590

$

1,421

15

Collateralized

mortgage obligations

- GSE residential

1,561

15

3

161

1

1

1,722

16

4

State and political

subdivisions

99,890

2,964

62

1,101

4

3

100,991

2,968

65

Corporate bonds

3,433

67

1

-

-

-

3,433

67

1

Total temporarily

impaired securities

$

175,474

$

4,467

81

$

1,262

$

5

4

$

176,736

$

4,472

85

December 31, 2020

Less than 12 Months

12 Months or More

Total

Fair Value

Unrealized

Losses

Number of

Securities

Fair Value

Unrealized

Losses

Number of

Securities

Fair Value

Unrealized

Losses

Number of

Securities

(Dollars in thousands)

Available-for-sale

securities

Mortgage-backed -

GSE residential

$

-

$

-

-

$

-

$

-

-

$

-

$

-

-

Collateralized

mortgage obligations

- GSE residential

9,933

42

5

-

-

-

9,933

42

5

State and political

subdivisions

8,525

31

8

25

-

1

8,550

31

9

Corporate bonds

-

-

-

-

-

-

-

-

-

Total temporarily

impaired securities

$

18,458

$

73

13

$

25

$

-

1

$

18,483

$

73

14

The Company expects to recover the amortized cost basis over the term of the securities. The Company does not intend to sell the

investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized

cost basis, which may be maturity.

The following tables show the gross gains and losses on securities that matured or were sold:

For the Three Months Ended

For the Nine Months Ended

September 30, 2021

September 30, 2021

Gross

Realized

Gains

Gross

Realized

Losses

Net

Realized

Gain 

Gross

Realized

Gains

Gross

Realized

Losses

Net

Realized

Gain

(Dollars in thousands)

Available-for-sale securities

$

1,125

$

79

$

1,046

$

1,151

$

108

$

1,043

Notes to Consolidated Financial Statements (unaudited)

17

For the Three Months Ended

For the Nine Months Ended

September 30, 2020

September 30, 2020

Gross

Realized

Gains

Gross

Realized

Losses

Net

Realized

Gain

Gross

Realized

Gains

(1)

Gross

Realized

Losses

Net

Realized

Gain

(Dollars in thousands)

Available-for-sale securities

$

1,025

$

13

$

1,012

$

1,785

$

60

$

1,725

(1)

The gross gains for the nine-months ended September 30, 2020, included $

75

 thousand related to a previously disclosed OTTI

municipal security that was settled in 2020.

Equity Securities

Equity securities consist of a $

2

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

308

 thousand

private equity investment and a $

5

 million privately-held security acquired in the fourth quarter of 2020 as part of a debt restructuring.

Equity securities are included in “other assets” on the Consolidated Balance Sheets.

The privately-held security was acquired in partial satisfaction of debts previously contracted at an initial value of $

11

 million.

The Company elected a measurement alternative that allows the security to remain at cost until an impairment is identified or an

observable price change for an identical or similar investment of the same issuer occurs. Impairment is recorded when there is evidence

that the expected fair value of the investment has declined to below the recorded cost. During the third quarter of 2021, qualitative

impairment factors required the Company to update the equity’s fair market value and the Company recorded a $

6

 million unrealized

loss on the equity security due to a reduction in its fair market value. 

The following is a summary of the unrealized and realized gains and losses recognized in net income on equity securities:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

2021

2020

2021

2020

(Dollars in thousands)

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

$

(6,210)

$

-

$

(6,243)

$

53

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

during the reporting period

-

-

-

-

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

securities still held at the reporting date

$

(6,210)

$

-

$

(6,243)

$

53

Notes to Consolidated Financial Statements (unaudited)

18

Note 4: Loans and Allowance for Loan Losses (“ALLL”)

Categories of loans at September 30, 2021 and December 31, 2020 include:

September 30, 2021

December 31, 2020

(Dollars in thousands)

Commercial

$

1,305,536

$

1,338,757

Energy

296,365

345,233

Commercial real estate

1,266,694

1,179,534

Construction and land development

585,134

563,144

Residential and multifamily real estate

620,877

680,932

Paycheck Protection Program (“PPP”)

109,465

292,230

Consumer

62,113

55,270

Gross loans

4,246,184

4,455,100

Less: Allowance for loan losses

64,152

75,295

Less: Net deferred loan fees and costs

13,067

13,203

Net loans

$

4,168,965

$

4,366,602

Allowance for Loan Losses

The ALLL is established as losses are estimated to have occurred through a provision for loan losses charged to income. 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 ALLL is evaluated on a regular basis by management and is based upon management’s periodic review of its ability to collect the loans considering 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.

The ALLL consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as

impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that

loan. The general component covers all loans on accrual and is based on historical charge-off experience and expected loss given default derived from the Company’s internal risk

rating process and loan categories. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are

not fully reflected in the historical loss or risk rating data.

The Company evaluates the loan risk grading system definitions, portfolio segment definitions and ALLL methodology on an ongoing basis. No changes to loan definitions,

segmentation, and ALLL methodology occurred during the third quarter of 2021.

The following tables summarize the activity in the ALLL by portfolio segment and disaggregated based on the Company’s impairment methodology. The allocation in one

portfolio segment does not preclude its availability to absorb losses in other segments:

Notes to Consolidated Financial Statements (unaudited)

19

Commercial

Energy

Commercial

Real Estate

Construction and

Land

Development

Residential and

Multifamily

Real Estate

PPP

Consumer

Total

(Dollars in thousands)

Three Months Ended September 30, 2021

Allowance for loan losses

Beginning balance

$

28,433

$

17,849

$

19,181

$

3,885

$

5,826

$

-

$

319

$

75,493

Provision

(3,666)

(4,798)

(236)

(694)

(561)

-

(45)

(10,000)

Charge-offs

(1,071)

(503)

-

-

-

-

(1)

(1,575)

Recoveries

225

-

-

-

5