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cfb-2023q3
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UNITED STATES
SECURITIES AND
 
EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 2023
 
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
)
901-4516
 
(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 October 28, 2023, the registrant had
49,296,927
 
shares of common stock, par value $0.01, outstanding.
 
 
 
 
 
 
 
 
 
3
Forward-Looking Information
All statements contained in this quarterly report on Form 10-Q that do not directly and exclusively
 
relate to historical facts
constitute forward-looking statements. These statements are often, but not always, made through the
 
use of words or phrases such as
“may,” “might,” “could,” “predict,”
 
“potential,” “believe,”
 
“expect,” “continue,”
 
“will,”
 
“anticipate,”
 
“seek,” “estimate,”
 
“intend,”
“plan,” “projection,”
 
“goal,” “target,” “outlook,”
 
“aim,” “would,” “annualized,” “position”
 
and “outlook,”
 
or the negative of these words
or other comparable words or phrases of a future or forward-looking nature. For
 
example, our forward-looking statements include
statements regarding our business plans, expectations, or opportunities
 
for growth; the impact of the acquisition of Canyon
Bancorporation, Inc. and Canyon Community Bank, N.A. (collectively
 
“Canyon”); our expense management initiatives and the results
expected to be realized from those initiatives; our anticipated financial results, expenses,
 
cash requirements and sources of liquidity; and
our capital allocation strategies and plans.
Unless we state otherwise or the context otherwise requires, references in this Form 10-Q
 
to “we,” “our,”
 
“us,” and the
“Company” refer to CrossFirst Bankshares, Inc., and its consolidated subsidiaries. References
 
in this Form 10-Q to “CrossFirst Bank”
and the “Bank”
 
refer to CrossFirst Bank, our wholly owned consolidated bank subsidiary.
These forward-looking statements are not historical facts, and are based
 
on current expectations, estimates and projections about
our industry, management’s beliefs and
 
certain assumptions made by management, many of which, by their nature,
 
are inherently
uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not a guarantee
 
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
 
due to a number of factors, including, without
limitation: impacts on us and our clients of a decline in general business and economic conditions
 
and any regulatory responses thereto,
including uncertainty and volatility in the financial markets; interest rate
 
fluctuations; our ability to effectively execute our growth
strategy and manage our growth, including identifying and consummating suitable
 
mergers and acquisitions, entering new lines of
business or offering new or enhanced services or products; our ability to successfully
 
integrate Canyon; fluctuations in fair value of our
investments due to factors outside of our control; our ability to successfully
 
manage credit risk and the sufficiency of our allowance;
geographic concentration of our markets; economic impact on our commercial real estate
 
and commercial-based loan portfolios,
including declines in commercial and residential real estate values; an increase in
 
non-performing assets; our ability to attract, hire and
retain key personnel; maintaining and increasing customer deposits, funding availability,
 
liquidity and our ability to raise and maintain
sufficient capital; competition from banks, credit unions and other financial services
 
providers; the effectiveness of our risk management
framework; accounting estimates; our ability to maintain effective internal control
 
over financial reporting; our ability to keep pace with
technological changes; cyber incidents or other failures, disruptions or security breaches; employee
 
error, fraud committed against the
Company or our clients, or incomplete or inaccurate information about clients and
 
counterparties; mortgage markets; our ability to
maintain our reputation; costs and effects of litigation; environmental liability; risk exposure
 
from transactions with financial
counterparties; severe weather, natural disasters, pandemics;
 
acts of war or terrorism or other external events; changes in laws, rules,
regulations, interpretations or policies relating to financial institutions, including stringent
 
capital requirements, higher FDIC insurance
premiums and assessments, consumer protection laws and privacy laws; volatility in
 
our stock price; or risks inherent with proposed
business acquisitions and the failure to achieve projected synergies.
 
Additional discussion of these and other risk factors can be found in
our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (“2022 Form 10-K”), filed with the Securities and
Exchange Commission (“SEC”) on March 3, 2023, and in our other filings with the SEC.
 
Except as required by law, the Company undertakes no obligation to update or
 
revise forward-looking statements to reflect
changed assumptions, the occurrence of unanticipated events or changes in our business,
 
results of operations or financial condition over
time. Given these risks and uncertainties, readers are cautioned not to place undue reliance
 
on such forward-looking statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Consolidated Financial Statements – Unaudited
4
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CROSSFIRST BANKSHARES, INC.
Consolidated Statements of Financial Condition – Unaudited
September 30, 2023
December 31, 2022
(Dollars in thousands)
Assets
Cash and cash equivalents
$
233,191
$
300,138
Available-for-sale securities - taxable
345,708
198,808
Available-for-sale securities - tax-exempt
404,779
488,093
Loans, net of unearned fees
5,945,753
5,372,729
Allowance for credit losses on loans
71,556
61,775
Loans, net of the allowance for credit losses on loans
5,874,197
5,310,954
Premises and equipment, net
70,245
65,984
Restricted equity securities
4,396
12,536
Interest receivable
35,814
29,507
Foreclosed assets held for sale
-
1,130
Goodwill and other intangible assets, net
32,293
29,081
Bank-owned life insurance
70,367
69,101
Other
108,489
95,754
Total assets
$
7,179,479
$
6,601,086
Liabilities and stockholders’
 
equity
Deposits
Non-interest-bearing
$
1,028,974
$
1,400,260
Savings, NOW and money market
3,558,994
3,305,481
Time
1,743,653
945,567
Total deposits
6,331,621
5,651,308
Federal Home Loan Bank advances
88,531
218,111
Other borrowings
18,059
35,457
Interest payable and other liabilities
98,217
87,611
Total liabilities
6,536,428
5,992,487
Stockholders’
 
equity
Preferred stock, $
0.01
 
par value:
 
Authorized -
15,000
 
shares, issued -
7,750
 
shares at
September 30, 2023 and
no
 
shares at December 31, 2022
-
-
Common stock, $
0.01
 
par value:
 
Authorized -
200,000,000
 
shares, issued -
53,285,789
 
and
53,036,613
 
shares at September 30, 2023 and December 31, 2022,
respectively
533
530
Treasury stock, at cost:
 
3,990,753
 
and
4,588,398
 
shares held at September 30, 2023
and December 31, 2022, respectively
(58,195)
(64,127)
Additional paid-in capital
542,191
530,658
Retained earnings
254,855
206,095
Accumulated other comprehensive loss
(96,333)
(64,557)
Total stockholders’ equity
643,051
608,599
Total liabilities and stockholders’
 
equity
$
7,179,479
$
6,601,086
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Consolidated Financial Statements – Unaudited
5
CROSSFIRST BANKSHARES, INC.
Consolidated Statements of Operations – Unaudited
Three Months Ended
Nine Months Ended
September 30,
September 30,
2023
2022
2023
2022
(Dollars in thousands except per share data)
Interest Income
Loans, including fees
$
103,631
$
59,211
$
292,231
$
149,266
Available-for-sale securities - taxable
3,089
1,119
7,560
3,250
Available-for-sale securities - tax-exempt
3,365
3,905
10,730
11,442
Deposits with financial institutions
2,444
1,193
6,067
1,714
Dividends on bank stocks
127
122
753
478
Total interest income
112,656
65,550
317,341
166,150
Interest Expense
Deposits
56,297
14,909
141,685
23,152
Fed funds purchased and repurchase agreements
5
9
51
83
Federal Home Loan Bank Advances
1,003
898
7,128
3,302
Other borrowings
224
39
590
94
Total interest expense
57,529
15,855
149,454
26,631
Net Interest Income
55,127
49,695
167,887
139,519
Provision for Credit Losses
3,329
3,334
10,390
4,844
Net Interest Income after Provision for Credit Losses
51,798
46,361
157,497
134,675
Non-Interest Income
 
 
 
 
Service charges and fees on customer accounts
2,249
1,566
6,188
4,520
ATM and credit card interchange income
1,436
1,326
3,913
5,513
Gain on sale of loans
739
-
2,131
-
Income from bank-owned life insurance
437
405
1,266
1,200
Swap fees and credit valuation adjustments, net
57
(7)
231
123
Other non-interest income
1,063
490
2,452
1,566
Total non-interest income
5,981
3,780
16,181
12,922
Non-Interest Expense
 
 
 
 
Salaries and employee benefits
22,017
18,252
68,700
53,288
Occupancy
3,183
2,736
9,211
7,851
Professional fees
1,945
580
5,533
2,453
Deposit insurance premiums
1,947
903
5,359
2,355
Data processing
904
877
3,203
2,849
Advertising
593
796
1,994
2,247
Software and communication
1,898
1,222
5,204
3,689
Foreclosed assets, net
-
9
128
(30)
Other non-interest expense
2,945
3,057
9,980
10,559
Core deposit intangible amortization
922
19
2,546
58
Total non-interest expense
36,354
28,451
111,858
85,319
Net Income Before Taxes
21,425
21,690
61,820
62,278
Income tax expense
$
4,562
$
4,410
$
12,802
$
12,625
Net Income
$
16,863
$
17,280
$
49,018
$
49,653
Basic Earnings Per Common Share
$
0.34
$
0.35
$
1.00
$
1.00
Diluted Earnings Per Common Share
$
0.34
$
0.35
$
0.99
$
0.99
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Consolidated Financial Statements – Unaudited
6
CROSSFIRST BANKSHARES, INC.
Consolidated Statements of Comprehensive Income (Loss) – Unaudited
Three Months Ended
Nine Months Ended
September 30,
September 30,
2023
2022
2023
2022
(Dollars in thousands)
Net Income
$
16,863
$
17,280
$
49,018
$
49,653
Other Comprehensive Loss
Unrealized loss on available-for-sale securities
(41,604)
(39,299)
(37,083)
(137,282)
Less: income tax benefit
(9,902)
(9,621)
(8,727)
(33,607)
Unrealized loss on available-for-sale securities
(31,702)
(29,678)
(28,356)
(103,675)
Reclassification adjustment for realized (loss) gain included in
income
(60)
(4)
3
(43)
Less: income tax expense (benefit)
(14)
(1)
1
(11)
Less: reclassification adjustment for realized (losses) gains
included in income, net of income tax
(46)
(3)
2
(32)
Unrealized loss on cash flow hedges
(2,289)
(7,076)
(4,381)
(3,036)
Less: income tax benefit
(545)
(1,731)
(1,041)
(741)
Unrealized loss on cash flow hedges, net of income tax
(1,744)
(5,345)
(3,340)
(2,295)
Reclassification adjustment for interest income included in
income
93
-
102
-
Less: income tax expense
22
-
24
-
Less: reclassification adjustment for interest income included in
income, net of income tax
71
-
78
-
Other comprehensive loss
(33,471)
(35,020)
(31,776)
(105,938)
Comprehensive (Loss) Income
$
(16,608)
(17,740)
17,242
(56,285)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Consolidated Financial Statements – Unaudited
7
CROSSFIRST BANKSHARES, INC.
Consolidated Statements of Stockholders’
 
Equity – Unaudited
Preferred Stock
Common Stock
Treasury
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Shares
Amount
Shares
Amount
(Dollars in thousands)
Balance at June 30, 2022
-
$
-
49,535,949
$
529
$
(48,501)
$
528,548
$
176,868
$
(49,429)
$
608,015
Net income
-
-
-
-
-
-
17,280
-
17,280
Other comprehensive loss - available-for-
sale securities
-
-
-
-
-
-
-
(29,676)
(29,676)
Other comprehensive loss - cash flow
hedges
-
-
-
-
-
-
-
(5,344)
(5,344)
Issuance of shares from equity-based
awards
-
-
46,204
1
-
29
-
-
30
Open market common share repurchases
-
-
(794,457)
-
(10,827)
-
-
-
(10,827)
Stock-based compensation
-
-
-
-
-
1,069
-
-
1,069
Balance at September 30, 2022
-
$
-
48,787,696
$
530
$
(59,328)
$
529,646
$
194,148
$
(84,449)
$
580,547
Preferred Stock
Common Stock
Treasury
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Shares
Amount
Shares
Amount
(Dollars in thousands)
Balance at June 30, 2023
7,750
$
-
48,653,487
$
532
$
(64,127)
$
539,793
$
238,147
$
(62,862)
$
651,483
Net income
-
-
-
-
-
-
16,863
-
16,863
Other comprehensive loss - available-for-
sale securities
-
-
-
-
-
-
-
(31,656)
(31,656)
Other comprehensive loss - cash flow
hedges
-
-
-
-
-
-
(1,815)
(1,815)
Preferred dividends $
20.00
 
per share
-
-
-
-
-
-
(155)
-
(155)
Issuance of shares from equity-based
awards
-
-
43,904
1
-
165
-
-
166
Acquisition - purchase accounting
-
-
597,645
-
5,932
1,025
-
-
6,957
Stock-based compensation
-
-
-
-
-
1,208
-
-
1,208
Balance September 30, 2023
7,750
$
-
49,295,036
$
533
$
(58,195)
$
542,191
$
254,855
$
(96,333)
$
643,051
Preferred Stock
Common Stock
Treasury
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Shares
Amount
Shares
Amount
(Dollars in thousands)
Balance at December 31, 2021
-
$
-
50,450,045
$
526
$
(28,347)
$
526,806
$
147,099
$
21,489
$
667,573
Adoption of ASU 2016-13
-
-
-
-
-
-
(2,610)
-
(2,610)
Net income
-
-
-
-
-
-
49,653
-
49,653
Other comprehensive loss - available-for-
sale securities
-
-
-
-
-
-
-
(103,643)
(103,643)
Other comprehensive loss
 
- cash flow
hedges
-
-
-
-
 
-
-
(2,295)
(2,295)
Issuance of shares from equity-based
awards
-
-
428,433
4
-
(464)
-
-
(460)
Open market common share repurchases
-
-
(2,090,782)
-
(30,981)
-
-
-
(30,981)
Employee receivables from sale of stock
-
-
-
-
-
-
6
-
6
Stock-based compensation
-
-
-
-
-
3,304
-
-
3,304
Balance at September 30, 2022
-
$
-
48,787,696
$
530
$
(59,328)
$
529,646
$
194,148
$
(84,449)
$
580,547
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Consolidated Financial Statements – Unaudited
8
Preferred Stock
Common Stock
Treasury
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Shares
Amount
Shares
Amount
(Dollars in thousands)
Balance at December 31, 2022
-
$
-
48,448,215
$
530
$
(64,127)
$
530,658
$
206,095
$
(64,557)
$
608,599
Net income
-
-
-
-
-
-
49,018
-
49,018
Other comprehensive loss - available-for-
sale securities
-
-
-
-
-
-
-
(28,358)
(28,358)
Other comprehensive loss
 
- cash flow
hedges
-
-
-
-
-
-
(3,418)
(3,418)
Issuance of preferred shares
7,750
-
-
-
-
7,750
-
-
7,750
Preferred dividends $
33.33
 
per share
-
-
-
-
-
-
(258)
-
(258)
Issuance of shares from equity-based
awards
-
-
249,176
3
-
(535)
-
-
(532)
Warrants exercised, cash settled
-
-
-
-
(418)
-
-
(418)
Acquisition - purchase accounting
-
-
597,645
-
5,932
1,025
-
-
6,957
Stock-based compensation
-
-
-
-
-
3,711
-
-
3,711
Balance September 30, 2023
7,750
$
-
49,295,036
$
533
$
(58,195)
$
542,191
$
254,855
$
(96,333)
$
643,051
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Consolidated Financial Statements – Unaudited
9
CROSSFIRST BANKSHARES, INC.
Consolidated Statements of Cash Flows – Unaudited
Nine Months Ended
September 30,
2023
2022
(Dollars in thousands)
Operating Activities
Net income
$
49,018
$
49,653
Adjustments to reconcile net income to cash provided by operating activities:
 
 
Depreciation and amortization
7,041
3,716
Provision for credit losses
10,390
4,844
Accretion of discounts on loans
(2,029)
-
Accretion of discounts and amortization of premiums on securities
2,378
3,259
Equity based compensation
3,711
3,304
Gain on disposal of fixed assets
(67)
-
Loss on sale of foreclosed assets and related impairments
80
-
Gain on sale of loans
(2,131)
-
Origination of loans held for sale
(36,972)
-
Proceeds from sales of loans held for sale
39,775
-
Deferred income taxes
(1,208)
1,713
Net increase in bank owned life insurance
(1,266)
(1,200)
Net realized (gains) losses on available-for-sale securities
(3)
43
Dividends on FHLB stock
(745)
(505)
Changes in:
Interest receivable
(5,612)
(4,530)
Other assets
2,132
4,568
Other liabilities
6,691
(2,989)
Net cash provided by operating activities
71,183
61,876
Investing Activities
 
 
Net change in loans
(470,706)
(425,494)
Purchases of available-for-sale securities
(152,158)
(82,305)
Proceeds from maturities of available-for-sale securities
18,890
29,587
Proceeds from sale of available-for-sale securities
67,230
-
Proceeds from the sale of foreclosed assets
1,050
237
Purchase of premises and equipment
(6,953)
(1,878)
Proceeds from the sale of premises and equipment and related
 
insurance claims
67
-
Purchase of restricted equity securities
(10,290)
(6,957)
Proceeds from sale of restricted equity securities
21,006
10,111
Net cash activity from acquisition
19,279
-
Net cash used in investing activities
(512,585)
(476,699)
Financing Activities
 
Net (decrease) increase in demand deposits, savings, NOW and
 
money market accounts
(264,944)
178,134
Net increase in time deposits
779,701
125,784
Net increase in fed funds purchased and repurchase agreements
505
-
Net decrease in federal funds sold
(20,000)
-
Proceeds from Federal Home Loan Bank advances
22,414
50,000
Repayment of Federal Home Loan Bank advances
(77,295)
(149,000)
Net (repayments) proceeds of Federal Home Loan Bank line of credit
(72,468)
67,748
Proceeds from issuance of preferred shares, net of issuance cost
7,750
-
Issuance of common shares, net of issuance cost
3
171
Proceeds from employee stock purchase plan
402
364
Repurchase of common stock
-
(30,981)
Acquisition of common stock for tax withholding obligations
(937)
(995)
Settlement of warrants
(418)
-
Dividends paid on preferred stock
(258)
-
Net decrease in employee receivables
-
6
Net cash provided by financing activities
374,455
241,231
Decrease in Cash and Cash Equivalents
(66,947)
(173,592)
Cash and Cash Equivalents, Beginning of Period
300,138
482,727
Cash and Cash Equivalents, End of Period
$
233,191
$
309,135
Supplemental Cash Flows Information
Interest paid
$
137,281
$
25,648
Income taxes paid
$
17,614
$
10,545
 
 
10
CROSSFIRST BANKSHARES, INC.
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 subsidiary, CrossFirst Bank (the
 
“Bank”). In addition, the Bank has
three
 
subsidiaries including
CrossFirst Investments, Inc. (“CFI”), which holds investments in marketable
 
securities, CFBSA I, LLC and CFBSA II, LLC.
The Bank is primarily engaged in providing a full range of banking and financial services
 
to individual and corporate customers
through its full-service branches in: (i) Leawood, Kansas; (ii) Wichita, Kansas; (iii) Kansas City,
 
Missouri; (iv) Oklahoma City,
Oklahoma; (v) Tulsa, Oklahoma; (vi) Dallas, Texas; (vii) Fort Worth, Texas; (viii) Frisco, Texas; (ix) Phoenix, Arizona; (x) Colorado
Springs, Colorado; (xi) Denver, Colorado; (xii) Clayton, New Mexico; and (xiii) Tucson, Arizona.
 
 
Basis of Presentation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying interim unaudited consolidated financial statements serve to
 
update the CrossFirst Bankshares, Inc. Annual
Report on Form 10-K for the year ended December 31, 2022 and include the accounts of the Company,
 
the Bank, CFI, CFBSA I, LLC
and CFBSA II, LLC. The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S.
generally accepted accounting principles (“GAAP”) and where
 
applicable, with general practices in the banking industry or guidelines
prescribed by bank regulatory agencies. However, they may not include all information
 
and notes necessary to constitute a complete set
of financial statements under GAAP applicable to annual periods and accordingly should be read
 
in conjunction with the financial
information contained in the Company's most recent Annual Report on Form 10-K. The unaudited consolidated financial
 
statements
reflect all adjustments which are, in the opinion of management, necessary for a fair statement
 
of the results presented. All such
adjustments are of a normal recurring nature. All significant intercompany balances and transactions have been eliminated
 
in
consolidation. Certain reclassifications of prior years' amounts are
 
made whenever necessary to conform to current period presentation.
The results of operations for the interim period are not necessarily indicative of the results
 
that may be expected for the full year or any
other interim period. All amounts are in thousands, except share data, or as otherwise noted.
GAAP requires management to make estimates that affect the reported amounts of assets, liabilities, revenues and expenses,
 
and
disclosures of contingent assets and liabilities. By their nature, estimates are based
 
on judgment and available information. Management
has made significant estimates in certain areas, such as the fair values of financial instruments,
 
and the allowance for credit losses
(“ACL”). Because of the inherent uncertainties associated with any estimation process
 
and future changes in market and economic
conditions, it is possible that actual results could differ significantly from those estimates.
 
The Company's significant accounting policies followed in the preparation of the unaudited
 
consolidated financial statements are
disclosed in Note 1 of the audited financial statements and notes for the year ended December
 
31, 2022 and are contained in the
Company's Annual Report on Form 10-K for that period.
 
There have been no significant changes to the application of significant
accounting policies since December 31, 2022
.
 
Related Party Transactions
 
 
 
 
The Bank extends credit and receives deposits from related parties. In management’s
 
opinion, the loans and deposits were made
in the ordinary course of business and made on similar terms as those prevailing at the time
 
with other persons. Related party loans
totaled $
10
 
million and $
13
 
million while related party deposits totaled $
99
 
million and $
92
 
million at September 30, 2023 and
December 31, 2022, respectively.
 
11
Note 2:
 
Acquisition Activities
On August 1, 2023, the Company completed its acquisition of Canyon Bancorporation, Inc. and Canyon Community Bank,
 
N.A.
(collectively, “Canyon”) whereby Canyon Bancorporation,
 
Inc. was ultimately merged with and into CrossFirst Bankshares, Inc. and
Canyon Community Bank, N.A. was merged with and into CrossFirst Bank (the
 
“Tucson acquisition”). Pursuant to the merger
agreement executed in April 2023, the Company paid approximately $
9.1
 
million of cash consideration and issued
597,645
 
shares of
Company common stock, and the Company and the Bank assumed all of the assets and liabilities
 
of the Canyon entities with which they
merged by operation of law. The acquisition added one full-service branch within Arizona to the Company’s
 
footprint thereby deepening
our Arizona franchise.
Tucson acquisition-related costs totaled $
2.2
 
million and $
2.3
 
million for the three- and nine-months ended September 30, 2023,
respectively, including a Day 1 CECL provision expense of $
0.9
 
million. Acquisition-related costs in connection with the acquisition of
Farmers & Stockmens Bank (the “Colorado/New Mexico acquisition”) totaled
 
$
1.7
 
million for the nine-months ended September 30,
2023.
 
Acquisition-related costs were included in the Company’s
 
consolidated statements of operations.
 
The results of both acquisitions
mentioned above are included in the results of the Company subsequent to the acquisition
 
dates and reported in this quarterly report on
Form 10-Q.
 
The Company determined that the Tucson acquisition constitutes a business combination as
 
defined in Accounting Standard
Codification (“ASC”) Topic 805, Business Combinations. Accordingly, as of the date of the acquisition, the Company recorded
 
the
assets acquired and liabilities assumed at fair value. The Company determined fair values
 
in accordance with the guidance provided in
ASC Topic 820, Fair Value Measurements and Disclosures. In many cases, the determination of these fair values
 
required management
to make estimates about discount rates, future expected cash flows, market conditions and
 
other future events that are highly subjective
in nature and subject to change. Actual results could differ materially. The Company has made the determination of fair values using the
best information available at the time; however, purchase accounting is not complete
 
and the assumptions used are subject to change
and, if changed, could have a material effect on the Company's financial position and results
 
of operations.
 
12
The table below summarizes preliminary net assets acquired (at fair value) and consideration
 
transferred in connection with the
Tucson acquisition:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
August 1, 2023
(Dollars in thousands)
Assets:
$
Cash and cash equivalents
28,366
Available-for-sale securities
38,084
Loans, net of unearned fees
105,668
Premises and equipment
1,335
Restricted equity securities
1,810
Interest receivable
695
Core deposit intangible
4,459
Other
1,277
Total assets acquired
181,694
Liabilities:
Total deposits
165,399
Other borrowings
1,050
Interest payable and other liabilities
500
Total liabilities assumed
166,949
Identifiable net assets acquired
$
14,745
Consideration:
Cash
9,087
Stock
6,957
Total consideration
16,044
Goodwill
$
1,299
In connection with the Tucson acquisition, the Company recorded $
1.3
 
million of goodwill. The amount of goodwill recorded
reflects the expanded market presence, synergies and operational efficiencies that
 
are expected to result from the acquisition. The
following is a description of the methods used to determine the fair values of significant
 
assets and liabilities presented above:
Cash and cash equivalents
—The carrying amount of these assets was deemed a reasonable estimate of fair value based
 
on the
short-term nature of these assets.
Loans, net
—The fair value of loans was based on a discounted cash flow methodology. Inputs and assumptions
 
used in the fair
value estimate of the loan portfolio, includes interest rate, servicing, credit and liquidity risk,
 
and required equity return. The fair value
of loans was calculated using a discounted cash flow analysis based on the remaining
 
maturity and repricing terms. Cash flows were
adjusted by estimating future credit losses and the rate of prepayments. Projected
 
monthly cash flows were then discounted to present
value using a risk-adjusted market rate for similar loans.
 
Core deposit intangibles
—The Company identified customer relationships, in the form of core deposit intangibles,
 
as an
identified intangible asset. Core deposit intangibles derive value from the expected
 
future benefits or earnings capacity attributable to the
acquired core deposits. The core deposit intangible was valued by identifying the expected future benefits of
 
the core deposits and
discounting those benefits back to present value. The core deposit intangible will be
 
amortized over its estimated useful life of
approximately
10 years
 
using the sum of the years’ digits accelerated method.
 
 
 
13
Deposits
—By definition, the fair value of demand and saving deposits equals the amount
 
payable. For time deposits acquired, the
Company utilized an income approach, discounting the contractual cash flows on the instruments
 
over their remaining contractual lives
at prevailing market rates.
 
The fair value of the acquired assets and liabilities noted in the table may change during the
 
provisional period, which may last up
to twelve months subsequent to the acquisition date. The Company may obtain additional information to refine
 
the valuation of the
acquired assets and liabilities and adjust the recorded fair value.
Accounting for acquired loans
Loans acquired are recorded at fair value with no carryover of the related allowance
 
for credit losses. Purchased-credit
deteriorated loans (“PCD”) are loans that have experienced more than insignificant
 
credit deterioration since origination and are
recorded at the purchase price. Management determined that past due loans, adversely risk
 
rated, on non-accrual or considered a
troubled-debt restructured loan constituted insignificant credit deterioration. The sum of the loan’s
 
purchase price and the allowance for
credit losses becomes its initial amortized cost basis. The difference between the initial amortized
 
cost basis and the par value of the loan
is a noncredit discount or premium, which is amortized into interest income over the
 
life of the loan.
 
Non-PCD loans have not experienced a more than insignificant deterioration
 
in credit quality since origination. The difference
between the fair value and outstanding balance of the non-PCD loans is recognized
 
as an adjustment to interest income over the lives of
the loan.
A Day 1 CECL allowance for credit losses on the non-PCD loans was recorded through provision for credit loss expense within
the consolidated statements of operations. At the date of acquisition, of the $
105.7
 
million of loans acquired from Canyon, $
26.0
million, or
25
% of Canyon’s loan portfolio, were accounted
 
for as PCD loans.
 
The following table provides a summary of PCD loans purchased as part of the Tucson
 
acquisition as of the acquisition date:
 
 
 
 
 
 
Total
(Dollars in thousands)
Unpaid principal balance
$
28,159
PCD allowance for credit loss at acquisition
(329)
(Discount) premium on acquired loans
(1,809)
Purchase price of PCD loans
$
26,021
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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, 2023
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Approximate
Fair Value
(Dollars in thousands)
Available-for-sale securities
U.S. Treasury securities
$
14,797
$
6
$
-
$
14,803
Mortgage-backed - GSE residential
336,020
-
37,976
298,044
Collateralized mortgage obligations - GSE residential
19,780
-
1,056
18,724
State and political subdivisions
489,976
90
79,624
410,442
Corporate bonds
9,740
-
1,266
8,474
Total available-for-sale securities
$
870,313
$
96
$
119,922
$
750,487
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2022
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Approximate
Fair Value
(Dollars in thousands)
Available-for-sale securities
Mortgage-backed - GSE residential
$
197,243
$
232
$
25,166
$
172,309
Collateralized mortgage obligations - GSE residential
11,629
-
743
10,886
State and political subdivisions
551,007
929
57,440
494,496
Corporate bonds
9,762
-
552
9,210
Total available-for-sale securities
$
769,641
$
1,161
$
83,901
$
686,901
The carrying value of securities pledged as collateral was $
15
 
million and $
22
 
million at September 30, 2023 and December 31,
2022, respectively.
As of September 30, 2023 and December 31, 2022, the available-for-sale securities
 
had $
7
 
million and $
6
 
million, respectively, of
accrued interest, excluded from the amortized cost basis, and presented in “interest receivable
 
”
 
on the consolidated statements of
financial condition.
 
The following tables summarize the gross realized gains and losses from sales or
 
maturities of available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended
For the Nine Months Ended
September 30, 2023
September 30, 2023
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Loss
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Gain
(Dollars in thousands)
Available-for-sale securities
$
68
$
(128)
$
(60)
$
335
$
(332)
 
$
3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended
For the Nine Months Ended
September 30, 2022
September 30, 2022
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Loss
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Loss
(Dollars in thousands)
Available-for-sale securities
$
1
$
(5)
$
(4)
$
3
$
(46)
$
(43)
The following table shows available-for-sale securities gross unrealized losses,
 
the number of securities that are in an unrealized
loss position, and fair value of the Company’s
 
investments with unrealized losses, aggregated by investment class and length
 
of time
that individual securities have been in a continuous unrealized loss position at
 
September 30, 2023 and December 31, 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2023
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
U.S. Treasury
securities
$
-
$
-
-
$
-
$
-
-
$
-
$
-
-
Mortgage-backed -
GSE residential
166,408
7,398
27
131,637
30,578
56
298,045
37,976
83
Collateralized
mortgage obligations
- GSE residential
5,255
282
2
8,786
774
19
14,041
1,056
21
State and political
subdivisions
119,719
5,433
112
277,722
74,191
213
397,441
79,624
325
Corporate bonds
4,333
667
1
4,141
599
4
8,474
1,266
5
Total temporarily
impaired securities
295,715
$
13,780
142
$
422,286
$
106,142
292
$
718,001
$
119,922
434
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2022
Less than 12 Months
12 Months or More
Total
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
Number of
Securities
(Dollars in thousands)
Available-for-sale
securities
Mortgage-backed -
GSE residential
$
91,929
$
10,410
41
$
66,036
$
14,756
16
$
157,965
$
25,166
57
Collateralized
mortgage obligations
- GSE residential
10,636
733
18
251
10
1
10,887
743
19
State and political
subdivisions
350,884
36,697
266
52,519
20,743
40
403,403
57,440
306
Corporate bonds
9,210
552
5
-
-
-
9,210
552
5
Total temporarily
impaired securities
$
462,659
$
48,392
330
$
118,806
$
35,509
57
$
581,465
$
83,901
387
 
 
 
 
 
 
 
 
 
 
 
16
Based on the Company’s evaluation at each respective
 
period end, we recorded
no
 
credit loss impairment during the nine-months
ended September 30, 2023 or the year ended December 31, 2022.
 
The unrealized losses in the Company’s
 
investment portfolio were
caused by interest rate changes.
 
As of September 30, 2023 the Company does not intend to sell the investments in loss positions,
 
and it
is not more likely than not the Company will be required to sell the investments before recovery
 
of their amortized cost basis.
 
The amortized cost, fair value, and weighted average yield of available-for-sale securities at
 
September 30, 2023, by contractual
maturity, are shown below:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2023
Within
After One to
After Five to
After
One Year
Five Years
Ten Years
Ten Years
Total
(Dollars in thousands)
Available-for-sale securities
U.S. Treasury securities
(1)
Amortized cost
$
14,797
$
-
$
-
$
-
$
14,797
Estimated fair value
$
14,803
$
-
$
-
$
-
$
14,803
Weighted average yield
(2)
5.11
%
-
%
-
%
-
%
5.11
%
Mortgage-backed - GSE residential
(1)
Amortized cost
$
-
$
14
$
1,007
$
334,999
$
336,020
Estimated fair value
$
-
$
13
$
891
$
297,140
$
298,044
Weighted average yield
(2)
-
%
4.88
%
2.39
%
3.59
%
3.58
%
Collateralized mortgage obligations -
GSE residential
Amortized cost
$
-
$
-
$
2,267
$
17,513
$
19,780
Estimated fair value
$
-
$
-
$
2,117
$
16,607
$
18,724
Weighted average yield
(2)
-
%
-
%
2.77
%
4.93
%
4.68
%
State and political subdivisions
Amortized cost
$
744
$
5,022
$
93,874
$
390,336
$
489,976
Estimated fair value
$
752
$
4,989
$
90,036
$
314,665
$
410,442
Weighted average yield
(2)
3.81
%
4.42
%
3.09
%
2.71
%
2.80
%
Corporate bonds
Amortized cost
$
-
$
143
$
9,597
$
-
$
9,740
Estimated fair value
$
-
$
139
$
8,335
$
-
$
8,474
Weighted average yield
(2)
-
%
4.22
%
5.71
%
-
%
5.69
%
Total available-for-sale securities
Amortized cost
$
15,541
$
5,179
$
106,745
$
742,848
$
870,313
Estimated fair value
$
15,555
$
5,141
$
101,379
$
628,412
$
750,487
Weighted average yield
5.05
%
4.41
%
3.32
%
3.16
%
3.21
%
(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 using 30/360 day basis.
 
Tax-exempt securities are not tax effected.
 
Equity Securities
Equity securities consist of $
5
 
million of private equity investments and $
4
 
million of restricted equity securities. The private
equity investments are included in “other”
 
assets on the consolidated statements of financial condition.
The Company elected a measurement alternative for its private equity investments
 
that did not have a readily determinable fair
value and did not qualify for the practical expedient to estimate fair value using the net asset value per
 
share.
 
A cost basis was
calculated for the equity investments.
 
The recorded balance will adjust for any impairment or any observable price changes
 
for an
identical or similar investment of the same issuer. No such events occurred during the three
 
-
 
or nine-month period ended September 30,
2023.
 
 
 
 
 
 
 
 
 
17
The following is a summary of the unrealized and realized gains and losses on equity securities
 
recognized in net income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
Nine Months Ended
September 30,
 
September 30,
 
2023
2022
2023
2022
(Dollars in thousands)
Net gains (losses) recognized during the reporting period on equity securities
$
98
$
(87)
$
114
$
(261)
Less: net gains recognized during the reporting period on equity securities sold
during the reporting period
93
-
93
-
Unrealized gains (losses) recognized during the reporting period on equity
securities still held at the reporting date
$
5
$
(87)
$
21
$
(261)
 
 
 
 
 
 
18
Note 4:
 
Loans and Allowance for Credit Losses
The table below shows
 
the loan portfolio composition including carrying value by segment as of the dates
 
shown. The carrying value of loans is net of discounts, fees, costs,
and fair value marks of $
26
 
million and $
24
 
million as of September 30, 2023 and December 31, 2022, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2023
December 31, 2022
Amount
% of Loans
Amount
% of Loans
(Dollars in thousands)
Commercial and industrial
$
2,056,171
34
%
$
1,974,932
37
%
Energy
214,166
4
173,218
3
Commercial real estate - owner-occupied
583,442
10
437,119
8
Commercial real estate - non-owner-occupied
2,592,684
43
2,314,600
43
Residential real estate
456,047
8
439,367
8
Consumer
43,243
1
33,493
1
Loans, net of unearned fees
5,945,753
100
%
5,372,729
100
%
Less: allowance for credit losses on loans
(71,556)
(61,775)
Loans, net of the allowance for credit losses on loans
$
5,874,197
$
5,310,954
 
Accrued interest of $
29
 
million and $
23
 
million at September 30, 2023 and December 31, 2022, respectively, presented
 
in “interest receivable” on the consolidated statements
of financial condition is excluded from the carrying value disclosed in the above table.
 
The Company aggregates the loan portfolio by similar credit risk characteristics. Effective
 
with the second quarter of 2023, we revised the reported loan segments to better
reflect how management monitors the portfolio, assesses credit risk and evaluates
 
the ACL.
 
All prior period disclosures have been revised to reflect the changes to the loan
segments. The loan segments are described in additional detail below:
●
Commercial and Industrial
 
- The category includes loans and lines of credit to commercial and industrial clients for use
 
in property, plant, and equipment
purchases, business operations, expansions and for working capital
 
needs. Loan terms typically require amortizing payments that decrease the outstanding
 
loan
balance while the lines of credit typically require interest-only payments
 
with maturities ranging from one- to three-years. Lines of credit allow the borrower
 
to draw
down and repay the line of credit based on the client’s
 
cash flow needs. Repayment is primarily from the cash flow of a borrower’s
 
principal business operation.
Credit risk is driven by creditworthiness of a borrower and the economic conditions.
●
Energy
 
- The category includes loans to oil and natural gas customers for use in financing
 
working capital needs, exploration and production activities, and
acquisitions. The loans are repaid primarily from the conversion of crude oil and natural gas to cash. Credit risk is driven
 
by creditworthiness of a borrower and the
economic conditions that impact the cash flow stability from business operations. Energy
 
loans are typically collateralized with the underlying oil and gas reserves.
●
Commercial Real Estate – Owner-Occupied
 
- The category includes relationships where we are usually the primary provider of financial
 
services for the company
and/or the principals and the primary source of repayment is through the cash flows generated
 
by the borrowers’
 
business operations. Owner-occupied commercial
real estate loans are typically secured by a first lien mortgage on real property plus assignments
 
of all leases related to the properties. Credit risk may be impacted by
the creditworthiness of a borrower, property values and the local economies in the borrower
 
’s market areas.
●
Commercial Real Estate – Non-Owner-Occupied
 
- The category includes loans that typically involve larger principal amounts and repayment of these loans is
generally dependent on the leasing income generated from tenants. These are viewed primarily as cash
 
flow loans and secondarily as loans secured by real estate.
 
 
19
 
Additionally, the category includes construction and land development loans
 
that are based upon estimates of costs and estimated value of the completed
 
project.
Independent appraisals and a financial analysis of the developers and property owners
 
are completed. Sources of repayment include secondary market
 
permanent
loans, sales of developed property or an interim loan commitment from the Company
 
until permanent financing is obtained. These
 
loans are higher risk than other
real estate loans due to their ultimate repayment being sensitive to interest rate changes,
 
general economic conditions, and the availability of long-term financing.
The category also includes loans that are secured by multifamily properties.
 
Repayment of these loans is primarily dependent on occupancy rates and rental income.
Credit risk for non-owner occupied commercial real estate loans may be impacted
 
by the creditworthiness of a borrower, property values and the local
 
economies in
the borrower’s market areas.
●
Residential Real Estate
- The category includes loans that are generally secured by owner-occupied 1-4 family residences
 
.
 
Repayment of these loans is primarily
dependent on the personal income and credit rating of the borrowers. We also offer open-
 
and closed-ended home equity loans, which are loans generally secured by
second lien positions on residential real estate.
 
Credit risk in these loans can be impacted by economic conditions
 
within or outside the borrower’s market areas that
might impact either property values or a borrower’s personal income.
 
●
Consumer
- The category includes personal lines of credit and various term loans such as automobile
 
loans and loans for other personal purposes. Repayment is
primarily dependent on the personal income and credit rating of the borrowers. Credit
 
risk is driven by consumer economic factors (such as unemployment and
general economic conditions in the borrower’s
 
market area) and the creditworthiness of a borrower.
Allowance for Credit Losses
The Company’s CECL committee meets at least quarterly to
 
oversee the ACL methodology. The committee estimates the ACL
 
using relevant available information, from
internal and external sources, relating to past events, current conditions, and reasonable
 
and supportable forecasts. The ACL represents the Company’s current estimate of lifetime
credit losses inherent in the loan portfolio at the statement of financial condition date. The ACL is adjusted for expected prepayments when appropriate and excludes expected
extensions, renewals, and modifications.
 
The ACL is the sum of three components: (i) asset specific / individual loan reserves; (ii) quantitative (formulaic or pooled) reserves; and (iii) qualitative
 
(judgmental)
reserves.
 
Asset Specific -
 
When unique qualities cause a loan’s exposure
 
to loss to be inconsistent with the pooled reserves, the loan is individually evaluated.
 
Individual reserves are
calculated for loans that are risk-rated substandard and on non-accrual and loans that are risk
 
-rated doubtful or loss that are greater than a defined dollar threshold. Reserves on asset
specific loans may be based on collateral, for collateral-dependent loans, or on quantitative
 
and qualitative factors, including expected cash flow, market sentiment, and
 
guarantor
support.
Quantitative
- The Company used the cohort method, which identifies and captures the balance of a pool of loans
 
with similar risk characteristics as of a particular time to
form a cohort. The cohort is then tracked for losses over the remaining life of loans or until the pool
 
is exhausted. The Company used a lookback period of approximately six-years to
establish the cohort population. By using the historical data timeframe, the Company can
 
establish a historical loss factor for each of its loan segments.
 
20
 
 
Qualitative
 
– The Company uses qualitative factors to adjust the historical loss factors for current conditions. The
 
Company primarily uses the following qualitative factors:
◾
The nature and volume of changes in risk ratings;
◾
The volume and severity of past due loans;
◾
The volume of non-accrual loans;
◾
The nature and volume of the loan portfolio, including the existence, growth, and effect of
 
any concentrations of credit;
◾
Changes in the Institute of Supply Management’s Purchasing
 
Manager Indices (“PMI”) for services and manufacturing;
◾
Changes in collateral values;
 
◾
Changes in lending policies, procedures, and quality of loan reviews;
◾
Changes in lending staff; and
◾
Changes in competition, legal and regulatory environments
In addition to the current condition qualitative adjustments, the Company uses the Federal
 
Reserve’s unemployment forecast to
 
adjust the ACL based on forward looking
guidance. The Federal Reserve’s unemployment
 
forecast extends three-years and is eventually
 
reverted to the mean of six percent by year 10.
 
Internal Credit Risk Ratings
The Company uses a weighted average risk rating factor to adjust the historical
 
loss factors for current events. Risk ratings incorporate the criteria utilized
 
by regulatory
authorities to describe criticized assets, but separate various levels of risk concentrated
 
within the regulatory “Pass” category. Risk ratings are established for loans at origination
 
and
are monitored on an ongoing basis. The rating assigned to a loan reflects the risks posed by the borrower
 
’s expected performance and the transaction
 
’s structure. Performance metrics
used to determine a risk rating include, but are not limited to, cash flow adequacy, liquidity,
 
and collateral. A
 
description of the loan risk ratings follows:
Loan Grades
●
Pass (risk rating 1-4)
 
- The category includes loans that are considered satisfactory. The category includes borrowers that generally maintain
 
good liquidity and
financial condition, or the credit is currently protected with sales trends remaining
 
flat or declining. Most ratios compare favorably with industry norms and Company
policies. Debt is programmed and timely repayment is expected.
●
Special Mention (risk rating 5)
 
- The category includes borrowers that generally exhibit adverse trends in operations or an imbalanced
 
position in their balance
sheet that has not reached a point where repayment is jeopardized. Credits are currently protected
 
but, if left uncorrected, the potential weaknesses may result in
deterioration of the repayment prospects for the credit or in the Company’s
 
credit or lien position at a future date. These credits are not adversely classified and do not
expose the Company to enough risk to warrant adverse classification.
●
Substandard (risk rating 6)
 
- The category includes borrowers that generally exhibit well-defined weakness(es) that jeopardize
 
repayment. Credits are inadequately
protected by the current worth and paying capacity of the obligor or of the collateral pledged. A distinct possibility exists that the Company will sustain some loss if
deficiencies are not corrected. Loss potential, while existing in the aggregate amount of
 
substandard assets, does not have to exist in individual assets classified
substandard. Substandard loans include both performing and non-performing loans and
 
are broken out in the table below.
●
Doubtful (risk rating 7)
- The category includes borrowers that exhibit weaknesses inherent in a substandard credit
 
and characteristics that these weaknesses make
collection or liquidation in full highly questionable or improbable based
 
on existing facts, conditions, and values. Because of reasonably specific pending
 
factors,
which may work to the advantage and strengthening of the assets, classification as a loss is
 
deferred until its more exact status may be determined.
 
21
●
Loss (risk rating 8)
- Credits that are considered uncollectible or of such little value that their continuance as a bankable
 
asset is not warranted.
 
The following tables present the credit risk profile of the Company’s
 
loan portfolio based on internal rating categories and loan segments as of September 30,
 
2023 and
December 31, 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of September 30, 2023
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2023
2022
2021
2020
2019
2018 and
Prior
Revolving
Loans
Revolving
Loans
converted to
Term Loans
Total
(Dollars in thousands)
Commercial and industrial
Pass
$
320,587
$
268,333
$
205,175
$
61,917
$
42,458
$
26,244
$
964,811
$
48,584
$
1,938,109
Special mention
13,314
5,650
11,072
32
204
30
30,308
6,184
66,794
Substandard - accrual
1,408
546
68
271
787
831
19,252
17,111
40,274
Substandard - non-
accrual
-
-
-
24
-
-
10,785
185
10,994
Doubtful
-
-
-
-
-
-
-
-
-
Total
$
335,309
$
274,529
$
216,315
$
62,244
$
43,449
$
27,105
$
1,025,156
$
72,064
$
2,056,171
Energy
Pass
$
-
$
7,075
$
-
$
174
$
-
$
-
$
206,384
$
125
$
213,758
Special mention
-
-
-
-
-
-
-
-
-
Substandard - accrual
-
-
-
-
-
-
-
-
-
Substandard - non-
accrual
-
-
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
408
-
408
Total
$
-
$
7,075
$
-
$
174
$
-
$
-
$
206,792
$
125
$
214,166
Commercial real estate
- owner-occupied
Pass
$
41,733
$
92,985
$
129,798
$
62,822
$
46,925
$
37,629
$
89,539
$
37,584
$
539,015
Special mention
10,187
7,396
2,746
2,178
798
7,310
-
580
31,195
Substandard - accrual
3,041
-
5,892
1,639
857
71
-
1,528
13,028
Substandard - non-
accrual
-
-
204
-
-
-
-
-
204
Doubtful
-
-
-
-
-
-
-
-
-
Total
$
54,961
$
100,381
$
138,640
$
66,639
$
48,580
$
45,010
$
89,539
$
39,692
$
583,442
 
22
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of September 30, 2023
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2023
2022
2021
2020
2019
2018 and
Prior
Revolving
Loans
Revolving
Loans
converted to
Term Loans
Total
(Dollars in thousands)
Commercial real estate - non-owner-
occupied
Pass
$
392,980
$
876,727
$
291,711
$
162,183
$
83,502
$
61,611
$
561,670
$
91,198
$
2,521,582
Special mention
-
19,682
-
114
16,234
4,102
-
32
40,164
Substandard - accrual
10,443
-
7,530
3,625
-
309
-
439
22,346
Substandard - non-
accrual
-
-
8,448
144
-
-
-
-
8,592
Doubtful
-
-
-
-
-
-
-
-
-
Total
$
403,423
$
896,409
$
307,689
$
166,066
$
99,736
$
66,022
$
561,670
$
91,669
$
2,592,684
Residential real estate
Pass
$
29,272
$
85,249
$
84,931
$
113,631
$
38,427
$
64,493
$
30,418
$
-
$
446,421
Special mention
-
647
3,540
176
-
-
-
-
4,363
Substandard - accrual
253
-
1,320
3,125
207
-
176
-
5,081
Substandard - non-
accrual
-
-
-
-
-
-
-
182
182
Doubtful
-
-
-
-
-
-
-
-
-
Total
$
29,525
$
85,896
$
89,791
$
116,932
$
38,634
$
64,493
$
30,594
$
182
$
456,047
Consumer
Pass
$
10,737
$
6,429
$
533
$
69
$
235
$
140
$
25,068
$
-
$
43,211
Special mention
-
-
-
-
-
6
-
-
6
Substandard - accrual
-
-
-
26
-
-
-
-
26
Substandard - non-
accrual
-
-
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
-
-
-
Total
$
10,737
$
6,429
$
533
$
95
$
235
$
146
$
25,068
$
-
$
43,243
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
23
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of September 30, 2023
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2023
2022
2021
2020
2019
2018 and
Prior
Revolving
Loans
Revolving
Loans
converted to
Term Loans
Total
(Dollars in thousands)
Total
Pass
$
795,309
$
1,336,798
$
712,148
$
400,796
$
211,547
$
190,117
$
1,877,890
$
177,491
$
5,702,096
Special mention
23,501
33,375
17,358
2,500
17,236
11,448
30,308
6,796
142,522
Substandard - accrual
15,145
546
14,810
8,686
1,851
1,211
19,428
19,078
80,755
Substandard - non-
accrual
-
-
8,652
168
-
-
10,785
367
19,972
Doubtful
-
-
-
-
-
-
408
-
408
Total
$
833,955
$
1,370,719
$
752,968
$
412,150
$
230,634
$
202,776
$
1,938,819
$
203,732
$
5,945,753
 
24
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2022
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
Loans
Revolving
Loans
converted to
Term Loans
Total
(Dollars in thousands)
Commercial and industrial
Pass
$
465,963
$
281,166
$
55,934
$
50,445
$
48,595
$
20,648
$
890,109
$
19,089
$
1,831,949
Special mention
2,531
23,055
14,573
2,951
4,947
86
49,861
41
98,045
Substandard - accrual
290
677
1,647
1,330
740
299
10,805
21,166
36,954
Substandard - non-
accrual
-
104
-
6
1,383
-
6,479
-
7,972
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
12
-
-
12
Total
$
468,784
$
305,002
$
72,154
$
54,732
$
55,665
$
21,045
$
957,254
$
40,296
$
1,974,932
Energy
Pass
$
7,585
$
306
$
228
$
-
$
-
$
-
$
162,834
$
171
$
171,124
Special mention
-
-
-
-
-
-
-
-
-
Substandard - accrual
-
-
-
-
-
-
1,476
-
1,476
Substandard - non-
accrual
-
-
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
618
-
618
Loss
-
-
-
-
-
-
-
-
-
Total
$
7,585
$
306
$
228
$
-
$
-
$
-
$
164,928
$
171
$
173,218
Commercial real estate
- owner-occupied
Pass
$
79,695
$
127,489
$
56,607
$
49,620
$
28,143
$
20,299
$
28,814
$
14,024
$
404,691
Special mention
17,292
6,603
452
1,330
98
2,486
-
2,469
30,730
Substandard - accrual
-
-
403
-
-
1,295
-
-
1,698
Substandard - non-
accrual
-
-
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
96,987
$
134,092
$
57,462
$
50,950
$
28,241
$
24,080
$
28,814
$
16,493
$
437,119
 
25
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2022
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
Loans
Revolving
Loans
converted to
Term Loans
Total
(Dollars in thousands)
Commercial real estate
- non-owner-occupied
Pass
$
827,420
$
442,176
$
200,090
$
101,827
$
49,834
$
73,940
$
458,297
$
111,322
$
2,264,906
Special mention
5,931
7,727
114
-
6,460
1,853
2,429
9,852
34,366
Substandard - accrual
10,545
310
607
82
60
253
-
992
12,849
Substandard - non-
accrual
-
2,479
-
-
-
-
-
-
2,479
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
843,896
$
452,692
$
200,811
$
101,909
$
56,354
$
76,046
$
460,726
$
122,166
$
2,314,600
Residential real estate
Pass
$
77,416
$
84,158
$
121,078
$
45,265
$
37,395
$
34,852
$
31,892
$
-
$
432,056
Special mention
253
3,272
187
226
-
-
-
-
3,938
Substandard - accrual
34
-
3,148
-
-
-
-
-
3,182
Substandard - non-
accrual
-
-
-
-
-
-
-
191
191
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
77,703
$
87,430
$
124,413
$
45,491
$
37,395
$
34,852
$
31,892
$
191
$
439,367
Consumer
Pass
$
7,917
$
1,347
$
2,611
$
265
$
129
$
6
$
21,173
$
-
$
33,448
Special mention
-
-
-
-
8
-
-
-
8
Substandard - accrual
-
-
32
-
5
-
-
-
37
Substandard - non-
accrual
-
-
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
7,917
$
1,347
$
2,643
$
265
$
142
$
6
$
21,173
$
-
$
33,493
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
26
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2022
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
Loans
Revolving
Loans
converted to
Term Loans
Total
(Dollars in thousands)
Total
Pass
$
1,465,996
$
936,642
$
436,548
$
247,422
$
164,096
$
149,745
$
1,593,119
$
144,606
$
5,138,174
Special mention
26,007
40,657
15,326
4,507
11,513
4,425
52,290
12,362
167,087
Substandard - accrual
10,869
987
5,837
1,412
805
1,847
12,281
22,158
56,196
Substandard - non-
accrual
-
2,583
-
6
1,383
-
6,479
191
10,642
Doubtful
-
-
-
-
-
-
618
-
618
Loss
-
-
-
-
-
12
-
-
12
Total
$
1,502,872
$
980,869
$
457,711
$
253,347
$
177,797
$
156,029
$
1,664,787
$
179,317
$
5,372,729
 
 
27
 
Loan Portfolio Aging Analysis
The following tables present the Company’s
 
loan portfolio aging analysis as of September 30, 2023 and December 31,
 
2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of September 30, 2023
Amortized Cost Basis by Origination Year and Past Due Status
Amortized Cost Basis
2023
2022
2021
2020
2019
2018 and
Prior
Revolving
loans
Revolving
loans
converted to
term loans
Total
(Dollars in thousands)
Commercial and industrial
30-59 days
$
54
$
18
$
-
$
24
$
-
$
-
$
1,488
$
2,089
$
3,673
60-89 days
-
-
-
-
593
235
4,360
181
5,369
Greater than 90 days
-
30
76
-
-
-
11,162
13,605
24,873
Total past due
54
48
76
24
593
235
17,010
15,875
33,915
Current
335,255
274,481
216,239
62,220
42,856
26,870
1,008,146
56,189
2,022,256
Total
$
335,309
$
274,529
$
216,315
$
62,244
$
43,449
$
27,105
$
1,025,156
$
72,064
$
2,056,171
Greater than 90 days
and accruing
$
-
$
30
$
76
$
-
$
-
$
-
$
543
$
13,605
$
14,254
Energy
30-59 days
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
-
-
-
-
-
408
-
408
Total past due
-
-
-
-
-
-
408
-
408
Current
-
7,075
-
174
-
-
206,384
125
213,758
Total
$
-
$
7,075
$
-
$
174
$
-
$
-
$
206,792
$
125
$
214,166
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
 
28
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of September 30, 2023
Amortized Cost Basis by Origination Year and Past Due Status
Amortized Cost Basis
2023
2022
2021
2020
2019
2018 and
Prior
Revolving
loans
Revolving
loans
converted to
term loans
Total
(Dollars in thousands)
Commercial real estate
- owner-occupied
30-59 days
$
-
$
-
$
5,892
$
-
$
232
$
-
$
-
$
-
$
6,124
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
-
204
-
-
-
-
-
204
Total past due
-
-
6,096
-
232
-
-
-
6,328
Current
54,961
100,381
132,544
66,639
48,348
45,010
89,539
39,692
577,114
Total
$
54,961
$
100,381
$
138,640
$
66,639
$
48,580
$
45,010
$
89,539
$
39,692
$
583,442
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Commercial real estate - non-owner-occupied
30-59 days
$
4,511
$
1,775
$
-
$
-
$
-
$
-
$
249
$
-
$
6,535
60-89 days
-
-
7,530
144
-
-
-
-
7,674
Greater than 90 days
-
-
6,029
-
-
-
-
-
6,029
Total past due
4,511
1,775
13,559
144
-
-
249
-
20,238
Current
398,912
894,634
294,130
165,922
99,736
66,022
561,421
91,669
2,572,446
Total
$
403,423
$
896,409
$
307,689
$
166,066
$
99,736
$
66,022
$
561,670
$
91,669
$
2,592,684
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Residential real estate
30-59 days
$
-
$
14
$
-
$
-
$
-
$
-
$
-
$
-
$
14
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
-
1,320
-
-
-
176
-
1,496
Total past due
-
14
1,320
-
-
-
176
-
1,510
Current
29,525
85,882
88,471
116,932
38,634
64,493
30,418
182
454,537
Total
$
29,525
$
85,896
$
89,791
$
116,932
$
38,634
$
64,493
$
30,594
$
182
$
456,047
Greater than 90 days
and accruing
$
-
$
-
$
1,320
$
-
$
-
$
-
$
176
$
-
$
1,496
 
29
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of September 30, 2023
Amortized Cost Basis by Origination Year and Past Due Status
Amortized Cost Basis
2023
2022
2021
2020
2019
2018 and
Prior
Revolving
loans
Revolving
loans
converted to
term loans
Total
(Dollars in thousands)
Consumer
30-59 days
$
-
$
47
$
19
$
-
$
-
$
-
$
-
$
-
$
66
60-89 days
-
2
-
-
-
-
-
-
2
Greater than 90 days
-
-
-
-
-
-
-
-
-
Total past due
-
49
19
-
-
-
-
-
68
Current
10,737
6,380
514
95
235
146
25,068
-
43,175
Total
$
10,737
$
6,429
$
533
$
95
$
235
$
146
$
25,068
$
-
$
43,243
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Total
30-59 days
$
4,565
$
1,854
$
5,911
$
24
$
232
$
-
$
1,737
$
2,089
$
16,412
60-89 days
-
2
7,530
144
593
235
4,360
181
13,045
Greater than 90 days
-
30
7,629
-
-
-
11,746
13,605
33,010
Total past due
4,565
1,886
21,070
168
825
235
17,843
15,875
62,467
Current
829,390
1,368,833
731,898
411,982
229,809
202,541
1,920,976
187,857
5,883,286
Total
$
833,955
$
1,370,719
$
752,968
$
412,150
$
230,634
$
202,776
$
1,938,819
$
203,732
$
5,945,753
Greater than 90 days
and accruing
$
-
$
30
$
1,396
$
-
$
-
$
-
$
719
$
13,605
$
15,750
 
30
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2022
Amortized Cost Basis by Origination Year and Past Due Status
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
 
Revolving
loans
Revolving
loans
converted to
term loans
Total
(Dollars in thousands)
Commercial and industrial
30-59 days
$
20
$
4,784
$
-
$
-
$
-
$
1,049
$
2,814
$
-
$
8,667
60-89 days
-
55
-
-
-
-
980
430
1,465
Greater than 90 days
-
143
7
6
1,383
12
7,063
-
8,614
Total past due
20
4,982
7
6
1,383
1,061
10,857
430
18,746
Current
468,764
300,020
72,147
54,726
54,282
19,984
946,397
39,866
1,956,186
Total
$
468,784
$
305,002
$
72,154
$
54,732
$
55,665
$
21,045
$
957,254
$
40,296
$
1,974,932
Greater than 90 days
and accruing
$
-
$
39
$
7
$
-
$
-
$
-
$
584
$
-
$
630
Energy
30-59 days
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
-
-
-
-
-
618
-
618
Total past due
-
-
-
-
-
-
618
-
618
Current
7,585
306
228
-
-
-
164,310
171
172,600
Total
$
7,585
$
306
$
228
$
-
$
-
$
-
$
164,928
$
171
$
173,218
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Commercial real estate
- owner-occupied
30-59 days
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
-
-
-
-
-
-
-
-
Total past due
-
-
-
-
-
-
-
-
-
Current
96,987
134,092
57,462
50,950
28,241
24,080
28,814
16,493
437,119
Total
$
96,987
$
134,092
$
57,462
$
50,950
$
28,241
$
24,080
$
28,814
$
16,493
$
437,119
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2022
Amortized Cost Basis by Origination Year and Past Due Status
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
 
Revolving
loans
Revolving
loans
converted to
term loans
Total
(Dollars in thousands)
Commercial real estate
- non-owner-occupied
30-59 days
$
4,293
$
-
$
-
$
1,180
$
-
$
-
$
-
$
-
$
5,473
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
-
-
-
-
-
-
-
-
Total past due
4,293
-
-
1,180
-
-
-
-
5,473
Current
839,603
452,692
200,811
100,729
56,354
76,046
460,726
122,166
2,309,127
Total
$
843,896
$
452,692
$
200,811
$
101,909
$
56,354
$
76,046
$
460,726
$
122,166
$
2,314,600
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Residential real estate
30-59 days
$
-
$
3,867
$
-
$
10
$
-
$
-
$
30
$
-
$
3,907
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
120
-
-
-
-
-
-
120
Total past due
-
3,987
-
10
-
-
30
-
4,027
Current
77,703
83,443
124,413
45,481
37,395
34,852
31,862
191
435,340
Total
$
77,703
$
87,430
$
124,413
$
45,491
$
37,395
$
34,852
$
31,892
$
191
$
439,367
Greater than 90 days
and accruing
$
-
$
120
$
-
$
-
$
-
$
-
$
-
$
-
$
120
Consumer
30-59 days
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
60-89 days
-
-
2
-
5
-
-
-
7
Greater than 90 days
-
-
-
-
-
-
-
-
-
Total past due
-
-
2
-
5
-
-
-
7
Current
7,917
1,347
2,641
265
137
6
21,173
-
33,486
Total
$
7,917
$
1,347
$
2,643
$
265
$
142
$
6
$
21,173
$
-
$
33,493
 
32
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2022
Amortized Cost Basis by Origination Year and Past Due Status
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
 
Revolving
loans
Revolving
loans
converted to
term loans
Total
(Dollars in thousands)
Total
30-59 days
$
4,313
$
8,651
$
-
$
1,190
$
-
$
1,049
$
2,844
$
-
$
18,047
60-89 days
-
55
2
-
5
-
980
430
1,472
Greater than 90 days
-
263
7
6
1,383
12
7,681
-
9,352
Total past due
4,313
8,969
9
1,196
1,388
1,061
11,505
430
28,871
Current
1,498,559
971,900
457,702
252,151
176,409
154,968
1,653,282
178,887
5,343,858
Total
$
1,502,872
$
980,869
$
457,711
$
253,347
$
177,797
$
156,029
$
1,664,787
$
179,317
$
5,372,729
Greater than 90 days
and accruing
$
-
$
159
$
7
$
-
$
-
$
-
$
584
$
-
$
750
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
33
 
Non-accrual Loan Analysis
Non-accrual loans are loans for which the Company does not record interest income. The
 
accrual of interest on loans is discontinued at the time the loan is 90 days past due
unless the credit is well secured and in process of collection. Past due status is based
 
on contractual terms of the loan. In all cases, loans are placed on non-accrual or charged
 
off at
an earlier date, if collection of principal or interest is considered doubtful. Loans are returned
 
to accrual status when all the principal and interest amounts contractually due are
brought current and future payments are reasonably assured. The following tables present
 
the Company’s non-accrual loans
 
by loan segments at September 30, 2023 and December
31, 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of September 30, 2023
Amortized Cost Basis by Origination Year and On Nonaccrual
Amortized Cost Basis
2023
2022
2021
2020
2019
2018 and
Prior
Revolving
loans
Revolving
loans
converted
to term
loans
Total
Nonaccrual
Loans
Nonaccrual
Loans with no
related
Allowance
(Dollars in thousands)
Commercial and industrial
$
-
$
-
$
8
$
24
$
-
$
-
$
10,777
$
185
$
10,994
 
$
6,720
Energy
-
-
-
-
-
-
408
-
408
408
Commercial real estate -
owner-occupied
-
-
204
-
-
-
-
-
204
 
204
Commercial real estate -
non-owner-occupied
-
-
8,448
144
-
-
-
-
8,592
8,592
Residential real estate
-
-
-
-
-
-
-
182
182
 
182
Consumer
-
-
-
-
-
-
-
-
-
-
Total
$
-
$
-
$
8,660
$
168
$
-
$
-
$
11,185
$
367
$
20,380
 
$
16,106
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
34
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2022
Amortized Cost Basis by Origination Year and On Non-accrual
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
loans
Revolving
loans
converted
to term
loans
Total
Nonaccrual
Loans
Nonaccrual
Loans with no
related
Allowance
(Dollars in thousands)
Commercial and industrial
$
-
$
104
$
-
$
6
$
1,383
$
12
$
6,479
$
-
$
7,984
$
7,984
Energy
-
-
-
-
-
-
618
-
618
618
Commercial real estate -
owner-occupied
-
-
-
-
-
-
-
-
-
-
Commercial real estate -
non-owner-occupied
-
2,479
-
-
-
-
-
-
2,479
2,479
Residential real estate
-
-
-
-
-
-
-
191
191
191
Consumer
-
-
-
-
-
-
-
-
-
-
Total
$
-
$
2,583
$
-
$
6
$
1,383
$
12
$
7,097
$
191
$
11,272
$
11,272
We recognized
no
 
interest income on non-accrual loans during the three- and nine-months
 
ended September 30, 2023.
 
For the three-and nine-months ended September 30, 2022, the
interest income recognized on non-accrual loans was $
0.9
 
million and $
1.3
 
million, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
35
Allowance for Credit Losses
The following table presents the activity in the allowance for credit losses and allowance
 
for credit losses on off-balance sheet credit exposures by portfolio segment
 
for the
three- and nine-months ended September 30, 2023:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended September 30, 2023
Commercial
and Industrial
Energy
Commercial
Real Estate -
Owner-
occupied
Commercial
Real Estate -
Non-owner-
occupied
Residential
Real Estate
Consumer
Total
(Dollars in thousands)
Allowance for Credit Losses:
Beginning balance
$
28,929
$
4,914
$
6,361
$
23,981
$
3,268
$
114
$
67,567
PCD allowance for credit loss at acquisition
51
-
61
217
-
-
329
Charge-offs
(1,418)
-
-
-
-
-
(1,418)
Recoveries
147
2
-
-
-
-
149
Provision (release)
2,977
(573)
678
775
187
(15)
4,029
Day 1 CECL provision expense
58
-
194
643
5
-
900
Ending balance
$
30,744
$
4,343
$
7,294
$
25,616
$
3,460
$
99
$
71,556
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures:
Beginning balance
$
449
$
496
$
205
$
6,496
$
67
$
-
$
7,713
Provision (release)
(264)
(322)
59
(1,070)
(3)
-
(1,600)
Ending balance
$
185
$
174
$
264
$
5,426
$
64
$
-
$
6,113
The ACL increased $
4.0
 
million during the quarter and included provision of $
4.0
 
million due to changes in credit quality, economic factors, an increase in specific reserves
and loan growth.
 
Net charge-offs totaled $
1.3
 
million, primarily due to one commercial and industrial loan that was previously reserved.
 
The quarter also included increases of $
0.3
million for reserves on PCD loans and $
0.9
 
million of Day 1 CECL provision expense on non-PCD loans related to the Tucson acquisition.
 
The reserve on unfunded commitments
decreased $
1.6
 
million due to a decrease in unfunded commitments in the quarter.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
36
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Nine Months Ended September 30, 2023
Commercial
and Industrial
Energy
Commercial
Real Estate -
Owner-
occupied
Commercial
Real Estate -
Non-owner-
occupied
Residential
Real Estate
Consumer
Total
(Dollars in thousands)
Allowance for Credit Losses:
Beginning balance
$
26,803
$
4,396
$
5,214
$
21,880
$
3,333
$
149
$
61,775
PCD allowance for credit loss at acquisition
51
-
61
217
-
-
329
Charge-offs
(3,798)
-
-
-
-
(5)
(3,803)
Recoveries
151
139
-
-
-
-
290
Provision (release)
7,479
(192)
1,825
2,876
122
(45)
12,065
Day 1 CECL provision expense
58
-
194
643
5
-
900
Ending balance
$
30,744
$
4,343
$
7,294
$
25,616
$
3,460
$
99
$
71,556
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures:
Beginning balance
$
319
$
787
$
221
$
7,323
$
35
$
3
$
8,688
Provision (release)
(134)
(613)
43
(1,897)
29
(3)
(2,575)
Ending balance
$
185
$
174
$
264
$
5,426
$
64
$
-
$
6,113
The ACL increased $
9.8
 
million during the nine-months ended September 30, 2023 and included provision of $
12.1
 
million due to loan growth, changes in credit quality,
economic factors and an increase in specific reserves.
 
Net charge-offs were $
3.5
 
million, primarily due to four commercial and industrial loans.
 
The year-to-date increase also
included increases of $
0.3
 
million for reserves on PCD loans and $
0.9
 
million of Day 1 CECL provision expense as noted above.
 
The reserve on unfunded commitments decreased
$
2.6
 
million due to a decrease in unfunded commitments.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
37
The following tables presents the Company’s gross
 
charge-offs by year of origination for the three- and nine-months ended
 
September 30, 2023:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Quarter Ended September 30, 2023
Gross Charge-offs by Origination Year
Gross Charge-offs
2023
2022
2021
2020
2019
2018 and
Prior
Revolving
loans
Revolving
loans
converted
to term
loans
Gross
Charge-
offs
(Dollars in thousands)
Commercial and industrial
$
6
$
7
$
-
$
-
$
-
$
-
$
1,262
$
143
$
1,418
Energy
-
-
-
-
-
-
-
-
-
Commercial real estate - owner-occupied
-
-
-
-
-
-
-
-
-
Commercial real estate - non-owner-occupied
-
-
-
-
-
-
-
-
-
Residential real estate
-
-
-
-
-
-
-
-
-
Consumer
-
-
-
-
-
-
-
-
-
Total
$
6
$
7
$
-
$
-
$
-
$
-
$
1,262
$
143
$
1,418
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Nine Months Ended September 30, 2023
Gross Charge-offs by Origination Year
Gross Charge-offs
2023
2022
2021
2020
2019
2018 and
Prior
Revolving
loans
Revolving
loans
converted
to term
loans
Gross
Charge-
offs
(Dollars in thousands)
Commercial and industrial
$
581
$
7
$
72
$
-
$
-
$
1,358
$
1,262
$
518
$
3,798
Energy
-
-
-
-
-
-
-
-
-
Commercial real estate - owner-occupied
-
-
-
-
-
-
-
-
-
Commercial real estate - non-owner-occupied
-
-
-
-
-
-
-
-
-
Residential real estate
-
-
-
-
-
-
-
-
-
Consumer
-
-
-
-
-
5
-
-
5
Total
$
581
$
7
$
72
$
-
$
-
$
1,363
$
1,262
$
518
$
3,803
 
 
 
 
 
 
 
 
 
 
 
 
 
38
 
Collateral Dependent Loans:
Collateral dependent loans are loans for which the repayment is expected to be provided
 
substantially through the operation or
sale of the collateral and the borrower
 
is experiencing financial difficulty. The following table presents the amortized cost balance
 
of
loans considered collateral dependent by loan segment and collateral type
 
as of September 30, 2023 and December 31, 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of September 30, 2023
Loan Segment and Collateral Description
Amortized Cost of
Collateral Dependent
Loans
Related Allowance for
Credit Losses
Amortized Cost of
Collateral Dependent
Loans with no related
Allowance
(Dollars in thousands)
Commercial and industrial
All business assets
$
11,010
$
2,149
$
6,712
Energy
Oil and natural gas properties
408
-
408
Commercial real estate - owner-occupied
Commercial real estate properties
204
-
204
Commercial real estate - non-owner-
occupied
Commercial real estate properties
6,029
-
6,029
Residential real estate
Residential real estate properties
-
-
-
Consumer
Vehicles & other personal assets
-
-
-
$
17,651
$
2,149
$
13,353
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2022
Loan Segment and Collateral Description
Amortized Cost of
Collateral Dependent
Loans
Related Allowance for
Credit Losses
Amortized Cost of
Collateral Dependent
Loans with no related
Allowance
(Dollars in thousands)
Commercial and industrial
All business assets
$
7,981
$
-
$
7,981
Energy
Oil and natural gas properties
618
-
618
Commercial real estate - owner-occupied
Commercial real estate properties
-
-
-
Commercial real estate - non-owner-
occupied
Commercial real estate properties
92
-
92
Residential real estate
Residential real estate properties
-
-
-
Consumer
Vehicles & other personal assets
39
22
-
$
8,728
$
22
$
8,689
 
Loan Modifications
The Company considers loans to borrowers experiencing financial difficulties to be
 
troubled loans.
 
Effective January 1, 2023, the
Company adopted ASU 2022-02, which eliminates the accounting guidance for troubled debt restructurings (“TDR
 
”) and requires an
entity evaluate whether loan modifications represent a new loan or a
 
continuation of an existing loan.
 
Such troubled debt modifications
(“TDM”) may include principal forgiveness, interest rate reductions, other-than-insignificant
 
-payment delays, term extensions or any
combination thereof.
 
The Company adopted this accounting standard on a prospective basis.
 
 
 
 
 
39
During the three- and nine-months ended September 30, 2023, the Company
 
modified
four
 
and
seven
 
loans, respectively, with an
amortized cost basis at September 30, 2023 of $
9.2
 
million to facilitate repayment that are considered TDMs.
 
The following table
presents, by loan segment, the amortized cost basis as of the date shown for
 
modified loans to borrowers experiencing financial
difficulty:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2023
Term Extension
Amortized Cost Basis
% of Loan Class
(Dollars in thousands)
Commercial and industrial
$
4,674
0.2
 
%
 
Commercial real estate - owner-occupied
4,569
1.0
Total Loans
$
9,243
The following schedule presents the payment status by loan class, as of September
 
30, 2023, of the amortized cost basis of loans
that have been modified since January 1, 2023:
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2023
Current
(Dollars in thousands)
Commercial and industrial
$
4,674
Commercial real estate - owner-occupied
4,569
Total Loans
$
9,243
The Company had no TDMs that were modified and had defaulted on their modified terms
 
during the nine-months ended
September 30, 2023. For purposes of this disclosure, the Company considers “default
 
”
 
to mean 90 days or more past due on principal or
interest. The allowance for credit losses related to TDMs on non-accrual status is determined by individual evaluation,
 
including
collateral adequacy, using the same process as loans on non-accrual status
 
which are not classified as TDMs.
The following schedule presents the financial effect of the modifications
 
made to borrowers experiencing financial difficulty as of
September 30, 2023:
 
 
 
 
 
 
 
 
September 30, 2023
Financial Effect
Term Extension
Commercial and industrial
Added a weighted average
1.2
 
years to the life of loan, which reduced
monthly payment amounts
Commercial real estate - owner-occupied
Added a weighted average
0.5
 
years to the life of loan, which reduced
monthly payment amounts
 
Troubled Debt Restructurings
Prior to the adoption of ASU 2022-02, TDRs were extended to borrowers who were experiencing financial difficulty and
 
who had
been granted a concession, excluding loan modifications as a result of the COVID
 
-19 pandemic. The modification of terms typically
included the extension of maturity, reduction or deferment of monthly payment, or
 
reduction of the stated interest rate.
The outstanding balance of TDRs recognized prior to the adoption of ASU 2022-02 was $
28.1
 
million and $
30.5
 
million as of
September 30, 2023 and December 31, 2022, respectively.
 
 
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
The Company estimates expected credit losses for off-balance sheet credit exposures
 
unless the obligation is unconditionally
cancellable by the Company. The ACL on off-balance sheet credit exposures is adjusted as a provision (release) for credit loss expense.
 
 
 
 
 
 
 
 
 
40
 
 
The estimate is calculated for each loan segment and includes consideration of the likelihood
 
that funding will occur and an estimate of
the expected credit losses on commitments expected to be funded over its estimated life.
 
For each pool of contractual obligations
expected to be funded, the Company uses the reserve rate established for the related
 
loan pools. The $
6
 
million and $
9
 
million allowance
for credit losses on off-balance sheet credit exposures at September 30,
 
2023 and December 31, 2022, respectively, are included in
“interest payable and other liabilities”
 
on the statements of financial condition.
 
The following categories of off-balance sheet credit exposures have been identified:
Loan commitments – include revolving lines of credit, non-revolving
 
lines of credit, and loans approved that are not yet funded. Risks
inherent to revolving lines of credit often are related to the susceptibility of an individual or
 
business experiencing unpredictable cash
flow or financial troubles, thus leading to payment default. The primary risk associated
 
with non-revolving lines of credit is the
diversion of funds for other expenditures.
Letters of credit – are primarily established to provide assurance to the beneficiary
 
that the applicant will perform certain obligations
arising out of a separate transaction between the beneficiary and applicant. If the obligation
 
is not met, it gives the beneficiary the right
to draw on the letter of credit.
Note 5:
 
Leases
The Company’s leases primarily include
 
bank branches located in Kansas City, Missouri; Tulsa, Oklahoma; Dallas, Texas; Frisco,
Texas; Phoenix, Arizona; Denver,
 
Colorado and Colorado Springs, Colorado.
 
The remaining lease terms on these branch leases range
from less than
one year
 
to
eighteen years
 
with certain options to renew. Renewal terms can extend the lease term between
five years
 
and
twenty years
. The exercise of lease renewal options is at the Company’s
 
sole discretion. When it is reasonably certain that the Company
will exercise its option to renew or extend the lease term, that option is included in the estimated
 
value of the right of use (“ROU”) asset
and lease liability. The Company’s lease agreements
 
do not contain any material residual value guarantees or material restrictive
covenants. As of September 30, 2023, the Company recognized one finance lease and the remaining Company leases are
 
classified as
operating leases.
The ROU asset is included in “other assets” on the consolidated statements of financial
 
condition, and was $
28
 
million and $
31
million at September 30, 2023 and December 31, 2022, respectively. Certain adjustments
 
to the ROU asset may be required for items
such as initial direct costs paid or incentives received. The lease liability is located in “Interest
 
payable and other liabilities”
 
on the
consolidated statements of financial condition and was $
31
 
million and $
34
 
million at September 30, 2023 and December 31, 2022,
respectively.
 
As of September 30, 2023, the remaining weighted-average lease term is
11.2
 
years, and the weighted-average discount rate was
2.56
% utilizing the Company’s incremental Federal
 
Home Loan Bank (“FHLB”) borrowing rate for borrowings of a similar term at the
date of lease commencement.
The following table presents components of operating lease expense in the accompanying
 
consolidated statements of operations
for the three-and nine-month periods ended September 30, 2023 and
 
2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended
 
September 30,
For the Nine Months Ended
 
 
September 30,
2023
2022
2023
2022
(Dollars in thousands)
Finance lease amortization of right-of-use asset
$
71
$
69
$
212
$
161
Finance lease interest on lease liability
67
69
204
115
Operating lease expense
726
603
2,189
1,932
Variable lease expense
487
297
1,368
855
Short-term lease expense
5
5
15
15
Total lease expense
$
1,356
$
1,043
$
3,988
$
3,078
 
 
 
 
 
 
 
 
 
 
 
41
Future minimum commitments due under these lease agreements as of September
 
30, 2023 are as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Leases
Finance Lease
(Dollars in thousands)
Remainder of 2023
$
1,292
$
122
2024
3,289
490
2025
3,309
490
2026
3,350
490
2027
3,340
528
Thereafter
12,619
8,296
Total lease payments
$
27,199
$
10,416
Less imputed interest
3,490
2,959
Total
$
23,709
$
7,457
Supplemental cash flow information –
Operating cash flows paid for operating lease amounts included in the
 
measurement of
lease liabilities were $
2.7
 
million and $
2.2
 
million for the nine-months ended September 30, 2023 and 2022, respectively. Operating
cash flows paid for finance lease amounts included in the measurement of lease liabilities
 
was $
0.4
 
million and $
0.2
 
million for the nine-
months ended September 30, 2023 and 2022, respectively. During the nine-months
 
ended September 30, 2023, the Company did
no
t
record any ROU assets that were exchanged for operating lease liabilities.
Note 6:
 
Goodwill and Core Deposit Intangible
In connection with the Tucson acquisition, the Company recorded goodwill of $
1.3
 
million during the three-months ended
September 30, 2023.
 
Goodwill is measured as the excess of the fair value of consideration paid over
 
the fair value of net assets
acquired. In accordance with GAAP, the Company performs annual tests to identify impairment
 
of goodwill and more frequently if
events or circumstances indicate a potential impairment may exist.
No
 
goodwill impairment was recorded during the nine-months ended
September 30, 2023.
The Company recorded a core deposit intangible (“CDI”) of $
4.5
 
million during the three-months ended September 30, 2023, as
part of the Tucson acquisition. The Company is amortizing the CDI from the Colorado/New Mexico acquisition
 
and the Tucson
acquisition over their estimated useful lives of approximately
10
 
years using the sum of the years’ digits accelerated method. The
Company recognized core deposit intangible amortization expense of $
0.9
 
million and $
2.5
 
million for the three- and nine-month
periods ended September 30, 2023,
 
respectively.
The gross carrying amount of goodwill and the gross carrying amount and accumulated
 
amortization of the CDI at September 30,
2023 and December 31, 2022 were:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
(Dollars in thousands)
September 30, 2023
Goodwill
$
14,135
$
-
$
14,135
Core deposit intangible
21,938
3,780
18,158
Total goodwill and intangible assets
$
36,073
$
3,780
$
32,293
December 31, 2022
Goodwill
$
12,836
$
-
$
12,836
Core deposit intangible
17,479
1,234
16,245
Total goodwill and intangible assets
$
30,315
$
1,234
$
29,081
 
 
42
The following table shows the estimated future amortization expense for the CDI
 
as of September 30, 2023:
 
 
 
 
 
 
 
 
 
 
Amount
Years ending December 31,
(Dollars in thousands)
For the three months ending December 31, 2023
$
958
For the year ending December 31, 2024
3,569
For the year ending December 31, 2025
3,155
For the year ending December 31, 2026
2,739
For the year ending December 31, 2027
2,325
 
 
 
 
 
 
 
Note 7:
 
Derivatives and Hedging
The Company is exposed to certain risks
 
arising from both its business operations and economic conditions, including
 
interest
rate, liquidity, and credit risk.
 
The Company uses derivative financial instruments as part of its risk management
 
activities to manage
exposures that arise from business activities that result in the receipt or payment of future
 
known and uncertain cash amounts, the value
of which are determined by interest rates.
 
Cash Flow Hedges of Interest Rate Risk
 
 
 
 
 
 
 
 
 
The Company uses interest rate derivatives to add stability to interest income and expense
 
and to manage its exposure to interest
rate movements. To
 
accomplish this objective, the Company uses interest rate swaps and collars as part of its interest rate
 
risk
management strategy. Interest
 
rate swaps designated as cash flow hedges involve the receipt of variable amounts from
 
a counterparty in
exchange for the Company making fixed-rate payments over the life of the
 
agreements without exchange of the underlying notional
amount. Interest rate collars designated as cash flow hedges involve payments
 
of variable-rate amounts if interest rates rise above the
cap strike rate on the contract and the receipt of variable-rate amounts if interest rates
 
fall below the floor strike rate on the contract.
During 2023, such derivatives were used to hedge the variable cash flows associated
 
with existing variable-rate debt and loan assets.
Previously, five swaps that
 
were entered into in 2021 were terminated during the third quarter of 2022;
 
however, the amortization of the
gains on these instruments began in 2023 based on the original effective dates of these
 
swaps. Derivatives designated and that qualify as
cash flow hedges include
five
 
instruments with a notional amount of $
340
 
million and
one
 
instrument with a notional amount of
$
250
 
million at September 30, 2023 and December 31, 2022, respectively.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain
 
or loss on the derivative is recorded
in Accumulated Other Comprehensive Income (Loss) (“AOCI”) and subsequently reclassified into interest income or
 
expense in the
same period(s) during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be
reclassified to interest income and expense as interest payments are received and
 
made on the Company’s variable-rate
 
assets and debt.
The Company currently estimates that $
2.7
 
million will be reclassified as a decrease to net interest income during the next twelve
months.
 
The Company is hedging its exposure to the variability in future cash flows for forecasted
 
transactions over a maximum period of
5.6
 
years.
 
Non-designated Hedges
Derivatives not designated as hedges are not speculative and result from a service provided
 
to clients. The Company executes
interest rate swaps with customers to facilitate their respective risk management strategies.
 
Those interest rate swaps are simultaneously
hedged by offsetting derivatives that the Company executes with a third-party, such that
 
the Company minimizes its net risk exposure
resulting from such transactions. Interest rate derivatives associated
 
with this program do not meet the strict hedge accounting
requirements and changes in the fair value of both the customer derivatives and the offsetting derivatives
 
are recognized directly in
earnings.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
43
 
 
 
Swap fees earned upon origination and credit valuation adjustments that represent
 
the risk of a counterparty’s default
 
are reported
on the statements of operations as swap fee income, net. The effect of the Company’s
 
derivative financial instruments gain (loss) is
reported on the statements of cash flows within “other assets”
 
and “other liabilities”.
 
These
44
 
and
49
 
swaps had an aggregate notional amount of $
350
 
million and $
421
 
million at September 30, 2023 and
December 31, 2022, respectively.
Fair Values
 
of Derivative Instruments on the Consolidated Statements of Financial
 
Condition
The table below presents the fair value of the Company’s
 
derivative financial instruments and their classification on the
consolidated statements of financial condition as of September
 
30, 2023 and December 31, 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset Derivatives
Liability Derivatives
Statement of
Financial
Condition
September 30,
 
December 31,
 
Statement of
Financial
Condition
September 30,
 
December 31,
 
Location
2023
2022
Location
2023
2022
(Dollars in thousands)
Interest rate products:
Derivatives
designated as hedging
instruments
Other assets
and Interest
receivable
$
217
$
-
Interest payable
and other
liabilities
$
10,035
$
5,403
Derivatives not
designated as hedging
instruments
Other assets
and Interest
receivable
12,468
11,038
Interest payable
and other
liabilities
12,473
11,039
Total
$
12,685
$
11,038
$
22,508
$
16,442
The table below presents the effect of cash flow hedge accounting on Accumulated Other Comprehensive Income (Loss)
 
for the
three- and nine-months ended September 30, 2023 and 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Location of
Gain or (Loss)
Recognized
from
Accumulated
Other
Comprehensive
Income into
Earnings
Gain or
(Loss)
Recognized
in OCI on
Derivative
Gain or
(Loss)
Recognized
in OCI
Included
Component
Gain or
(Loss)
Recognized
in OCI
Excluded
Component
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Earnings
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Earnings
Included
Component
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Earnings
Excluded
Component
(Dollars in thousands)
For the Three Months Ended September 30, 2023
Derivatives in Cash Flow Hedging Relationships:
Interest Rate Products
Interest Income
$
(2,333)
$
(2,333)
$
-
$
-
$
-
$
-
Interest Rate Products
Interest Expense
44
44
-
93
93
-
Total
$
(2,289)
$
(2,289)
$
-
$
93
$
93
$
-
For the Three Months Ended September 30, 2022
Derivatives in Cash Flow Hedging Relationships:
Interest Rate Products
Interest Income
$
(6,891)
$
(6,891)
$
-
$
-
$
-
$
-
Interest Rate Products
Interest Expense
(185)
(185)
-
-
-
-
Total
$
(7,076)
$
(7,076)
$
-
$
-
$
-
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
44
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Location of
Gain or (Loss)
Recognized
from
Accumulated
Other
Comprehensive
Income into
Earnings
Gain or
(Loss)
Recognized
in OCI on
Derivative
Gain or
(Loss)
Recognized
in OCI
Included
Component
Gain or
(Loss)
Recognized
in OCI
Excluded
Component
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Earnings
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Earnings
Included
Component
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Earnings
Excluded
Component
(Dollars in thousands)
For the Nine Months Ended September 30, 2023
Derivatives in Cash Flow Hedging Relationships:
Interest Rate Products
Interest Income
$
(4,632)
$
(4,632)
$
-
$
-
$
-
$
-
Interest Rate Products
Interest Expense
251
251
-
102
102
-
Total
$
(4,381)
$
(4,381)
$
-
$
102
$
102
$
-
For the Nine Months Ended September 30, 2022
Derivatives in Cash Flow Hedging Relationships:
Interest Rate Products
Interest Income
$
(6,891)
$
(6,891)
$
-
$
-
$
-
$
-
Interest Rate Products
Interest Expense
3,855
3,855
-
-
-
-
Total
$
(3,036)
$
(3,036)
$
-
$
-
$
-
$
-
As of September 30, 2023 and December 31, 2022, the Company had
 
minimum collateral thresholds with certain of its derivative
counterparties and has received collateral of $
2.2
 
million and $
4.9
 
million, respectively.
Note 8:
 
Time Deposits and Borrowings
The scheduled maturities, excluding interest, of the Company’s
 
borrowings at September 30, 2023 were as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2023
Within One
Year
One to Two
Years
Two to
Three Years
Three to
Four Years
Four to Five
Years
After Five
Years
Total
(Dollars in thousands)
Time deposits
$
1,612,087
$
126,478
$
1,795
$
2,833
$
460
$
-
$
1,743,653
Fed funds purchased &
repurchase agreements
1,555
-
-
-
-
-
1,555
FHLB borrowings
2,172
11,359
-
7,500
52,500
15,000
88,531
Line of credit
-
7,500
-
-
-
-
7,500
SBA secured borrowing
-
-
-
-
-
7,901
7,901
Trust preferred securities
(1)
-
-
-
-
-
1,103
1,103
$
1,615,814
$
145,337
$
1,795
$
10,333
$
52,960
$
24,004
$
1,850,243
(1)
The contract value of the trust preferred securities is $
2.6
 
million and is currently being accreted to the maturity date of 2035.
 
 
 
 
 
 
 
 
 
 
45
Note 9:
 
Change in Accumulated Other Comprehensive Income (Loss)
 
Amounts reclassified from AOCI and the affected line items in the consolidated statements of operations during the three-
 
and
nine-month periods ended September 30, 2023 and 2022, were as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
Nine Months Ended
September 30,
 
September 30,
 
Affected Line Item in the
2023
2022
2023
2022
Statements of Operations
(Dollars in thousands)
Realized (losses) gains on available-for-sale
securities
$
(60)
$
(4)
$
3
$
(43)
Other non-interest income
Less: tax (benefit) expense effect
(14)
(1)
1
(11)
Income tax expense
Realized (losses) gains on available-for-sale
securities, net of income tax
(46)
(3)
2
(32)
 
Interest income on cash flow hedges
$
93
$
-
$
102
$
-
Interest expense - Deposits
Less: tax expense effect
22
-
24
-
Income tax expense
Interest income on cash flow hedges, net of
tax
$
71
$
-
$
78
$
-
Total reclassified amount
$
25
$
(3)
$
80
$
(32)
 
Note 10:
 
Regulatory Matters
The Company and the Bank are subject to various regulatory capital requirements administered
 
by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain
 
mandatory and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on the Company’s
 
consolidated financial statements. Management believes that,
as of September 30, 2023, the Company and the Bank met all capital adequacy requirements
 
to which they are subject.
The capital rules require the Company to maintain a
2.5
% capital conservation buffer with respect to Common Equity Tier I
capital, Tier I capital to risk-weighted assets, and total capital to risk-weighted assets, which is included
 
in the column “Required to be
Considered Adequately Capitalized”
 
within the table below. A
 
financial institution with a conservation buffer of less than the required
amount is subject to limitations on capital distributions, including dividend
 
payments and stock repurchases, as well as certain
discretionary bonus payments to executive officers.
 
The Company and the Bank opted to exclude AOCI from the regulatory capital calculations. As a result, changes in AOCI, net of
tax, do not impact the Company’s or
 
Bank’s regulatory capital ratios.
 
46
The Company’s and the Bank’s
 
actual capital amounts and ratios as of September 30, 2023 and December 31,
 
2022 are presented
in the following table:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Actual
Required to be Considered
 
Well Capitalized
Required to be Considered
Adequately Capitalized
(1)
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
September 30, 2023
Total Capital to Risk-Weighted Assets
Consolidated
$
783,978
10.9
%
 
N/A
 
 
N/A
 
$
755,561
10.5
%
Bank
786,328
10.9
$
719,146
10.0
%
755,104
10.5
Tier I Capital to Risk-Weighted Assets
Consolidated
706,889
9.8
N/A
N/A
611,645
8.5
Bank
709,239
9.9
545,317
8.0
611,274
8.5
Common Equity Tier 1 to Risk-Weighted Assets
Consolidated
698,036
9.7
 
N/A
 
 
N/A
 
503,708
7.0
Bank
709,239
9.9
467,445
6.5
503,402
7.0
Tier I Capital to Average Assets
Consolidated
706,889
9.9
N/A
N/A
286,589
4.0
Bank
$
709,239
9.9
%
$
358,262
5.0
%
$
286,610
4.0
%
December 31, 2022
Total Capital to Risk-Weighted Assets
Consolidated
$
715,416
10.5
%
 
N/A
 
 
N/A
 
$
714,162
10.5
%
Bank
714,300
10.5
$
679,793
10.0
%
713,783
10.5
Tier I Capital to Risk-Weighted Assets
Consolidated
644,953
9.5
N/A
N/A
578,131
8.5
Bank
643,837
9.5
543,835
8.0
577,824
8.5
Common Equity Tier 1 to Risk-Weighted Assets
Consolidated
643,892
9.5
 
N/A
 
 
N/A
 
476,108
7.0
Bank
643,837
9.5
441,866
6.5
475,855
7.0
Tier I Capital to Average Assets
Consolidated
644,953
10.3
N/A
N/A
249,270
4.0
Bank
$
643,837
10.3
%
$
311,623
5.0
%
$
249,299
4.0
%
(1)
Represents the minimum capital required for capital adequacy under Basel III.
 
Includes capital conservation buffer of
2.5
%.
Note 11:
 
Stock-Based Compensation
The Company issues stock-based compensation in the form of non-vested
 
restricted stock,
 
restricted stock units and stock
appreciation rights under the 2018 Omnibus Equity Incentive Plan (as amended, the
 
“Omnibus Plan”). The Omnibus Plan will expire on
the tenth anniversary of its effective date. In addition, the Company has an Employee
 
Stock Purchase Plan. The aggregate number of
shares authorized for future issuance under the Omnibus Plan is
1,328,538
 
shares as of September 30, 2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
47
The table below summarizes the stock-based compensation for the three- and nine-months-ended
 
September 30, 2023 and 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
Nine Months Ended
September 30,
 
September 30,
 
2023
2022
2023
2022
(Dollars in thousands)
Stock appreciation rights
$
27
$
75
$
168
$
262
Performance-based stock awards
305
200
839
611
Restricted stock units and awards
807
763
2,575
2,336
Employee stock purchase plan
69
31
129
95
Total stock-based compensation
$
1,208
$
1,069
$
3,711
$
3,304
 
Performance-Based Restricted Stock Units
The Company awards performance-based restricted stock units (“PBRSUs”) to key officers
 
of the Company. The PBRSUs
typically cliff-vest at the end of
three years
 
based on attainment of certain performance metrics developed by the Compensation
Committee. The ultimate number of shares issuable under each performance award
 
is the product of the award target and the award
payout percentage given the level of achievement. The award payout percentages by level of achievement range
 
between
0
% of target
and
150
% of target.
During the nine-month period ended September 30, 2023, the Company granted
128,005
 
PBRSUs. The performance metrics
include three-year cumulative earnings per share and relative total shareholder
 
return.
The following table summarizes the status of and changes in the PBRSUs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Performance-Based Restricted
 
Stock Unit Awards
Number of Shares
Weighted-Average
Grant Date Fair Value
Unvested, January 1, 2023
134,286
$
14.52
Granted
128,005
14.13
Vested
(20,736)
13.55
Forfeited
(7,227)
14.90
Unvested, September 30, 2023
234,328
$
14.38
 
Unrecognized stock-based compensation related to the performance awards issued through
 
September 30, 2023 was $
2.1
 
million
and is expected to be recognized over
2.1
 
years.
Restricted Stock Units and Restricted Stock Awards
The Company issues time-based restricted stock units (“RSUs”)
 
and restricted stock awards (“RSAs”) to provide incentives to
key officers, employees, and non-employee directors. Awards are typically granted annually as determined by the
 
Compensation
Committee. The service-based RSUs typically vest in equal amounts over
three years
. The service-based RSAs typically cliff-vest after
one year
.
The following table summarizes the status of and changes in the RSUs and RSAs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restricted Stock Units and Awards
Number of Shares
Weighted-Average
Grant Date Fair Value
Unvested, January 1, 2023
416,980
$
14.13
Granted
333,979
13.20
Vested
(226,721)
13.60
Forfeited
(44,620)
14.33
Unvested, September 30, 2023
479,618
$
13.62
 
48
Unrecognized stock-based compensation related to the RSUs and RSAs issued through September
 
30, 2023 was $
4.8
 
million and
is expected to be recognized over
1.9
 
years.
 
Note 12:
 
Stock Warrants
The Company had
80,000
 
outstanding, fully vested warrants to purchase common stock at a strike price of $
5.00
 
per share as of
December 31, 2022. During the nine-month period ended September 30,
 
2023, the remaining, fully vested
80,000
 
warrants were
exercised and cash settled resulting in a reduction to additional paid in capital of $
0.4
 
million. There were
no
 
outstanding warrants as of
September 30, 2023.
 
Note 13:
 
Stockholders’ Equity
The following table presents the computation of basic and diluted earnings per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
Nine Months Ended
September 30,
September 30,
2023
2022
2023
2022
(Dollars in thousands except per share data)
Earnings per Common Share
Net Income
$
16,863
$
17,280
$
49,018
$
49,653
Less: preferred stock dividends
155
-
258
-
Net income available to common stockholders
$
16,708
$
17,280
$
48,760
$
49,653
Weighted average common shares
49,214,653
49,266,811
48,867,144
49,755,184
Earnings per common share
$
0.34
$
0.35
$
1.00
$
1.00
Diluted Earnings per Common Share
Net Income
$
16,863
$
17,280
$
49,018
$
49,653
Less: preferred stock dividends
155
-
258
-
Net income available to common stockholders
$
16,708
$
17,280
$
48,760
$
49,653
Weighted average common shares
49,214,653
49,266,811
48,867,144
49,755,184
Effect of dilutive shares
265,454
454,682
317,666
525,409
Weighted average dilutive common shares
49,480,107
49,721,493
49,184,810
50,280,593
Diluted earnings per common share
$
0.34
$
0.35
$
0.99
$
0.99
Stock-based awards not included because to do so would be
antidilutive
881,351
529,336
914,519
334,725
Dividends of $
155
 
thousand and $
258
 
thousand related to the Series A
 
Non-Cumulative Perpetual Preferred Stock were declared
and paid during the three- and nine-months ended September 30, 2023, respectively.
 
In October 2023, the Board of Directors declared a
quarterly dividend on Series A Non-Cumulative Perpetual Preferred Stock in the amount of $
20.00
 
per share to be payable on
December
15, 2023
 
to shareholders of record as of
November 30, 2023
.
Note 14:
 
Disclosures about Fair Value of Financial Instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
 
transaction between
market participants at the measurement date. Fair value measurements
 
must maximize the use of observable inputs and minimize the use
of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:
Level 1
 
Quoted prices in active markets for identical assets or liabilities.
Level 2
 
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities;
 
quoted prices in
markets that are not active; or other inputs that are observable or can be corroborated
 
by observable market data for
substantially the full term of the assets or liabilities.
Level 3
 
Unobservable inputs supported by little or no market activity and significant to the fair
 
value of the assets or liabilities.
 
49
 
Recurring Measurements
The following list presents the assets and liabilities recognized in the accompanying
 
consolidated statements of financial
condition measured at fair value on a recurring basis and the level within the fair value
 
hierarchy in which the fair value measurements
fall at September 30, 2023 and December 31, 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair Value Description
Valuation
Hierarchy
Level
Where Fair
Value Balance
Can Be Found
Available-for-
Sale Securities
Where quoted market prices are available in an active market, securities are
classified within Level 1 of the valuation hierarchy. If quoted market prices
are not available, then fair values are estimated by using quoted prices
 
of
securities with similar characteristics or independent asset pricing services
and pricing models, the inputs of which are market-based or independently
sourced market parameters, including, but not limited to, yield curves,
interest rates, volatilities, prepayments, defaults, cumulative loss projections
and cash flows.
 
Level 2
Note 3:
Securities
 
Derivatives
Fair value of the interest rate swaps is obtained from independent pricing
services based on quoted market prices for similar derivative contracts.
Level 2
Note 7:
Derivatives and
Hedging
 
Non-recurring Measurements
The following tables present assets measured at fair value on a non-recurring basis and
 
the level within the fair value hierarchy in
which the fair value measurements fall at September 30, 2023 and
 
December 31, 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2023
Fair Value Measurements Using
Fair Value
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Unobservable
Inputs (Level 3)
(Dollars in thousands)
Collateral-dependent loans
$
17,651
$
-
$
-
$
17,651
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2022
Fair Value Measurements Using
Fair Value
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Unobservable
Inputs (Level 3)
(Dollars in thousands)
Collateral-dependent impaired loans
$
8,728
$
-
$
-
$
8,728
Foreclosed assets held-for-sale
$
1,745
$
-
$
-
$
1,745
 
Following is a description of the valuation methodologies and inputs used for assets
 
measured at fair value on a non-recurring
basis and recognized in the accompanying consolidated statements of financial
 
condition.
Collateral-Dependent Loans,
 
Net of ACL
The estimated fair value of collateral-dependent loans is based on the appraised
 
fair value of the collateral, less estimated cost to
sell. If the fair value of the collateral is below the loan’s
 
amortized cost, the ACL is netted against the loan balance. Collateral-dependent
loans are classified within Level 3 of the fair value hierarchy.
 
The Company considers the appraisal or evaluation as the starting point for determining
 
fair value and then considers other
factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral dependent loans are
 
50
 
 
obtained when the loan is determined to be collateral dependent and subsequently as deemed
 
necessary by the Office of the Chief Credit
Officer.
Appraisals are reviewed for accuracy and consistency by management. Appraisers are selected from the list of approved
appraisers maintained by management. The appraised values are reduced by discounts to consider lack of
 
marketability and estimated
cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates
 
are developed
by the Office of the Chief Credit Officer by comparison to historical results.
Foreclosed Assets Held-for-Sale
The fair value of foreclosed assets-held-for-sale is based on the appraised fair value of the
 
collateral, less estimated cost to sell.
Unobservable (Level 3) Inputs
The following tables present quantitative information about unobservable
 
inputs used in non-recurring Level 3 fair value
measurements at September 30, 2023 and December 31, 2022:
 
 
 
 
 
 
 
September 30, 2023
Fair Value
Valuation Techniques
Unobservable
Inputs
Range
(Weighted Average)
(Dollars in thousands)
$
Market comparable
properties
Marketability
discount
0
%
-
50
%
Collateral dependent loans
17,651
(
17
)%
 
 
 
 
 
 
 
 
December 31, 2022
Fair Value
Valuation Techniques
Unobservable
Inputs
Range
(Weighted Average)
(Dollars in thousands)
$
Market comparable
properties
Marketability
discount
0
 
%
-
100
%
Collateral dependent loans
8,728
(
13
)%
$
Market comparable
properties
Marketability
discount
10
%
Foreclosed assets held-for-sale
1,745
(
10
)%
 
51
The following tables present the estimated fair values of the Company’s
 
financial instruments at September 30, 2023 and
December 31, 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2023
Carrying
Fair Value Measurements
Amount
Level 1
Level 2
Level 3
(Dollars in thousands)
Financial Assets
Cash and cash equivalents
$
233,191
$
233,191
$
-
$
-
Available-for-sale securities
750,487
-
750,487
-
Loans, net of allowance for credit losses
5,874,197
-
-
5,820,212
Restricted equity securities
4,396
-
-
4,396
Interest receivable
35,814
-
35,814
-
Equity securities
5,202
-
-
5,202
Derivative assets
12,315
-
12,315
-
Financial Liabilities
Deposits
$
6,331,621
$
1,028,974
$
-
$
5,301,120
Federal Home Loan Bank advances
88,531
-
81,569
-
Other borrowings
18,059
-
18,630
-
Interest payable
17,885
-
17,885
-
Derivative liabilities
22,198
-
22,198
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2022
Carrying
Fair Value Measurements
Amount
Level 1
Level 2
Level 3
(Dollars in thousands)
Financial Assets
Cash and cash equivalents
$
300,138
$
300,138
$
-
$
-
Available-for-sale securities
769,641
-
686,901
-
Loans, net of allowance for loan losses
5,310,954
-
-
5,307,607
Restricted equity securities
12,536
-
-
12,536
Interest receivable
29,507
-
29,507
-
Equity securities
2,870
-
-
2,870
Derivative assets
11,038
-
11,038
-
Financial Liabilities
Deposits
$
5,651,308
$
1,400,260
$
-
$
4,142,673
Federal funds purchased and repurchase agreements
74,968
-
74,968
-
Federal Home Loan Bank advances
143,143
-
135,086
-
Other borrowings
35,457
-
36,529
-
Interest payable
5,713
-
5,713
-
Derivative liabilities
16,442
-
16,442
-
 
 
 
 
 
 
52
 
Note 15:
 
Commitments and Credit Risk
Commitments
The Company had the following commitments at September 30,
 
2023 and December 31, 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2023
December 31, 2022
(Dollars in thousands)
Commitments to originate loans
$
141,208
$
134,961
Standby letters of credit
72,056
66,889
Lines of credit
2,156,380
2,705,730
Future lease commitments
5,833
1,888
Commitments related to investment funds
4,798
3,403
$
2,380,275
$
2,912,871
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
53
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
 
AND RESULTS OF
OPERATIONS
The following management's discussion and analysis of our financial condition and
 
results of operations should be read in
conjunction with our consolidated financial statements and related
 
notes as of and for the three-
 
and nine-months ended September 30,
2023, and with our 2022 Form 10-K, which includes our audited consolidated financial
 
statements and related notes as of December 31,
2022 and 2021 and for the years ended December 31, 2022, 2021
 
and 2020. This discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions that may cause actual results
 
to differ materially from management's
expectations. Factors that could cause such differences are discussed in the section entitled
 
“Cautionary Note Regarding Forward-
Looking Statements”
 
located elsewhere in this quarterly report and in Item 1A “Risk Factors”
 
in our 2022 Form 10-K and should be
read herewith.
Performance Measures
As of or For the Quarter Ended
As of or For the Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
2023
2023
2023
2022
2022
2023
2022
Return on average assets
(1)
0.94
%
0.93
%
0.97
%
0.77
%
1.19
%
0.95
%
1.18
%
Adjusted return on average
assets
(1)(2)
1.04
%
1.00
%
1.04
%
1.15
%
1.19
%
1.03
%
1.21
%
Return on average common
equity
(1)
10.19
%
10.00
%
10.54
%
8.04
%
11.18
%
10.24
%
10.59
%
Adjusted return on average
common equity
(1)(2)
11.26
%
10.81
%
11.30
%
12.03
%
11.22
%
11.12
%
10.82
%
Earnings per common share - basic
$
0.34
$
0.33
$
0.33
$
0.25
$
0.35
$
1.00
$
1.00
Earnings per common share -
diluted
$
0.34
$
0.33
$
0.33
$
0.24
$
0.35
$
0.99
$
0.99
Adjusted earnings per common
share - diluted
(1)
$
0.37
$
0.35
$
0.35
$
0.36
$
0.35
$
1.08
$
1.01
Efficiency ratio
(3)
59.49
%
62.02
%
60.81
%
62.40
%
53.20
%
60.77
%
55.97
%
Adjusted efficiency ratio -
FTE
(2)(3)(4)
55.17
%
57.27
%
56.42
%
55.01
%
52.25
%
56.28
%
54.21
%
Ratio of equity to assets
8.96
%
9.15
%
9.36
%
9.22
%
9.93
%
8.96
%
9.93
%
(1)
 
Interim periods annualized
(2)
 
Represents a non-GAAP financial measure.
 
See "Non-GAAP Financial Measures"
 
below for a reconciliation of these measures.
(3)
 
We calculate efficiency ratio as non-interest expense
 
divided by the sum of net interest income and
 
non-interest income.
(4)
 
Tax exempt income (tax-free municipal securities)
 
is calculated on a tax equivalent basis.
 
The incremental tax rate used is 21.0%
Third Quarter 2023 Highlights
During the third quarter ended September 30, 2023, we accomplished the following:
●
Improved profitability as operating revenue, adjusted diluted earnings per common share
(1)
, and adjusted return on average
common equity
(1)
 
increased compared to the prior quarter and the prior year third quarter; year-to-date
 
2023 operating
revenue grew 21% compared to the prior year
●
Completed the previously-announced acquisition of Canyon Bancorporation,
 
Inc. and its wholly owned subsidiary, Canyon
Community Bank, N.A. (the “Tucson acquisition”)
o
Added $106 million of loans net of $5.2 million in acquired loan marks, $165
 
million of deposits and $4.5 million of
core deposit intangible
o
Deepened our Arizona franchise; system integration planned for the fourth quarter of 2023
●
Loans grew $149 million, or 2.6%, for the quarter and grew 10.7% year-to date
o
Excluding the Tucson acquisition, loans grew 0.8% for the quarter and 8.7% year-to-date
●
Deposits grew $232 million, or 3.8%, for the quarter and grew 12.0%
 
year-to-date
o
Excluding the Tucson acquisition, deposits grew 1.1% for the quarter and 9.1% year-to-date
o
Non-interest-bearing deposits increased 11% from the prior quarter,
 
and increased 6% excluding the impact of the
Tucson acquisition
 
 
 
 
54
●
Non-performing assets increased to 0.50% of total assets but were contained within a
 
few relationships of manageable size;
Net charge-offs of $1.3 million were previously reserved and represented an annualized
 
rate of 0.09% of average loans
●
Reduced non-interest expense compared to the linked quarter,
 
progressing towards our longer-term efficiency goal
(1)
Represents a non-GAAP financial measure.
 
See “Non-GAAP Financial Measures” below
 
for a reconciliation of these measures.
Mergers and Acquisitions
 
Update
During the third quarter of 2023, the Company completed its acquisition of Canyon
 
whereby Canyon Bancorporation, Inc. was
ultimately merged with and into CrossFirst Bankshares, Inc. and Canyon Community
 
Bank, N.A. was merged with and into CrossFirst
Bank. In accordance with the agreement, the Company paid approximately
 
$9.1 million of cash consideration and issued 597,645
 
shares
of Company common stock,
 
and the Company and the Bank assumed all of the assets and liabilities of the Canyon entities
 
with which
they merged by operation of law.
 
System integration is expected to occur during the fourth quarter of 2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
55
Non-GAAP Financial Measures
In addition to disclosing financial measures determined in accordance
 
with U.S. generally accepted accounting principles (GAAP), the Company discloses certain
 
non-GAAP
financial measures including “tangible common stockholders’
 
equity,” “tangible book value per common share,”
 
“adjusted efficiency ratio – FTE,”
 
“adjusted net income,” “adjusted
earnings per common share – diluted,” “adjusted return on average assets,” and
 
“adjusted return on average common equity.”
 
We consider the use of select non-GAAP financial
measures and ratios to be useful for financial and operational decision making and useful in
 
evaluating period-to-period comparisons. We believe that these non-GAAP financial
measures provide meaningful supplemental information to investors regarding
 
our performance by excluding certain expenditures or gains that we believe
 
are not indicative of our
primary business operating results. We believe that management and investors benefit
 
from referring to these non-GAAP financial measures in assessing our performance and when
planning, forecasting, analyzing,
 
and comparing past, present and future periods.
These non-GAAP financial measures should not be considered a substitute for financial information presented in
 
accordance with GAAP and you should not rely on non-
GAAP financial measures alone as measures of our performance. The non-GAAP financial measures we present may differ from non-GAAP financial measures
 
used by our peers or
other companies. We compensate for these limitations by providing the equivalent GAAP measures whenever
 
we present the non-GAAP financial measures and by including a
reconciliation of the impact of the components adjusted for in the non-GAAP financial measure so that both
 
measures and the individual components may be considered when
analyzing our performance.
A reconciliation of non-GAAP financial measures to the comparable GAAP financial measures follows.
Quarter Ended
Nine Months Ended
9/30/2023
6/30/2023
3/31/2023
12/31/2022
9/30/2022
9/30/2023
9/30/2022
(Dollars in thousands, except per share data)
Adjusted net income:
Net income (GAAP)
$
16,863
$
16,047
$
16,108
$
11,946
$
17,280
$
49,018
$
49,653
Add: Acquisition costs
1,328
338
1,477
3,570
81
3,143
320
Add: Acquisition - Day 1 CECL
 
provision
900
-
-
4,400
-
900
-
Add: Employee separation
-
1,300
-
-
-
1,300
1,063
Less: Tax effect
(1)
(468)
(344)
(310)
(2,045)
(17)
(1,122)
(290)
Adjusted net income
$
18,623
$
17,341
$
17,275
$
17,871
$
17,344
$
53,239
$
50,746
Preferred stock dividends
$
155
$
103
$
-
$
-
$
-
$
258
$
-
Diluted weighted average common shares outstanding
49,480,107
48,943,325
49,043,621
49,165,578
49,725,207
49,184,810
50,280,593
Earnings per common share – diluted (GAAP)
$
0.34
$
0.33
$
0.33
$
0.24
$
0.35
$
0.99
$
0.99
Adjusted earnings per common share – diluted
$
0.37
$
0.35
$
0.35
$
0.36
$
0.35
$
1.08
$
1.01
(1)
Represents the tax impact of the adjustments at a tax rate
 
of 21.0%, plus permanent tax expense associated with
 
merger related transactions.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
56
Quarter Ended
Nine Months Ended
9/30/2023
6/30/2023
3/31/2023
12/31/2022
9/30/2022
9/30/2023
9/30/2022
(Dollars in thousands)
Adjusted return on average assets:
Net income (GAAP)
$
16,863
$
16,047
$
16,108
$
11,946
$
17,280
$
49,018
$
49,653
Adjusted net income
18,623
17,341
17,275
17,871
17,344
53,239
50,746
Average assets
$
7,114,228
$
6,929,972
$
6,712,801
$
6,159,783
$
5,764,347
$
6,920,471
$
5,625,317
Return on average assets (GAAP)
0.94
%
0.93
%
0.97
%
0.77
%
1.19
%
0.95
%
1.18
%
Adjusted return on average assets
1.04
%
1.00
%
1.04
%
1.15
%
1.19
%
1.03
%
1.21
%
Quarter Ended
Nine Months Ended
9/30/2023
6/30/2023
3/31/2023
12/31/2022
9/30/2022
9/30/2023
9/30/2022
(Dollars in thousands)
Adjusted return on average common equity:
Net income (GAAP)
$
16,863
$
16,047
$
16,108
$
11,946
$
17,280
$
49,018
$
49,653
Preferred stock dividends
155
103
-
-
-
258
-
Net income attributable to common shareholders (GAAP)
$
16,708
$
15,944
$
16,108
$
11,946
$
17,280
$
48,760
$
49,653
Adjusted net income
$
18,623
$
17,341
$
17,275
$
17,871
$
17,344
$
53,239
$
50,746
Preferred stock dividends
155
103
-
-
-
258
-
Adjusted net income attributable to common shareholders
$
18,468
$
17,238
$
17,275
$
17,871
$
17,344
$
52,981
$
50,746
Average common equity
$
650,494
$
639,741
$
619,952
$
589,587
$
613,206
$
636,841
$
627,016
Return on average common equity (GAAP)
10.19
%
10.00
%
10.54
%
8.04
%
11.18
%
10.24
%
10.59
%
Adjusted return on average common equity
11.26
%
10.81
%
11.30
%
12.03
%
11.22
%
11.12
%
10.82
%
Quarter Ended
9/30/2023
6/30/2023
3/31/2023
12/31/2022
9/30/2022
(Dollars in thousands, except per share data)
Tangible common stockholders' equity:
Total stockholders' equity (GAAP)
$
643,051
$
651,483
$
645,491
$
608,599
$
580,547
Less: goodwill and other intangible assets
32,293
27,457
28,259
29,081
71
Less: preferred stock
7,750
7,750
7,750
-
-
Tangible common stockholders' equity
$
603,008
$
616,276
$
609,482
$
579,518
$
580,476
Common shares outstanding at end of period
49,295,036
48,653,487
48,600,618
48,448,215
48,787,696
Book value per common share (GAAP)
$
13.04
$
13.39
$
13.28
$
12.56
$
11.90
Tangible book value per common share
$
12.23
$
12.67
$
12.54
$
11.96
$
11.90
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
57
Quarter Ended
Nine Months Ended
9/30/2023
6/30/2023
3/31/2023
12/31/2022
9/30/2022
9/30/2023
9/30/2022
(Dollars in thousands)
Adjusted Efficiency Ratio - FTE
(1)
Non-interest expense
$
36,354
$
37,412
$
38,092
$
36,423
$
28,451
$
111,858
$
85,319
Less: Acquisition costs
(1,328)
(338)
(1,477)
(3,570)
(81)
(3,143)
(320)
Less: Core deposit intangible amortization
(922)
(802)
(822)
(291)
-
(2,546)
-
Less: Employee separation
-
(1,300)
-
-
-
(1,300)
(1,063)
Adjusted Non-interest expense (numerator)
$
34,104
$
34,972
$
35,793
$
32,562
$
28,370
$
104,869
$
83,936
Net interest income
55,127
54,539
58,221
54,015
49,695
167,887
139,519
Tax equivalent interest income
(1)
707
750
797
818
820
2,254
2,403
Non-interest income
5,981
5,779
4,421
4,359
3,780
16,181
12,922
Total tax-equivalent income (denominator)
$
61,815
$
61,068
$
63,439
$
59,192
$
54,295
$
186,322
$
154,844
Efficiency Ratio (GAAP)
59.49
%
62.02
%
60.81
%
62.40
%
53.20
%
60.77
%
55.97
%
Adjusted Efficiency Ratio - FTE
(1)
55.17
%
57.27
%
56.42
%
55.01
%
52.25
%
56.28
%
54.21
%
(1)
Tax exempt income (tax-free municipal securities)
 
is calculated on a tax equivalent basis. The incremental
 
tax rate used is 21.0%.
 
 
 
58
Results of Operations
Overview
Net income totaled $16.9 million, or $0.34 per diluted common share, for the three-months
 
ended September, 30, 2023 compared
to $17.3 million, or $0.35 per diluted common share, during the three-months ended
 
September 30, 2022.
 
For the nine-month periods
ending September 30, 2023 and 2022, net income totaled $49.0 million, or $0.99
 
per diluted common share, and $49.7 million, or $0.99
per diluted common share, respectively.
 
For both comparative periods, increases in net interest income and non-interest income
 
were
more than offset by higher non-interest expense.
The third quarter of 2023 included acquisition-related charges of $1.3
 
million and Day 1 CECL provision expense on acquired
loans of $0.9 million, resulting in adjusted net income
(1)
 
of $18.6 million, or $0.37 per diluted common share on an adjusted
 
basis
(1)
.
 
The nine-months ended September 30, 2023 included acquisition-related charges
 
of $3.1 million,
 
Day 1 CECL provision expense on
acquired loans of $0.9 million and employee separation costs of $1.3
 
million resulting in adjusted net income
(1)
 
of $53.2 million, or
$1.08 per diluted common share, on an adjusted basis
(1)
.
Return on average assets was 0.94% and 0.95% for the three- and nine-months ended
 
September 30, 2023, respectively.
 
Adjusted
return on average assets
(1)
 
was 1.04% and 1.03% for the same periods.
 
Return on average common equity was 10.19% and 10.24% for
the three- and nine-months ended September 30, 2023, respectively.
 
Adjusted return on average common equity
(1)
 
was 11.26% and
11.12% for the same periods.
 
 
(1)
 
Represents a non-GAAP financial measure.
 
See "Non-GAAP Financial Measures" above for
 
a reconciliation of these measures.
Net Interest Income
Net interest income is presented on a fully tax equivalent basis.
 
We believe reporting on an FTE basis provides for improved
comparability between the various earning assets. 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
59
The following tables present, for the periods indicated, average statement of
 
financial condition information, interest income,
interest expense and the corresponding average yield and rates paid:
 
Three Months Ended
September 30, 2023
September 30, 2022
Average
Balance
Interest
Income /
Expense
Average
Yield /
Rate
(4)
Average
Balance
Interest
Income /
Expense
Average
Yield /
Rate
(4)
(Dollars in thousands)
Interest-earning assets:
Securities - taxable
$
357,260
$
3,216
3.60
%
$
213,775
$
1,241
2.32
%
Securities - tax-exempt
(1)
489,320
4,072
3.33
560,541
4,725
3.37
Federal funds sold
332
5
5.97
-
-
-
Interest-bearing deposits in other banks
198,068
2,439
4.89
231,345
1,193
2.05
Gross loans, net of unearned income
(2)(3)
5,907,730
103,631
6.96
4,626,684
59,211
5.08
Total interest-earning assets - FTE
(1)
6,952,710
$
113,363
6.47
%
5,632,345
$
66,370
4.68
%
Allowance for credit losses
(69,415)
(56,995)
Other non-interest-earning assets
230,933
188,997
Total assets
$
7,114,228
$
5,764,347
Interest-bearing liabilities
Transaction deposits
$
689,973
$
5,727
3.29
%
$
531,999
$
1,539
1.95
%
Savings and money market deposits
2,775,549
29,655
4.24
2,519,574
10,568
1.66
Time deposits
1,795,798
20,915
4.62
733,607
2,802
1.52
Total interest-bearing deposits
5,261,320
56,297
4.25
3,785,180
14,909
1.56
FHLB and short-term borrowings
131,420
1,169
3.53
165,196
907
2.18
Trust preferred securities, net of fair value
adjustments
1,091
63
22.91
1,037
39
14.58
Non-interest-bearing deposits
954,005
-
-
1,137,626
-
-
Cost of funds
6,347,836
$
57,529
3.60
%
5,089,039
$
15,855
1.23
%
Other liabilities
108,148
62,102
Stockholders’
 
equity
658,244
613,206
Total liabilities and stockholders’ equity
$
7,114,228
$
5,764,347
Net interest income - FTE
(1)
$
55,834
$
50,515
Net interest spread - FTE
(1)
2.87
%
3.46
%
Net interest margin - FTE
(1)
3.19
%
3.56
%
(1)
Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal income taxes. The incremental tax
rate used is 21.0%.
(2)
Loans, net of unearned income include non-accrual loans of $20
million and $17 million as of September 30, 2023 and 2022, respectively.
(3)
Loan interest income includes loan fees of $3 million for the three-months ended September 30, 2023 and 2022.
(4)
Actual unrounded values are used to calculate the reported yield or rate. Accordingly, recalculations using the amounts in thousands as disclosed in this
report may not produce the same amounts.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
60
Nine Months Ended
2023
2022
Average
Balance
Interest
Income /
Expense
Average
Yield /
Rate
(4)
Average
Balance
Interest
Income /
Expense
Average
Yield /
Rate
(4)
(Dollars in thousands)
Interest-earning assets:
Securities - taxable
$
321,128
$
8,313
3.45
%
$
218,421
$
3,728
2.28
%
Securities - tax-exempt - FTE
(1)
514,333
12,984
3.37
549,490
13,845
3.36
Federal funds sold
691
11
2.13
-
-
-
Interest-bearing deposits in other banks
179,649
6,056
4.51
246,213
1,714
0.93
Gross loans, net of unearned income
(2)(3)
5,742,621
292,231
6.80
4,466,887
149,266
4.47
Total interest-earning assets - FTE
(1)
6,758,422
$
319,595
6.32
%
5,481,011
$
168,553
4.11
%
Allowance for credit losses
(66,265)
(57,213)
Other non-interest-earning assets
228,314
201,519
Total assets
$
6,920,471
$
5,625,317
Interest-bearing liabilities
Transaction deposits
$
610,869
$
13,566
2.97
%
$
541,933
$
2,134
0.89
%
Savings and money market deposits
2,787,915
80,151
3.84
2,386,205
15,285
0.86
Time deposits
1,505,329
47,968
4.26
627,458
5,733
1.22
Total interest-bearing deposits
4,904,113
141,685
3.86
3,555,596
23,152
0.87
FHLB and short-term borrowings
250,795
7,593
4.05
241,897
3,385
1.87
Trust preferred securities, net of fair value
adjustments
1,077
176
21.85
1,024
94
12.29
Non-interest-bearing deposits
1,022,469
-
-
1,148,150
-
-
Cost of funds
6,178,454
$
149,454
3.23
%
4,946,667
$
26,631
0.72
%
Other liabilities
99,896
51,634
Stockholders’
 
equity
642,121
627,016
Total liabilities and stockholders’ equity
$
6,920,471
$
5,625,317
Net interest income - FTE
(1)
$
170,141
$
141,922
Net interest spread - FTE
(1)
3.09
%
3.39
%
Net interest margin - FTE
(1)
3.36
%
3.46
%
(1)
Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal income taxes. The incremental tax
rate used is 21.0%.
(2)
Loans, net of unearned income include non-accrual loans of
$20 million and $17 million as of September 30, 2023 and 2022, respectively.
(3)
Loan interest income includes loan fees of $10 million for the nine-months ended September 30, 2023 and 2022.
(4)
Actual unrounded values are used to calculate the reported yield or rate. Accordingly, recalculations using the amounts in thousands as disclosed in this
report may not produce the same amounts.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
61
Net interest income
 
-
 
Net interest income increased $5.4 million and $28.4 million and net interest income
 
- FTE increased $5.3 million
and $28.2 million for the three-
 
and nine-month periods
 
ended September 30, 2023 compared to the same periods
 
in 2022,
 
respectively.
 
Compared to the third quarter of 2022,
 
net interest margin - FTE for the third quarter of 2023 decreased 37 basis points.
 
For the nine-
months ended September 30, 2023 compared to the same period in 2022, net interest
 
margin - FTE decreased 10 basis points.
Average earning assets totaled $7.0 billion for the three-month period
 
ended September 30, 2023 and $6.8
 
billion for the nine-month
period ended September 30, 2023, resulting in increases
 
of $1.3
 
billion for both periods,
 
compared to the same periods
 
in 2022,
inclusive of the impact of the acquisition of Farmers & Stockmens Bank (the
 
“Colorado/New Mexico acquisition”) and the Tucson
acquisition. The increases were driven by higher average loan and investment portfolio balances, partially
 
offset by lower average cash
balances for the three- and nine-month periods
 
ended September 30, 2023 compared to the corresponding periods
 
in 2022.
The FTE yield on earning assets increased 1.79%
 
from the third quarter of 2022 to the third quarter of 2023 and increased 2.21% for
 
the
nine-months ended September 30, 2023, compared to the same period in 2022 due to new loan production
 
as well as repricing of
variable rate loans, partially offset by the impact of non-accrual loan interest reversals.
 
The cost of funds increased 2.37% and 2.51%
over the same periods
 
due to pricing pressure on interest-bearing deposits from the higher interest rate environmen
 
t
 
as well as client
migration into higher cost deposit products compared to the prior year.
The Company currently anticipates net interest margin - FTE to be in a range of 3.20%
 
to 3.25% for the fourth quarter of 2023.
Provision
For the Three Months Ended
For the Nine Months Ended
September 30,
 
September 30,
 
2023
2022
2023
2022
(Dollars in thousands)
Provision for credit losses - loans
$
4,929
$
1,923
$
12,965
$
3,297
Provision for credit losses - off-balance sheet
(1,600)
1,411
(2,575)
1,547
Total provision for credit losses
$
3,329
$
3,334
$
10,390
$
4,844
Provision expense of $3.3 million for the third quarter of 2023 was consistent with the same
 
period in 2022.
 
For the nine-months
ended September 30, 2023 provision expense of $10.4 million increased $5.5
 
million compared to the same period in 2022.
 
Increases
due to loan growth, changes in credit quality, economic factors, an increase in specific reserves
 
and $0.9 million of Day 1 CECL
provision expense related to the Tucson acquisition were partially offset by a decrease related
 
to the decrease in unfunded commitments.
 
Non-Interest Income
The components of non-interest income were as follows for the periods shown:
Three Months Ended
Nine Months Ended
September 30,
 
September 30,
 
Change
Change
2023
2022
$
%
2023
2022
$
%
(Dollars in thousands)
Service charges and fees on customer
accounts
$
2,249
$
1,566
$
683
44
%
$
6,188
$
4,520
$
1,668
37
%
ATM and credit card interchange income
1,436
1,326
110
8
3,913
5,513
(1,600)
(29)
Gain on sale of loans
739
-
739
 
NM
 
2,131
-
2,131
 
NM
 
Income from bank-owned life insurance
437
405
32
8
1,266
1,200
66
6
Swap fees and credit valuation adjustments,
net
57
(7)
64
 
NM
 
231
123
108
88
Other non-interest income
1,063
490
573
117
2,452
1,566
886
57
Total non-interest income
$
5,981
$
3,780
$
2,201
58
%
$
16,181
$
12,922
$
3,259
25
%
The changes in non-interest income were driven primarily by the following:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
62
Service charges and fees on customer accounts
 
- The increases for the three- and nine-month periods
 
ended September 30, 2023
compared to the corresponding periods in 2022 were driven primarily by increases in account
 
analysis fees due to increased client
volume from new markets and acquired accounts as well as various fee increases
 
on commercial accounts.
ATM and credit card interchange income
 
– The increase in ATM and credit card interchange income for the three-months ended
September 30, 2023 compared to the three-months ended September 30,
 
2022 was primarily due to increases in ATM fee income due to
higher transaction volume. The decrease in ATM and credit card interchange income for the nine-months ended September 30, 2023
compared to the same period in 2022 was driven primarily by a decrease in credit
 
card fees due to one large customer with pandemic-
related activity that did not occur in the current year,
 
partially offset by increases in ATM fee income.
 
Gain on sale of loans
– The increases
 
for the three-
 
and nine-month periods ended September 30, 2023 compared to
 
the same periods
for 2022 were due to mortgage and SBA loan sale activity in 2023.
 
Our SBA lending team is a specialty lending vertical we augmented
from the Colorado/New Mexico acquisition in the fourth quarter of 2022.
 
Other non-interest income
– The increases for the three-
 
and nine-month periods ended September 30, 2023 compared to the same
periods for 2022 were due to stronger client-related transactional income and an increase
 
in gains on equity securities.
Non-Interest Expense
The components of non-interest expense were as follows for the periods
 
indicated:
Quarter Ended
Nine Months Ended
September 30,
 
September 30,
 
Change
Change
2023
2022
$
%
2023
2022
$
%
(Dollars in thousands)
Salaries and employee benefits
$
22,017
$
18,252
$
3,765
21
%
$
68,700
$
53,288
$
15,412
29
%
Occupancy
3,183
2,736
447
16
9,211
7,851
1,360
17
Professional fees
1,945
580
1,365
235
5,533
2,453
3,080
126
Deposit insurance premiums
1,947
903
1,044
116
5,359
2,355
3,004
128
Data processing
904
877
27
3
3,203
2,849
354
12
Advertising
593
796
(203)
(26)
1,994
2,247
(253)
(11)
Software and communication
1,898
1,222
676
55
5,204
3,689
1,515
41
Foreclosed assets, net
-
9
(9)
(100)
128
(30)
158
NM
Other non-interest expense
2,945
3,057
(112)
(4)
9,980
10,559
(579)
(5)
Core deposit intangible amortization
922
19
903
4,753
2,546
58
2,488
4,290
Total non-interest expense
$
36,354
$
28,451
$
7,903
28
%
$
111,858
$
85,319
$
26,539
31
%
Non-interest expense increased $7.9 million and $26.5 million for the three-
 
and nine-month periods
 
ended September 30, 2023
compared to the same periods
 
in 2022.
 
The third quarter of 2023 included $1.3 million of acquisition-related expenses,
 
with $0.8 million
 
included in professional fees, $0.3 million in salaries and employee benefits, $0.1
 
million in software and communication, and $0.1
million in other non-interest expense.
 
The nine-months ended September 30, 2023 included $3.1 million of acquisition
 
-related
expenses, most of which were included in professional fees and salaries and
 
employee benefits, and $1.3 million of employee separation
costs included in salaries and employee benefits. The three-month period ended September
 
30, 2022 included $0.1
 
million of
acquisition-related expenses, most of which were included in professional
 
fees. The nine-months ended September 30, 2022 included
$0.3
 
million of acquisition-related expenses, most of which were included in professional fees, and $1.
 
1
 
million of employee separation
costs included in other non-interest expense. The changes in non-interest expense
 
were driven primarily by the following:
Salary and Employee Benefits
 
– For both the three-
 
and nine-months ended September 30, 2023 as compared to the same periods in
the prior year, excluding the employee separation costs in 2023 previously
 
mentioned, increases were primarily due to the addition of
employees from the Colorado/New Mexico acquisition and the Tucson
 
acquisition,
 
hiring in new markets and merit increases.
Occupancy
 
– For both comparative periods,
 
the increases in occupancy costs were driven by the addition of a second location in Dallas,
Texas as well as the additional
 
occupancy cost from acquired locations in Colorado,
 
New Mexico and Tucson.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
63
Professional Fees
 
– Professional fees for both the three-
 
and nine-months ended September 30, 2023
 
were consistent with the prior year
periods after adjusting for the acquisition related costs.
Deposit Insurance Premiums
 
– The increase in deposit insurance premiums was due to an increase in the assessment rate
 
and increases
in assets for both comparative periods.
 
Software and communication
 
– For both the three- and nine-months ended September 30, 2023 as compared to the same periods
 
in the
prior year, increases in software and communications were due to technology
 
for additional employees and clients as well as new
technology implementation.
Other Non-interest Expense
– For the nine-months ended September 30, 2023 as compared to the same period in the prior year, the
decrease for employee separation costs was partially offset by increased post-pandemic
 
travel expenses and transaction fraud-related
losses.
 
Core Deposit Intangible Amortization
– For both the three-
 
and nine-months ended September 30, 2023 as compared to the same
periods in the prior year, increases
 
were due to expense related to the Colorado/New Mexico acquisition and the Tucson
 
acquisition.
 
We currently anticipate non-interest expense to be in a range of $34 to $35 million
 
for the fourth quarter of 2023. The efficiency
ratios were 59.49% and 60.77% and the adjusted efficiency ratios – FTE
(1)
 
were 55.17% and 56.28% for the three- and nine-month
periods ended September 30, 2023,
 
respectively.
(1)
Represents a non-GAAP financial measure.
 
See "Non-GAAP Financial Measures"
 
above for a reconciliation of these measures.
Income Taxes
For the Quarter Ended
For the Nine Months Ended
September 30,
 
September 30,
 
September 30,
 
September 30,
 
2023
2022
2023
2022
(Dollars in thousands)
Income tax expense (benefit)
$
4,562
$
4,410
$
12,802
$
12,625
Income (loss) before income taxes
21,425
21,690
61,820
62,278
Effective tax rate
21
%
20
%
21
%
20
%
Our income tax expense differs from the amount that would be calculated using the
 
federal statutory tax rate, primarily from
investments in tax advantaged assets, including bank-owned
 
life insurance and tax-exempt municipal securities;
 
state tax credits;
 
and
permanent tax differences from stock-based compensation.
 
The Company’s effective tax rate benefited
 
from tax-exempt interest in both the three-
 
and nine-
 
month periods ended September
30, 2023 compared to the same periods in 2022.
 
However, the impact of tax-exempt interest on the overall tax rate is lower in 2023 as
its proportion to total income was lower as compared to 2022. We currently anticipate the Company’s
 
effective tax rate to remain within
the 20% to 22% range in the near term.
 
Analysis of Financial Condition
Total assets were $7.2 billion at September 30, 2023 compared to $6.6
 
billion at December 31, 2022, an increase of $0.6 billion,
or 9%, including $0.2 billion as a result of the Tucson acquisition.
 
Cash and cash equivalents decreased $67 million, or 22%, from
December 31, 2022, and investment securities increased $64
 
million, or 9%. Loans increased $0.6 billion, or 11%, including $0.1 billion
as a result of the Tucson acquisition, and the allowance for credit losses increased $10 million to $72
 
million at September 30, 2023.
Total deposits increased $0.7
 
billion to $6.3 billion at September 30, 2023, compared to December 31,
 
2022, including $0.2 billion as a
result of the Tucson acquisition.
 
Federal Home Loan Bank (“FHLB”) advances totaled $89 million and decreased
 
$130 million
compared to December 31, 2022.
Investment Portfolio
The primary objective of our investment portfolio is to ensure adequate liquidity, including
 
serving as a contingent, on-balance
sheet source of liquidity.
 
In addition, we manage the portfolio in a manner that optimizes earnings, manages
 
credit and interest rate risk,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
64
and meets pledging and regulatory capital requirements. Our portfolio is 100%
 
available-for-sale and as of September 30, 2023 totaled
$750 million, an increase of $64 million from December 31, 2022.
 
The increase in the investment portfolio was driven by the purchase of $107
 
million in SBA securities,
 
$45 million in mortgage-
backed securities, $15 million in U.S. Treasury securities,
 
and $12 million in tax-exempt municipal securities.
 
The increase was
partially offset by an increase of $37 million in the unrealized loss on available-for-sale
 
securities.
 
Additional offsets include the sale of
$67 million in tax-exempt municipal securities at a modest gain and $14
 
million of paydowns and maturities in mortgage-backed
securities as we intentionally improved the liquidity of the portfolio during the
 
year, consistent with our current investment strategy.
 
Our
future investment strategy includes reducing the concentration in municipal
 
investments, investing in lower risk-weighted assets and
restructuring the portfolio to increase liquidity and provide more balanced
 
cash flow.
 
For additional information, including information
regarding other securities owned by the Company, see “Note 3: Securities” in the
 
notes to consolidated financial statements – unaudited.
The following table shows the estimated fair value, percent of the portfolio and
 
weighted average yield of our available-for-sale
securities as of the dates indicated:
 
As of September 30, 2023
As of December 31, 2022
Estimated
Fair Value
Percent of
portfolio
Weighted
Average
Yield
(1)
Estimated
Fair Value
Percent of
portfolio
Weighted
Average
Yield
(1)
Available-for-sale securities
(Dollars in thousands)
U.S. Treasury securities
$
14,803
2
%
5.11
%
$
-
-
%
-
%
Mortgage-backed - GSE residential
298,044
40
3.58
172,309
25
2.39
%
Collateralized mortgage obligations - GSE
residential
18,724
2
4.68
10,886
2
2.36
State and political subdivisions
410,442
55
2.80
494,496
72
2.80
Corporate bonds
8,474
1
5.69
9,210
1
5.70
Total available-for-sale securities
$
750,487
100
%
3.21
%
$
686,901
100
%
2.74
%
(1)
Yields are calculated based on amortized cost using 30/360 day basis.
 
Tax-exempt securities are not tax effected.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
65
Loan Portfolio
Refer to “Note 4: Loans and Allowance for Credit Losses” within the notes to consolidated financial statements – unaudited
 
for additional information regarding the
Company’s loan portfolio. As of September 30, 2023, gross loans, net of unearned
 
fees increased $573 million or 11% from December 31, 2022.
 
The increase in loans includes
$106 million related to the Tucson acquisition. The following table presents the balance and associated percentage
 
change of each segment within our portfolio as of the dates
indicated:
As of September 30,
2023
As of December 31,
2022
December 31, 2022 vs.
September 30, 2023
% Change
(Dollars in thousands)
Commercial and industrial
$
2,056,171
$
1,974,932
4.1
 
%
 
Energy
214,166
173,218
23.6
Commercial real estate - owner-occupied
583,442
437,119
33.5
Commercial real estate - non-owner-occupied
2,592,684
2,314,600
12.0
Residential real estate
456,047
439,367
3.8
Consumer
43,243
33,493
29.1
Total
$
5,945,753
$
5,372,729
10.7
 
%
 
Our loan portfolio remains balanced with 44% of loans in commercial and industrial and
 
owner-occupied commercial real estate and 43% of loans in
 
non-owner-occupied
commercial real estate. There remains diversity within our loan portfolio segments
 
with the highest commercial real estate property type accounting for 19%
 
of total commercial real
estate exposure, and the largest industry segment in commercial and industrial
 
being manufacturing at 10% of commercial and industrial exposure.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
66
The following table shows the contractual maturities of our gross loans and sensitivity to
 
interest rate changes:
As of September 30, 2023
Due in One Year or Less
Due in One Year through
Five Years
Due in Five Year through
Fifteen Years
Due after Fifteen Years
Fixed Rate
Adjustable
Rate
Fixed Rate
Adjustable
Rate
Fixed Rate
Adjustable
Rate
Fixed Rate
Adjustable
Rate
Total
(Dollars in thousands)
Commercial and industrial
$
122,203
$
578,059
$
336,284
$
856,655
$
65,863
$
76,728
$
20,115
$
264
$
2,056,171
Energy
-
18,834
489
194,843
-
-
-
-
214,166
Commercial real estate -
owner-occupied
13,268
31,738
174,065
83,324
109,329
114,691
2,540
54,487
583,442
Commercial real estate - non-
owner-occupied
93,247
289,764
582,605
1,196,536
104,175
218,449
12,926
94,982
2,592,684
Residential real estate
5,253
2,039
25,172
10,187
67,731
26,434
3,524
315,707
456,047
Consumer
20,407
12,267
5,953
4,300
218
98
-
-
43,243
Total
$
254,378
$
932,701
$
1,124,568
$
2,345,845
$
347,316
$
436,400
$
39,105
$
465,440
$
5,945,753
Allowance for Credit Losses
The ACL at September 30, 2023 represents our best estimate of the expected credit losses in the Company’s
 
loan portfolio and off-balance sheet commitments, measured over
the contractual life of the underlying instrument.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
67
The table below presents the allocation of the allowance for credit losses as of the dates indicated.
 
The allocation in one portfolio segment does not preclude its availability to
absorb losses in other segments.
 
September 30, 2023
December 31, 2022
ACL
 
Amount
Percent of
ACL to
Total ACL
Percent of
Loans to
Total Loans
ACL
 
Amount
Percent of
ACL to
Total ACL
Percent of
Loans to
Total Loans
Loans
Off-
Balance
Sheet
Total
Loans
Off-
Balance
Sheet
Total
(Dollars in thousands)
Commercial and industrial
$
30,744
$
185
$
30,929
39
%
34
%
$
26,803
$
319
$
27,122
39
%
37
%
Energy
4,343
174
4,517
6
4
4,396
787
5,183
7
3
Commercial real estate -
owner-occupied
7,294
264
7,558
10
10
5,214
221
5,435
8
8
Commercial real estate -
non-owner-occupied
25,616
5,426
31,042
40
43
21,880
7,323
29,203
41
43
Residential real estate
3,460
64
3,524
5
8
3,333
35
3,368
5
8
Consumer
99
-
99
-
1
149
3
152
 
-
1
Total
$
71,556
$
6,113
$
77,669
100
%
100
%
$
61,775
$
8,688
$
70,463
100
%
100
%
Refer to “Note 4: Loans and Allowance for Credit Losses” within the notes to consolidated financial statements – unaudited
 
for a summary of the changes in the ACL.
Charge-offs and Recoveries
Net charge-offs were $1.3 million and $3.5 million for the three-
 
and nine-month periods ended September 30, 2023, respectively. For the three
 
-month period ended
September 30, 2023, charge-offs were primarily due to one commercial and
 
industrial loan that was previously reserved.
 
For the nine-month period ended September 30, 2023, there
were charge-offs of three additional commercial and industrial loans. The below table provides
 
the ratio of net charge-offs (recoveries) to average loans outstanding based on our
loan categories for the periods indicated:
 
For the Quarter Ended
September 30,
 
June 30,
 
March 31,
 
December 31,
 
September 30,
 
2023
2023
2023
2022
2022
Commercial and industrial
0.24
%
0.14
%
0.31
%
(0.02)
%
0.48
%
Energy
-
(0.23)
-
(0.46)
1.19
Commercial real estate - owner-occupied
-
-
-
-
-
Commercial real estate - non-owner-occupied
-
-
-
-
(0.15)
Residential real estate
-
-
-
-
-
Consumer
-
0.04
-
(0.04)
-
Total net charge-offs to average loans
0.09
%
0.04
%
0.12
%
(0.02)
%
0.16
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
68
Non-performing Assets and Other Asset Quality Metrics
Non-performing assets include: (i) non-performing loans, which includes
 
non-accrual loans, loans past due 90 days or more and still accruing interest,
 
and loans modified
prior to January 1, 2023 under TDRs that are not performing in accordance with their modified terms;
 
(ii) foreclosed assets held for sale; (iii) repossessed assets; and (iv) impaired
debt securities.
Non-performing assets increased $22.8 million during the quarter
 
to $36.1 million at September 30, 2023 primarily due to one commercial and industrial
 
credit and one
commercial real estate - non-owner-occupied credit moving to non-accrual and several credits
 
that were 90+ days past due and still accruing at quarter-end. The non-performing
assets to total assets ratio increased from 0.31% at September 30, 2022 to 0.50%
 
at September 30, 2023. Annualized net charge-offs were 0.09% for the quarter compared to 0.04%
in the prior quarter and 0.16% in the prior year third quarter. With respect to one commercial and industrial credit
 
with a $13.6 million balance that was over 90 days past due, the
borrower raised new equity capital and brought the credit current after quarter end, reducing our
 
non-performing assets to total assets ratio to 0.31%.
The Company continues to monitor the U.S. economic indicators, including the inflation rate,
 
the unemployment rate, commodity prices, interest rates, and potential supply
chain disruptions and the impact they may have on the Company’s
 
markets, clients, and prospects. The Company is monitoring the impact of a rising interest rate environment on the
commercial real estate market and enterprise and leverage loans that is currently
 
partially mitigated by low debt-to-equity ratios.
 
As of September 30, 2023, the Company did not
identify any systemic issues within its loan portfolio that would
 
materially affect the credit quality of the loan portfolio. However, there could be some
 
risk rating migration in certain
sectors of the commercial real estate portfolio in the future as many projects are
 
faced with higher interest rates, operating costs, and property taxes.
The table below summarizes our non-performing assets and related ratios as of the dates indicated:
For the Quarter Ended
September 30,
 
June 30,
 
March 31,
 
December 31,
 
September 30,
 
2023
2023
2023
2022
2022
Asset Quality
(Dollars in thousands)
Non-accrual loans
$
20,380
$
12,867
$
9,490
$
11,272
$
16,923
Loans past due 90 days or more and still accruing
15,750
433
868
750
303
Total non-performing loans
36,130
13,300
10,358
12,022
17,226
Foreclosed assets held for sale
-
-
855
1,130
973
Total non-performing assets
$
36,130
$
13,300
$
11,213
$
13,152
$
18,199
Loans 30-89 days past due
$
29,457
$
13,333
$
5,056
$
19,519
$
21,383
Asset quality metrics (%)
Non-performing loans to total loans
0.61
%
0.23
%
0.18
%
0.22
%
0.37
%
Non-performing assets to total assets
0.50
0.19
0.16
0.20
0.31
ACL to total loans
1.20
1.17
1.15
1.15
1.19
ACL + RUC to total loans
(1)
1.31
1.30
1.30
1.31
1.34
ACL to non-performing loans
198
508
629
514
324
Classified loans / (total capital + ACL)
14.2
9.7
9.4
10.1
11.3
Classified loans / (total capital + ACL + RUC)
(1)
14.0
%
9.6
%
9.3
%
10.0
%
11.2
%
(1)
Includes the accrual for off-balance sheet credit risk from unfunded commitments.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
69
Deposits and Other Borrowings
At September 30, 2023, our deposits totaled $6.3
 
billion, an increase of $680 million or 12% from December 31, 2022. The increase included
 
a $798 million increase in time
deposits and $253 million in money market, NOW and savings deposits, parti
 
ally offset by a decrease of $371 million in non-interest-bearing
 
deposits. The increases in deposits
include $165 million related to the Tucson acquisition.
 
Approximately 45% of the time deposit increase was from new client money and shifts
 
from other deposit categories with the
remainder representing an increase in wholesale funding. The decrease in non-interest-bearing
 
deposits was primarily due to elevated deposits at year-end that were deployed
 
by clients
late in the first quarter of 2023.
The following table sets forth the maturity of time deposits as of September 30,
 
2023:
As of September 30, 2023
Three Months
 
or Less
Three to Six Months
Six to Twelve
Months
After Twelve Months
Total
(Dollars in thousands)
Time deposits in excess of FDIC insurance limit
$
65,429
$
229,548
$
169,110
$
17,895
$
481,982
Time deposits below FDIC insurance limit
433,065
390,354
324,581
113,671
1,261,671
Total
$
498,494
$
619,902
$
493,691
$
131,566
$
1,743,653
Other borrowings include FHLB advances, repurchase agreements, a line of credit,
 
SBA loan secured borrowings, and our trust preferred security.
 
At September 30, 2023, other
borrowings totaled $107 million, a $147 million, or 58% decrease from December 31,
 
2022. Borrowings were reduced due to client deposit growth and acquired deposit
 
balances.
During the nine-month period ended September 30, 2023, $31 million of FHLB advances
 
matured and were converted into a drawdown on the FHLB line of credit, an additional $12
million matured and $12 million of net FHLB advances were paid off
 
.
 
With respect to the FHLB line of credit, the Company paid
 
down the converted $31 million of FHLB advances
and an additional $75 million, net, resulting in a zero balance on the FHLB line of credit as of September
 
30, 2023.
As of September 30, 2023, the Company had approximately $2.4 billion of uninsured
 
deposits, which is an estimated amount based on the same methodologies and assumptions
used for the Bank’s regulatory requirements.
 
Excluding pass-thru accounts where clients have deposit insurance at the correspondent
 
financial institution, our uninsured deposits are
$2.1 billion, or 33% of total deposits as of September 30, 2023. The average client account
 
balance as of September 30, 2023 is less than $250 thousand for both individual accounts
and business accounts in total after excluding pass-through and insured cash sweep deposits.
 
We have geographic and industry
 
diversity within our deposit base as the majority of our
deposits are located in our footprint states of Kansas, Oklahoma, Texas,
 
Missouri, and Colorado.
 
The Company believes that its current capital ratios and liquidity are sufficient
 
to
mitigate the risks of uninsured deposits.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
70
Liquidity and Capital Resources
Liquidity
We manage our liquidity based upon factors that include the level and quality of capital and
 
our overall financial condition, the
trend and volume of problem assets, our balance sheet risk exposure, the level of deposits
 
as a percentage of total loans, the amount of
non-deposit funding used to fund assets, the availability of unused funding sources and
 
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 other factors. We also
conduct contingency funding plan stress tests at least annually to assess potential liquidity
 
outflows or funding problems resulting from
economic disruptions, volatility in the financial markets, unexpected credit
 
events or other significant occurrences deemed potentially
problematic by management. The Company’s
 
liquidity strategy is to maintain adequate, but not excessive, liquidity to meet the daily
cash flow needs of clients while attempting to achieve adequate earnings for stockholders.
 
The Company measures liquidity needs
through daily balance sheet monitoring, weekly cash projections and
 
monthly liquidity measures reviewed in conjunction with Board-
approved liquidity policy limits. The Company's short-term and long-term liquidity requirements
 
are primarily met through cash flow
from operations, redeployment of proceeds from prepaying and
 
maturing balances in our loan portfolio and security portfolio, increases
in client deposits and wholesale deposits. Liquidity resources can be derived
 
from two sources: (i) on-balance sheet liquidity resources,
which represent funds currently on the statement of financial condition and (ii) off-balance
 
sheet liquidity resources, which represent
funds available from third-party sources. The Company’s
 
on-balance sheet and off-balance sheet liquidity resources consisted of the
following as of the dates indicated:
September 30, 2023
December 31, 2022
(Dollars in thousands)
Total on-balance sheet liquidity
$
983,678
$
986,482
Total off-balance sheet liquidity
1,435,631
770,165
Total liquidity
$
2,419,309
$
1,756,647
On-balance sheet liquidity as a percent of assets
14
%
15
%
Total liquidity as a percent of assets
34
%
27
%
Off-balance sheet liquidity increased from December 31, 2022 to September 30,
 
2023 primarily due to increases in available
funding with FHLB and the Federal Reserve Bank.
For the nine-months ended September 30, 2023, the Company’s
 
cash and cash equivalents decreased $67 million from December
31, 2022 to $233 million, representing 3% of total assets. During the nine-month period
 
ended September 30, 2023, the Company
increased the available-for-sale securities portfolio on an amortized cost basis by $101 million,
 
net of paydowns,
 
maturities, and
amortization.
 
As of September 30, 2023, the Company had $332 million in securities that could be
 
pledged and $46 million that could
be sold at a net gain based on market conditions at the time. In addition, the Company increased
 
funded loans by $471 million, net of
payoffs and charge-offs during the nine-month period ended September
 
30, 2023 that reduced cash and cash equivalents.
 
The Company’s time deposits increased by $780
 
million primarily from wholesale funding, new client money and shifts from
other deposit categories. Savings and money market deposits increased by $253
 
million. Non-interest-bearing deposits decreased $371
million as elevated year-end balances were deployed by clients in the first quarter
 
of 2023 in addition to clients migrating into interest-
bearing deposits.
 
FHLB advances and other borrowings decreased $147 million during the nine-month period
 
ended September 30,
2023, largely related to a reduction in FHLB advances due to client deposit growth and
 
acquired deposit balances.
 
The Company did not purchase any common stock during the first nine months of 2023. As of September 30, 2023,
 
$16 million
remains available for repurchase under our share repurchase program. The amount and timing of
 
such future share repurchases will be
dependent on a number of factors, including the price of our common stock, overall capital
 
levels and cash flow needs. There is no
assurance that we will repurchase up to the full amount remaining under our program.
 
Dividends of $258 thousand related to the Series A Non-Cumulative Perpetual Preferred Stock were declared and paid by the
Company during the nine-months ended September, 2023. In October 2023,
 
the Board of Directors declared a quarterly dividend on
 
 
 
 
 
71
Series A Non-Cumulative Perpetual Preferred Stock in the amount of $20.00 per share to be payable on December 15, 2023 to
shareholders of record as of November 30, 2023.
The Company believes that its current on and off-balance sheet liquidity will be
 
sufficient to meet anticipated cash requirements
for the next 12 months and thereafter. The Company believes that it has several on and off-balance sheet
 
options to address reductions in
cash and cash equivalents in order to maintain appropriate liquidity.
Contractual Obligations and Off-Balance Sheet Arrangements
The Company is subject to contractual obligations made in the ordinary course of business.
 
The obligations include deposit
liabilities, other borrowed funds, and operating leases. Refer to “Note 8: Time
 
Deposits and Other Borrowings” and “Note 5: Leases”
within the notes to consolidated financial statements – unaudited for information regarding
 
the Company’s significant contractual
 
cash
obligations and contractual obligations to third parties on lease obligations, respectively.
 
As a financial services provider, the Company is a party to
 
various financial instruments with off-balance sheet risks, such as
commitments to extend credit. Off-balance sheet arrangements represent
 
the Company’s future cash requirements.
 
However, a portion
of these commitments may expire without being drawn upon. Refer to “Note 15:
 
Commitments and Credit Risk” within the notes to
consolidated financial statements – unaudited for a listing of the Company’s
 
off-balance sheet arrangements.
The Company’s short-term and long-term contractual
 
obligations, including off-balance sheet obligations,
 
may be satisfied
through the Company’s on-balance
 
sheet and off-balance sheet liquidity discussed above.
Capital Requirements
The Company and the Bank are subject to various regulatory capital requirements administered
 
by the federal banking agencies.
The regulatory capital requirements involve quantitative measures of the
 
Company’s assets, liabilities, select
 
off-balance sheet items and
equity. Failure to meet minimum capital requirements can initiate certain
 
mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the Company’s
 
consolidated financial statements. Refer to “Note 10:
Regulatory Matters”
 
in the notes to consolidated financial statements – unaudited for additional
 
information. Management believes that
as of September 30, 2023, the Company and the Bank met all capital adequacy requirements
 
to which
 
they are subject.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance
 
with GAAP and with general practices within the financial
services industry. Application of these principles requires management to make complex and subjective estimates and assumptions
 
that
affect the amounts reported in the financial statements and accompanying notes. The
 
Company bases estimates on historical experience
and on various other assumptions that it believes to be reasonable under current circumstances.
 
These assumptions form the basis for
management judgments about the carrying values of assets and liabilities that are not readily
 
available from independent, objective
sources. The Company evaluates
 
estimates on an ongoing basis. Use of alternative assumptions may have resulted
 
in significantly
different estimates. Actual results may differ from these estimates.
A discussion of these policies can be found in the section captioned “Critical Accounting Policies and Estimates” in
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
included in the 2022 Form 10-K.
 
There have
been no changes in the Company’s
 
application of critical accounting policies and estimates since December
 
31, 2022.
 
Recent Accounting Pronouncements
Refer to “Note 1: Nature of Operations and Summary of Significant Accounting Policies”
 
included in the notes to consolidated
financial statements – unaudited included elsewhere in this Form 10-Q.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
72
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
A primary component of market risk is interest rate volatility. Interest rate risk management is a key element of the Company
 
’s
statement of financial condition management. Interest rate risk is the risk that net interest
 
margins will erode over time due to changing
market conditions. Many factors can cause margins to erode: (i) lower loan demand; (ii) increased
 
competition for funds; (iii) weak
pricing policies; (iv) statement of financial condition mismatches; and (v) changing
 
liquidity demands. The objective is to maximize
income while minimizing interest rate risk. The Company manages its sensitivity position
 
using its interest rate risk policy. The
management of interest rate risk is a three-step process and involves: (i)
 
measuring the interest rate risk position; (ii) policy constraints;
and (iii) strategic review and implementation.
Our exposure to interest rate risk is managed by the Asset/Liability Committee (“ALCO”). The ALCO uses a combination of
three systems to measure the statement of financial condition’s
 
interest rate risk position. The three systems in combination are expected
to provide a better overall result than a single system alone. The three systems include: (i) gap reports;
 
(ii) earnings simulation; and (iii)
economic value of equity. The ALCO’s primary tools to change the interest rate risk position are:
 
(i) investment portfolio duration; (ii)
deposit and borrowing mix; and (iii) on-balance sheet derivatives.
The ALCO evaluates interest rate risk using a rate shock method and rate ramp method. In a rate shock analysis, rates change
immediately,
 
and the change is sustained over the time horizon. In a rate ramp analysis, rate
 
changes occur gradually over time.
Management reviews and utilizes both methods in managing interest rate risk;
 
however, both methods represent a risk indicator, not a
forecast. The following tables summarize the simulated changes in net interest income and fair value of equity
 
over a 12-month horizon
using a rate shock and rate ramp method as of the dates indicated:
Hypothetical Change in Interest Rate - Rate Shock
September 30, 2023
September 30, 2022
Change in Interest
Rate (Basis Points)
Percent change in net
interest income
Percent change in fair
value of equity
Percent change in net
interest income
Percent change in fair
value of equity
+300
(0.1)
%
(18.1)
%
6.1
%
(11.1)
%
+200
(0.1)
(12.9)
4.1
(7.3)
+100
(0.1)
(7.0)
2.0
(3.2)
Base
-
%
-
%
-
%
-
%
-100
0.3
7.4
(1.9)
3.2
-200
1.0
13.6
(5.7)
5.7
-300
0.8
20.6
(10.1)
7.1
Hypothetical Change in Interest Rate - Rate Ramp
September 30, 2023
September 30, 2022
Change in Interest Rate
 
(Basis Points)
Percent change in net interest
income
Percent change in net interest
income
+300
(1.0)
%
2.9
%
+200
(0.7)
1.9
+100
(0.4)
1.0
Base
-
%
-
%
-100
0.4
(0.9)
-200
0.8
(2.1)
-300
1.1
(4.1)
 
73
The Company’s position is relatively neutral as of
 
September 30, 2023, which is less sensitive as compared to both September 30,
2022 and December 31, 2022 due to deposit mix changes with demand deposits as the main
 
driver. Compared to December 31, 2022,
the Company’s position is less
 
asset sensitive due to the reduction in demand deposits and an on-balance sheet interest
 
rate collar that
becomes effective in the first quarter of 2024. The aggregate beta assumption utilized as of
 
September 30, 2023 was approximately 60%
which is unchanged from our previous assumption. Other key assumptions updated
 
during 2023 include updated deposit decay rates,
new business spreads and updating market yield curves. Other assumptions included
 
in the model that are periodically updated include
loan prepayments and call provisions within investment and debt holdings. The
 
Company is monitoring interest rate sensitivity closely
as $4.1
 
billion, or 68%, of loans mature or reprice within the twelve-month period following September
 
30, 2023, including $2.8 billion
that repriced in the first month of the fourth quarter.
 
$5.3 billion of interest-bearing liabilities mature or reprice over
 
the same twelve-
month period. As of September 30, 2023 and December 31, 2022, the investment portfolio
 
duration was approximately 5.6 and 5.2
years, respectively. The Company is
 
reviewing additional options to manage the statement of financial condition
 
sensitivity based on the
interest rate environment and anticipated composition of assets and liabilities in the next twelve
 
months and beyond.
The models the Company uses include assumptions regarding interest rates
 
while balances remain unchanged. These assumptions
are inherently uncertain and, as a result, the model cannot precisely estimate net interest income or
 
precisely predict the impact of higher
or lower interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude, and
 
frequency
of interest rate changes as well as changes in market conditions, customer behavior
 
and management strategies, among other factors.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s management,
 
with the participation of the Company’s
 
Chief Executive Officer and Chief Financial Officer, has
evaluated the effectiveness of the Company’s
 
disclosure controls and procedures (as defined in Rule 13a-15(e)
 
under the Securities
Exchange Act of 1934 (“Exchange Act”)) as of September 30, 2023. Based on that evaluation, the Company’s
 
Chief Executive Officer
and Chief Financial Officer concluded that the Company’s
 
disclosure controls and procedures were effective as of September
 
30, 2023.
 
Changes in Internal Control over Financial Reporting
Our internal control over financial reporting continues to be updated as necessary to accommodate
 
modifications to our business
processes and accounting procedures. There has been no change in our internal control over
 
financial reporting (as such term is defined
in Rule 13a-15(f) under the Exchange Act) during the third quarter of 2023
 
that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the normal course of business, we are named or threatened to be named as a defendant in various
 
lawsuits. Management,
following consultation with legal counsel, does not expect the ultimate disposition of any or
 
a combination of these matters to have a
material adverse effect on our business, financial condition, results of operations, cash
 
flows or growth prospects. However, given the
nature, scope, and complexity of the extensive legal and regulatory landscape applicable
 
to our business (including laws and regulations
governing consumer protection, fair lending, fair labor, privacy, information
 
security and anti-money laundering and anti-terrorism
laws), we, like all banking organizations, are subject to heightened legal and regulatory compliance
 
and litigation risk.
 
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the
 
factors discussed in Part I, "Item 1A.
Risk Factors" in our 2022 Form 10-K, which could materially affect our business, financial
 
condition, or results of operations in future
periods. There were no material changes from the risk factors disclosed in the 2022 Form 10-K.
 
 
 
74
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a)
On August 1, 2023, the Company issued 597,645 shares of its common stock to Canyon Bancorporation,
 
Inc. stockholders as partial
merger consideration in the Tucson acquisition. The Company’s
 
common stock was valued at a per share price of approximately
$14.11 for purposes of calculating the merger consideration. The shares of common stock issued
 
as partial merger consideration
were not registered under the Securities Act of 1933, as amended (the "Securities Act"), in reliance on the exemption from
registration provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder and were issued in
compliance with such exemption only to "accredited investors."
(b)
Not applicable.
(c)
Share Repurchase Program
On May 10, 2022, the Company announced that its Board of Directors approved
 
a share repurchase program under which the
Company may repurchase up to $30 million of its common stock. The objective
 
of the program is to give the Company the ability to
opportunistically acquire undervalued shares and return capital to shareholders.
 
No shares were repurchased during the three-
months ended September 30, 2023.
 
As of September 30, 2023, $16 million remains available for repurchase under this
 
share
repurchase program. Repurchases under the program may be made in the open
 
market or privately negotiated transactions in
compliance with SEC Rule 10b-18, subject to market conditions, applicable legal requirements
 
,
 
and other relevant factors. The
program does not obligate the Company to acquire any amount of common stock and
 
may be suspended at any time at the
Company's discretion. No time limit has been set for completion of the program. Our officers
 
and directors are prohibited from
trading in the Company’s securities
 
if they are in possession of material non-public information and
 
must at all times comply with
the Company’s Insider Trading Policy, including
 
quarterly blackout periods and pre-clearance procedures.
 
ITEM 5. OTHER INFORMATION
(a)
None
(b)
None
(c)
Trading Arrangements
During the three months ended September 30, 2023, (i) no director or officer (as
 
defined in Rule 16a-1(f) under the Exchange Act)
of the Company
adopted
 
or
terminated
 
a “Rule 10b5-1 trading arrangement” or “
non-Rule
10b5-1
 
trading arrangement,” as each
term is defined in Item 408 of Regulation S-K; and (ii) the Company did not adopt or
 
terminate a “Rue 10b5-1 trading
arrangement,” as such term is defined in Item 408 of Regulation S-K.
 
 
 
 
 
 
75
ITEM 6. EXHIBITS
 
Exhibit
Number
Exhibit Description
**
101.INS*
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags
are embedded within the Inline XBRL document
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
104*
Cover Page Interactive Data File (formation in Inline XBRL and contained in Exhibit 101)
*
 
Filed Herewith
**
 
Furnished Herewith
 
†
 
Indicates a management contract or compensatory plan arrangement
 
 
76
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed
 
on its
behalf by the undersigned thereunto duly authorized.
CrossFirst Bankshares, Inc.
Date:
 
November 3, 2023
/s/ Benjamin R. Clouse
 
Benjamin R. Clouse
 
Chief Financial Officer
 
(Duly authorized officer and principal financial officer)
 
exhibit311
 
 
 
Certification of Principal Executive Officer
Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Michael J. Maddox, certify that:
1.
 
I have reviewed this quarterly report on Form 10-Q of CrossFirst Bankshares,
 
Inc.;
2.
 
Based on my knowledge, this report does not contain any untrue statement of a
 
material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under
 
which such statements were made, not
misleading with respect to the period covered by this report;
3.
 
Based on my knowledge, the financial statements, and other financial information
 
included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the
 
registrant as of, and for, the
periods presented in this report;
4.
 
The registrant’s other certifying officer and
 
I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and
 
procedures to be
designed under our supervision, to ensure that material information relating to the registrant,
 
including its
consolidated subsidiaries, is made known to us by others within those entities, particularly
 
during the period
in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal
 
control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the
 
reliability of
financial reporting and the preparation of financial statements for external purposes in accordance
 
with
generally accepted accounting principles;
(c)
 
Evaluated the effectiveness of the registrant’s
 
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures,
 
as of the end of the period
covered by this report based on such evaluation; and
(d)
 
Disclosed in this report any change in the registrant’s
 
internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant
 
’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
 
internal control
over financial reporting; and
5.
 
The registrant’s other certifying officer and
 
I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s
 
auditors and the audit committee of the registrant’s
 
board of directors (or
persons performing the equivalent functions):
(a)
 
All significant deficiencies and material weaknesses in the design or operation
 
of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s
 
ability to record, process,
summarize and report financial information; and
(b)
 
Any fraud, whether or not material, that involves management or other
 
employees who have a significant role
in the registrant’s internal control over financial reporting.
 
Date:
 
November 3, 2023
 
/s/ Michael J. Maddox
Michael J. Maddox
President and Chief Executive Officer
(Principal Executive Officer)
exhibit312
 
 
 
Certification of Principal Financial Officer
Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Benjamin R. Clouse, certify that:
1.
 
I have reviewed this quarterly report on Form 10-Q of CrossFirst Bankshares,
 
Inc.;
2.
 
Based on my knowledge, this report does not contain any untrue statement of a
 
material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under
 
which such statements were made, not
misleading with respect to the period covered by this report;
3.
 
Based on my knowledge, the financial statements, and other financial information
 
included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the
 
registrant as of, and for, the
periods presented in this report;
4.
 
The registrant’s other certifying officer and
 
I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
 
Designed such disclosure controls and procedures, or caused such disclosure controls and
 
procedures to be
designed under our supervision, to ensure that material information relating to the registrant,
 
including its
consolidated subsidiaries, is made known to us by others within those entities, particularly
 
during the period
in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal
 
control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the
 
reliability of
financial reporting and the preparation of financial statements for external purposes in accordance
 
with
generally accepted accounting principles;
(c)
 
Evaluated the effectiveness of the registrant’s
 
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures,
 
as of the end of the period
covered by this report based on such evaluation; and
(d)
 
Disclosed in this report any change in the registrant’s
 
internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant
 
’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
 
internal
control over financial reporting; and
5.
 
The registrant’s other certifying officer and
 
I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s
 
auditors and the audit committee of the registrant’s
 
board of directors (or
persons performing the equivalent functions):
(a)
 
All significant
 
deficiencies and material
 
weaknesses in
 
the design
 
or operation of
 
internal control over
 
financial
reporting which are reasonably likely to adversely affect the registrant’s
 
ability to record, process, summarize
and report financial information; and
(b)
 
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
 
Date:
 
November 3, 2023
 
/s/ Benjamin R. Clouse
Benjamin R. Clouse
Chief Financial Officer
(Principal Financial Officer)
exhibit321
 
 
 
 
 
 
 
 
 
 
 
Exhibit 32.1
CERTIFICATION OF PRINCIPAL
 
EXECUTIVE OFFICER AND PRINCIPAL
 
FINANCIAL OFFICER
UNDER 18 U.S.C. § 1350 FURNISHED PURSUANT TO SECURITIES EXCHANGE
 
ACT RULE 13a-14(b)
In connection with the Quarterly Report of CrossFirst Bankshares, Inc. (the “Company”)
 
on Form 10-Q for the period ended on
September 30, 2023, as filed with the Securities and Exchange Commission on the date
 
hereof (the “Report”), each of the undersigned, in
his respective capacities indicated below, hereby certifies, pursuant to 18 U.S.C.
 
§ 1350, as enacted by Section 906 of the Sarbanes-Oxley
Act of 2002, that, to his knowledge and belief, (1) the Report fully complies with the requirements
 
of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, and (2) the information contained in the Report fairly presents, in all material respects,
 
the
financial condition and results of operations of the Company.
Date: November 3, 2023
 
/s/ Michael J. Maddox
Michael J. Maddox
President and Chief Executive Officer (Principal Executive Officer)
/s/ Benjamin R. Clouse
Benjamin R. Clouse
 
Chief Financial Officer (Principal Financial Officer)