UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, DCD.C. 20549

FORM
FORM 10-Q

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

For the quarterly period ended
September 30, 20192022

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 number001-39028

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
)
754-9704
Kansas26-3212879
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
11440 Tomahawk Creek Parkway
LeawoodKS66211
(Address of principal executive offices)(Zip Code)
(913) 312-6822
(Registrant’s telephone number, including area code)

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

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.01 per shareCFBTitle 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 ☒

☒
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 ☐

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
“large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and ‘‘emerging“emerging growth company’’company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
☐

Accelerated filer
☒
Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☒Smaller reporting company☐
Emerging growth company☒

☐
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 ☒

☐


No
APPLICABLE ONLY TO CORPORATE ISSUERS:

☒
As of November 11, 2019,7, 2022, the registrant had51,969,203
48,617,780
shares of common stock, par value $0.01, outstanding.



2
CrossFirst Bankshares, Inc.
Form 10-Q
for the Quarter Ended September 30, 2019

2022
Index
Part I. Financial Information
Part I. Financial Information
Item 1.Financial Statements
Forward-Looking Information
4
Consolidated Balance Sheets - Unaudited
5
Consolidated Statements of Income - Unaudited
6
Consolidated Statements of Other Comprehensive Income (Loss) - Unaudited
7
Consolidated Statements of Stockholders’ Equity - Unaudited
8
Consolidated Statements of Cash Flows - Unaudited
10
Notes toItem 1. Condensed Consolidated Financial Statements - Unaudited
Note 1: Nature of Operations and Summary of Significant Accounting Policies
12
Note 2: Earnings Per Share
15
Note 3: Securities
16
Note 4: Loans and Allowance for Loan Losses
19
Note 5: Derivatives and Hedging
26
Note 6: Interest-Bearing Deposits and Borrowings
28
Note 7: Change in Accumulated Other Comprehensive Income (AOCI)
28
Note 8: Regulatory Matters
29
Note 9: Revenue from Contracts with Customers
30
Note 10: Equity-Based Compensation
31
Note 11: Income Tax
31
Note 12: Disclosures about Fair Value of Financial Instruments
32
Note 13: Commitments and Credit Risk
37
Note 14: Legal and Regulatory Proceedings
37
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
38
Recent Developments
38
Selected Financial Data (unaudited)
39
GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures
40
Results of Operations
44
Summary
44
Net Interest Income
45
Provision for Loan Losses
47
Non-Interest Income
48
Non-Interest Expense
49
Income Taxes
50
Analysis of Financial Condition
50
Balance Sheet Summary
50
Security Portfolio
51
Loans Portfolio
51
Allowance for Loan Losses (‘‘ALLL’’)
52
Nonperforming Assets and Other Asset Quality Metrics
53
Deposits and Other Borrowings
54
Liquidity
54
Contractual Obligations
55
Capital Resources and Off-Balance Sheet Arrangements
55
Critical Accounting Policies
56
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
56
Item 4.
Controls and Procedures
58
Part II. Other Information
Item 1.
Legal Proceedings
58
Item 1A.
Risk Factors
58
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
58
Item 3.
Defaults Upon Senior Securities
59
Item 4.
Mine Safety Disclosures
59
Item 5.
Other Information
59
Item 6.
Exhibits
60
Signatures


Table of Contents

Forward-Looking Information

Condensed Consolidated Balance Sheets - Unaudited
This4
Condensed Consolidated Statements of Income - Unaudited
5
Condensed Consolidated Statements of Comprehensive Income (Loss)- Unaudited
6
Condensed Consolidated Statements of Stockholders’ Equity - Unaudited
7
Condensed Consolidated Statements of Cash Flows - Unaudited
9
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1: Nature of Operations and Summary of Significant Accounting Policies
10
Note 2: Earnings Per Share
15
Note 3: Securities
15
Note 4: Loans and Allowance for Credit Losses
19
Note 5: Derivatives and Hedging
37
Note 6: Time Deposits and Borrowings
39
Note 7: Change in Accumulated Other Comprehensive Income (Loss)
39
Note 8: Regulatory Matters
39
Note 9: Stock-Based Compensation
40
Note 10: Income Tax
42
Note 11: Disclosures about Fair Value of Financial Instruments
43
Note 12: Commitments and Credit Risk
47
Note 13: Legal and Regulatory Proceedings
47
Note 14: Leases
47
Note 15: Warrants
49
Note 16: Subsequent Events
49
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Third Quarter 2022 Highlights
50
Results of Operations
52
Net Interest Income
52
Non-Interest Income
56
Non-Interest Expense
57
Income Taxes
59
Analysis of Financial Condition
60
Securities Portfolio
60
Loan Portfolio
60
Provision and Allowance for Credit Losses
61
Non-performing Assets and Other Asset Quality Metrics
64
Deposits and Other Borrowings
67
Liquidity and Capital Resources
68
Critical Accounting Policies and Estimates
69
Item 3. Quantitative and Qualitative Disclosures about Market Risk
71
Item 4. Controls and Procedures
72
Part II. Other Information
Item 1. Legal Proceedings
72
Item 1A. Risk Factors
72
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
73
Item 6. Exhibit Index
74
Signature
75
3
Forward-Looking Information
All statements contained in this quarterly report may containon Form 10-Q that do not directly
and exclusively relate to historical facts
constitute forward-looking statements that reflect our current views with respect to, among other things, future events and our financial performance.statements. These statements are often, but not always, made
through the use of words or phrases such as ‘‘
“may,’’ ‘‘might,’’ ‘‘should,’’ ‘‘could,’’ ‘‘predict,’’ ‘‘potential,’’ ‘‘believe,’’ ‘‘expect,’’ ‘‘continue,’’ ‘‘” “might,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,”
“will,’’ ‘‘anticipate,’’ ‘‘seek,’’ ‘‘estimate,’’ ‘‘intend,’’ ‘‘” “anticipate,” “seek,” “estimate,” “intend,”
“plan,’’ ‘‘strive,’’ ‘‘projection,’’ ‘‘goal,’’ target,’’ ‘‘outlook,’’ ‘‘aim,’’ ‘‘would,’’ ‘‘annualized’’” “projection,” “goal,” “target,” “outlook,” “aim,” “would,”
“annualized” and ‘‘outlook,’’“outlook,” or the negative version of thosethese words or other
comparable words or phrases of a future or forward-looking nature. For example,
our forward-looking statements include statements

regarding our expectations, opportunities or plans for growth; the proposed
acquisition of Farmers & Stockmens Bank, the bank
subsidiary of Central Bancorp, Inc. (collectively, Farmers & Stockmens Bank
and Central Bancorp, Inc. are herein referred to as
“Central”); our anticipated expenses, cash requirements and sources of
liquidity; and our capital allocation strategies and plans.
Unless we state otherwise or the context otherwise requires, references
below to “we,” “our,” “us,” and the “Company” refer to
CrossFirst Bankshares, Inc., and its consolidated subsidiaries. References to “CrossFirst
Bank” and the “Bank” refer to CrossFirst Bank,
our wholly owned consolidated bank subsidiary.
These forward-looking statements are not historical facts, and are based
on current expectations, estimates and projections about
our industry, management’s beliefs and certain assumptions made
by management, many of which, by their nature, are inherently
uncertain and beyond our control. Accordingly, we cautionthe Company cautions you that any such forward-looking
statements are not guarantees
of future performance and are subject to risks, assumptions, estimates and uncertainties
that are difficult to predict. Although we believethe
Company believes that the expectations reflected in these forward-looking
statements are reasonable as of the date made, actual results
may prove to be materially different from the results expressed or
implied by the forward-looking statements. Such possible events orstatements due to a number of factors, include: changes
including, without limitation: risks associated with the ongoing COVID-19
pandemic, decline in economic conditions in the United
States and the Company’s market area, changes in policies by regulatory agencies, governmental legislation and regulation,areas, fluctuations in interest rates, business strategy
execution, ability to manage growth and
expansion, new lines of business or new services, products or product
enhancements, phase-out of the London Interbank Offered Rate
(LIBOR) and uncertainty relating to alternative reference rates, fluctuation
of fair value of our investment securities, credit quality and
risk, commercial and residential real estate values, hiring and retention of key
personnel, funding availability, competition with other
entities that offer financial services, changes in liquidity requirements,
demand for loans in the Company’s market area,areas, changes in
accounting and tax principles, estimates made on income taxes, competition ability to keep pace
with technological change, cybersecurity incidents
or other entities that offer financialfailures, disruptions or security breaches, fraud committed against
the Company or our clients, failure of our third-party services cybersecurity threats,
providers, reputational risks, intellectual property infringement,
legislative and regulatory changes, risks inherent with proposed
business acquisitions, such as the acquisition and integration of Farmers
& Stockmens Bank, and the failure to achieve projected
synergies; or other external events.
Additional discussion of these and other risk factors as discussedcan be found in
our prospectus (File No. 333-232704), dated August 14, 2019,Annual Report on Form 10-
K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange
Commission (‘‘SEC’’(“SEC”) pursuant to Rule 424(b) ofon February 28, 2022, and
in our other filings with the Securities Act of 1933,SEC.
Except as amended (the ‘‘Securities Act’’), on August 15, 2019, related to our initial public offering.

We undertakerequired by law, the Company undertakes no obligation to update
or revise forward-looking statements to reflect
changed assumptions, the occurrence of unanticipated events or publicly release thechanges
in our business, results of any revision to these forward-looking statements, except as required by law.operations or financial condition over
time. Given these risks and uncertainties, readers are cautioned not to place undue reliance
on such forward-looking statements.



4
Table of Contents

See Notes to Condensed Consolidated Financial Statements (unaudited)
4
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2022
 September 30, 2019 December 31, 2018
 (Unaudited)  
 (Dollars in thousands)
Assets   
Cash and cash equivalents$128,126
 $216,541
Available for sale securities - taxable323,531
 296,133
Available for sale securities - tax-exempt409,562
 367,545
Premises and equipment, held for sale—
 3,444
 Loans, net of allowance for loan losses of $42,995 and $37,826 at September 30, 2019 and December 31, 2018, respectively3,586,797

3,022,921
Premises and equipment, net71,314
 74,945
Restricted equity securities16,053
 14,525
Interest receivable15,909
 14,092
Foreclosed assets held for sale2,471
 —
Deferred tax asset7,429
 16,316
Goodwill and other intangible assets, net7,720
 7,796
Bank-owned life insurance65,228
 63,811
Other17,173
 9,146
Total assets$4,651,313

$4,107,215
Liabilities and stockholders’ equity   
Deposits   
Non-interest bearing$513,832
 $484,284
Savings, NOW and money market1,922,522
 1,714,136
Time1,221,754
 1,009,677
Total deposits3,658,108

3,208,097
Federal funds purchased and repurchase agreements49,810
 75,406
Federal Home Loan Bank advances307,804
 312,985
Other borrowings912
 884
Interest payable and other liabilities32,244
 19,507
Total liabilities4,048,878
 3,616,879
Stockholders’ equity   
Redeemable preferred stock, $0.01 par value, $25 liquidation value:   
authorized - 5,000,000 shares, issued - 0 and 1,200,000 shares at September 30, 2019 and December 31, 2018, respectively—
 12
Common stock, $0.01 par value:   
authorized - 200,000,000 shares, issued - 51,969,203 and 45,074,322 shares at September 30, 2019 and December 31, 2018, respectively520
 451
Additional paid-in capital518,816
 454,512
Retained earnings65,282
 38,567
Other(84) (196)
Accumulated other comprehensive income (loss)17,901
 (3,010)
Total stockholders’ equity602,435

490,336
Total liabilities and stockholders’ equity$4,651,313
 $4,107,215
December 31, 2021

(1)
(Unaudited)
(Dollars in thousands)
Assets
Cash and cash equivalents
$
309,135
$
482,727
Available-for-sale securities - taxable
174,004
192,146
Available-for-sale securities - tax-exempt
482,523
553,823
Loans, net of unearned fees
4,677,646
4,256,213
Allowance for credit losses on loans
(2)
55,864
58,375
Loans, net of the allowance for credit losses on loans
4,621,782
4,197,838
Premises and equipment, net
64,313
66,069
Restricted equity securities
9,277
11,927
Interest receivable
20,553
16,023
Foreclosed assets held for sale
973
1,148
Bank-owned life insurance
68,698
67,498
Other
97,719
32,258
Total assets
$
5,848,977
$
5,621,457
Liabilities and stockholders’ equity
Deposits
Non-interest-bearing
$
1,113,934
$
1,163,224
Savings, NOW and money market
3,123,410
2,895,986
Time
750,171
624,387
Total deposits
4,987,515
4,683,597
Federal Home Loan Bank advances
205,349
236,600
Other borrowings
1,048
1,009
Interest payable and other liabilities
74,518
32,678
Total liabilities
5,268,430
4,953,884
Stockholders’ equity
Common stock, $
0.01
par value:
Authorized -
200,000,000
shares, issued -
53,018,448
and
52,590,015
shares at
September 30, 2022 and December 31, 2021, respectively
530
526
Treasury stock, at cost:
4,230,752
and
2,139,970
shares held at September 30, 2022 and December 31,
2021, respectively
(59,328)
(28,347)
Additional paid-in capital
529,646
526,806
Retained earnings
194,148
147,099
Accumulated other comprehensive (loss) income
(84,449)
21,489
Total stockholders’ equity
580,547
667,573
Total liabilities and stockholders’ equity
$
5,848,977
$
5,621,457
(1)
The year-end Condensed Consolidated Balance Sheet was derived from
audited financial statements but does not include all
disclosures required by accounting principles generally accepted in the
United States of America.
(2)
As of December 31, 2021, this line represents the allowance for loan and
lease losses. See further discussion in “Note 1: Nature of
Operations and Summary of Significant Accounting Policies”
in the Notes to Condensed Consolidated Financial Statements
(unaudited).
See Notes to Consolidated Financial Statements (unaudited)

5
Table of Contents

See Notes to Condensed Consolidated Financial Statements (unaudited)
5
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
(Dollars in thousands except per share data)
Interest Income
Loans, including fees
$
59,211
$
42,664
$
149,266
$
130,268
Available-for-sale securities - taxable
1,119
803
3,250
2,423
Available-for-sale securities - tax-exempt
3,905
3,562
11,442
10,410
Deposits with financial institutions
1,193
121
1,714
359
Dividends on bank stocks
122
161
478
488
Total interest income
65,550
47,311
166,150
143,948
Interest Expense
Deposits
14,909
4,211
23,152
14,789
Fed funds purchased and repurchase agreements
9
-
83
3
Federal Home Loan Bank Advances
898
1,275
3,302
3,838
Other borrowings
39
24
94
72
Total interest expense
15,855
5,510
26,631
18,702
Net Interest Income
49,695
41,801
139,519
125,246
Provision for Credit Losses
(1)
3,334
(10,000)
4,844
1,000
Net Interest Income after Provision for Credit Losses
(1)
46,361
51,801
134,675
124,246
Non-Interest Income
 Three months ended Nine months ended
 September 30, September 30,
 2019 2018 2019 2018
 (Dollars in thousands except per share data)
Interest Income       
Loans, including fees$49,327
 $34,012
 $142,319
 $89,262
Available for sale securities - Taxable1,991
 2,200
 6,646
 5,729
Available for sale securities - Tax-exempt2,969
 3,586
 8,820
 11,622
Deposits with financial institutions970
 723
 2,452
 2,481
Dividends on bank stocks272
 254
 801
 718
Total interest income55,529
 40,775
 161,038
 109,812
Interest Expense    
  
Deposits18,003
 9,999
 51,421
 26,639
Fed funds purchased and repurchase agreements74
 287
 501
 628
Advances from Federal Home Loan Bank1,629
 1,468
 4,739
 4,308
Other borrowings37
 53
 112
 184
Total interest expense19,743
 11,807
 56,773
 31,759
Net Interest Income35,786
 28,968
 104,265
 78,053
Provision for Loan Losses4,850
 3,000
 10,550
 9,000
Net Interest Income after Provision for Loan Losses30,936
 25,968
 93,715
 69,053
Non-Interest Income  
 
 
Service charges and fees (rebates) on customer accounts72
 (100) 441
 506
Gain on sale of available for sale securities34

195
 467

608
Impairment of premises and equipment held for sale—

(171) (424)
(171)
Gain on sale of loans49

25
 207

618
Income from bank-owned life insurance476
 513
 1,416
 1,511
Swap fee income, net1,879

253
 2,415

299
ATM and credit card interchange income476

301
 1,312

827
Other non-interest income226

169
 695

690
Total non-interest income3,212

1,185
 6,529

4,888
Non-Interest Expense    
 
Salaries and employee benefits14,256
 12,652
 43,296
 43,689
Occupancy2,080
 2,132
 6,301
 6,199
Professional fees427
 766
 1,923
 2,421
Deposit insurance premiums302
 823
 2,020
 2,411
Data processing649
 528
 1,868
 1,470
Advertising580
 527
 1,770

1,982
Software and communication900

630
 2,407

1,958
Depreciation and amortization413

516
 1,320

1,306
Other non-interest expense1,565

1,301
 4,858

4,153
Total non-interest expense21,172

19,875
 65,763

65,589
Net Income Before Taxes12,976
 7,278
 34,481
 8,352
Income tax expense (benefit)2,592
 924
 5,308
 (904)
Net Income$10,384
 $6,354
 $29,173
 $9,256
Basic Earnings Per Share(1)
$0.22
 $0.15
 $0.63
 $0.23
Diluted Earnings Per Share(1)
$0.21
 $0.15
 $0.61
 $0.22
(1) Share data has been adjusted to reflect a 2-for-1 stock split effected in the form of a dividend on December 21, 2018.

Service charges and fees on customer accounts
1,566
1,196
4,520
3,330
Realized (losses) gains on available-for-sale securities
(4)
1,046
(43)
1,043
Unrealized gains (losses) on equity securities, net
(87)
(6,210)
(261)
(6,243)
Income from bank-owned life insurance
405
427
1,200
3,088
Swap fees and credit valuation adjustments, net
(7)
31
123
156
ATM and credit card interchange income
1,326
1,735
5,513
5,569
Other non-interest income
581
670
1,870
1,921
Total non-interest income
3,780
(1,105)
12,922
8,864
Non-Interest Expense
Salaries and employee benefits
18,252
15,399
53,288
44,612
Occupancy
2,736
2,416
7,851
7,307
Professional fees
580
618
2,453
2,538
Deposit insurance premiums
903
927
2,355
2,995
Data processing
877
700
2,849
2,136
Advertising
796
596
2,247
1,334
Software and communication
1,222
999
3,689
3,098
Foreclosed assets, net
9
(35)
(30)
680
Other non-interest expense
3,076
2,416
10,617
7,967
Total non-interest expense
28,451
24,036
85,319
72,667
Net Income Before Taxes
21,690
26,660
62,278
60,443
Income tax expense
4,410
5,660
12,625
11,831
Net Income
$
17,280
$
21,000
$
49,653
$
48,612
Basic Earnings Per Share
$
0.35
$
0.41
$
1.00
$
0.95
Diluted Earnings Per Share
$
0.35
$
0.41
$
0.99
$
0.93
(1)
For the three-
and nine-months ended September 30, 2021, this line represents the provision for
loan and lease losses. See further
discussion of this change in “Note 1: Nature of Operations and Summary of Significant Accounting Policies”
in the Notes to
Condensed Consolidated Financial Statements (unaudited).
See Notes to Consolidated Financial Statements (unaudited)

6
Table of Contents

See Notes to Condensed Consolidated Financial Statements (unaudited)
6
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME (LOSS) - UNAUDITED
Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
(Dollars in thousands)
Net Income
$
17,280
$
21,000
$
49,653
$
48,612
Other Comprehensive Loss
Unrealized loss on available-for-sale securities
(39,299)
(7,989)
(137,282)
(11,532)
Less: income tax benefit
(9,621)
(1,956)
(33,607)
(2,823)
Unrealized loss on available-for-sale securities
(29,678)
(6,033)
(103,675)
(8,709)
Reclassification adjustment for realized gains (losses) included in
income
(4)
1,046
(43)
1,043
Less: income tax expense (benefit)
 Three months ended Nine months ended
 September 30, September 30,
 2019 2018 2019 2018
 (Dollars in thousands)
Net Income$10,384
 $6,354
 $29,173
 $9,256
Other Comprehensive Income (Loss)       
Unrealized gain (loss) on available-for-sale securities5,757
 (6,592) 28,084
 (22,062)
Less: income tax (benefit)1,410
 (1,620) 6,890
 (5,414)
Unrealized gain (loss) on available-for-sale securities, net of income tax (benefit)4,347
 (4,972) 21,194
 (16,648)
Reclassification adjustment for realized gains included in income34
 195
 467
 608
Less: income tax9
 47
 115
 149
Less: reclassification adjustment for realized gains included in income, net of income tax25
 148
 352
 459
Other comprehensive income (loss)4,322
 (5,120) 20,842
 (17,107)
Comprehensive Income (Loss)$14,706
 $1,234
 $50,015
 $(7,851)
(1)

256
(11)
255
Less: reclassification adjustment for realized gain (loss) included
in income, net of income tax
(3)
790
(32)
788
Unrealized loss on cash flow hedges
(7,076)
-
(3,036)
-
Less: income tax expense
(1,731)
-
(741)
-
Unrealized loss on cash flow hedges, net of income tax
(5,345)
-
(2,295)
-
Other comprehensive loss
(35,020)
(6,823)
(105,938)
(9,497)
Comprehensive Income (Loss)
$
(17,740)
$
14,177
$
(56,285)
$
39,115
See Notes to Consolidated Financial Statements (unaudited)

7
Table of Contents

See Notes to Condensed Consolidated Financial Statements (unaudited)
7
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED
Common Stock
               Accumulated  
         Additional     Other  
 Preferred Stock Common Stock Paid in Retained   Comprehensive  
 Shares Amount 
Shares(1)
 
Amount(1)
 Capital 
Earnings(1)
 Other Income (Loss) Total
 (Dollars in thousands)
Balance at June 30, 20181,200,000
 $12
 35,496,278
 $355
 $321,544
 $25,778
 $(191) $(4,961) $342,537
Net income—
 —
 —
 —
 —
 6,354
 —
 —
 6,354
Change in unrealized depreciation on available-for-sale securities—
 —
 —
 —
 —
 —
 —
 (5,120) (5,120)
Issuance of shares—
 —
 5,031,110
 50
 69,733
 (25) —
 —
 69,758
Issuance of shares from equity-based awards—
 —
 —
 —
 —
 —
 —
 —
 —
Retired shares—
 —
 (265,908) (3) (2,534) (1,253) —
 —
 (3,790)
Preferred dividends declared—
 —
 —
 —
 —
 (525) —
 —
 (525)
Employee receivables from sale of stock—
 —
 —
 —
 2
 —
 (1) —
 1
Share-based compensation—
 —
 —
 —
 527
 —
 —
 —
 527
Employee stock purchase plan additions—
 —
 —
 —
 38
 —
 —
 —
 38
Balance at September 30, 20181,200,000
 $12
 40,261,480
 $402
 $389,310
 $30,329
 $(192) $(10,081) $409,780
Treasury Stock

Additional
Paid-in
Capital
Retained
Earnings
Accumulated Other
Comprehensive
Income
Total
Shares
Amount
(Dollars in thousands)
Balance at June 30, 2021
50,958,680
$
525
$
(20,000)
$
524,637
$
105,299
$
26,729
$
637,190
Net income
-
-
-
-
21,000
-
21,000
Other comprehensive loss
-
-
-
-
-
(6,823)
(6,823)
Issuance of shares from equity-based awards
44,018
1
-
(110)
-
-
(109)
Stock-based compensation
-
-
-
1,149
-
-
1,149
Balance at September 30, 2021
51,002,698
$
526
$
(20,000)
$
525,676
$
126,299
$
19,906
$
652,407
Common Stock
Treasury Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated Other
Comprehensive Loss
Total
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
-
-
-
-
-
(35,020)
(35,020)
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 September 30, 2022
48,787,696
$
530
$
(59,328)
$
529,646
$
194,148
$
(84,449)
$
580,547
Balance at June 30, 2019—
 $—
 45,367,641
 $453
 $430,347
 $54,899
 $(83) $13,579
 $499,195
Net income—
 —
 —
 —
 —
 10,384
 —
 —
 10,384
Change in unrealized appreciation on available-for-sale securities—
 —
 —
 —
 
 —
 —
 4,322
 4,322
Issuance of shares—
 —
 6,600,245
 67
 87,154
 (1) —
 —
 87,220
Issuance of shares from equity-based awards—
 —
 1,317
 —
 (10) —
 —
 —
 (10)
Employee receivables from sale of stock—
 —
 —
 —
 1
 —
 (1) —
 —
Share-based compensation—
 —
 —
 —
 1,324
 —
 —
 —
 1,324
Employee stock purchase plan additions—
 —
 —
 —
 —
 —
 —
 —
 —
Balance at September 30, 2019—
 $—
 51,969,203
 $520
 $518,816
 $65,282
 $(84) $17,901
 $602,435
(1) Share data has been adjusted to reflect a 2-for-1 stock split effected in the form of a dividend on December 21, 2018.





See Notes to Consolidated Financial Statements (unaudited)

8

See Notes to Condensed Consolidated Financial Statements (unaudited)
8
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED
Common Stock
Treasury Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated Other
Comprehensive
Income
Total
Shares
Amount
(Dollars in thousands)
Balance at December 31, 2020
51,679,516
$
523
$
(6,061)
$
522,911
$
77,652
$
29,403
$
624,428
Net income
-
-
-
-
48,612
-
48,612
Other comprehensive loss
-
-
-
-
-
(9,497)
(9,497)
Issuance of shares from equity-based awards
287,375
3
-
(608)
-
-
(605)
Open market common share repurchases
(964,193)
-
(13,939)
-
-
-
(13,939)
Employee receivables from sale of stock
-
-
-
-
35
-
35
Stock-based compensation
-
-
-
3,373
-
-
3,373
Balance at September 30, 2021
51,002,698
$
526
$
(20,000)
$
525,676
$
126,299
$
19,906
$
652,407
Common Stock
Treasury Stock
Additional
Paid-in Capital
Retained
Earnings
Accumulated Other
Comprehensive
Income (Loss)
Total
Shares
Amount
(Dollars in thousands)
Balance at December 31, 2021
50,450,045
$
526
$
(28,347)
$
526,806
$
147,099
$
21,489
$
667,573
Cumulative effect from changes in accounting
principle
(1)
-
-
-
-
(2,610)
-
(2,610)
Net income
-
-
-
-
49,653
-
49,653
Other comprehensive loss
-
-
-
-
-
(105,938)
(105,938)
Issuance of shares from equity-based awards
394,933
4
-
(631)
-
-
(627)
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
Exercise of warrants
33,500
-
-
167
-
-
167
Balance September 30, 2022
48,787,696
$
530
$
(59,328)
$
529,646
$
194,148
$
(84,449)
$
580,547
(1)
Includes the impact of implementing Accounting Standards Update (“ASU”)
2016-13, Financial Instruments - CONTINUEDCredit Losses (Accounting Standard Codification
(“ASC”) 326):
Measurement of Credit Losses on Financial Instruments.
See “Note 1: Nature of Operations and Summary of Significant Accounting
               Accumulated  
         Additional     Other  
 Preferred Stock Common Stock Paid in Retained   Comprehensive  
 Shares Amount 
Shares(1)
 
Amount(1)
 Capital 
Earnings(1)
 Other Income (Loss) Total
 (Dollars in thousands)
Balance at December 31, 20171,200,000
 $12
 30,686,256
 $307
 $256,108
 $23,950
 $(256) $7,026
 $287,147
Net income—
 —
 —
 —
 —
 9,256
 —
 —
 9,256
Change in unrealized depreciation on available-for-sale securities—
 —
 —
 —
 
 —
 —
 (17,107) (17,107)
Issuance of shares—
 —
 9,557,054
 95
 132,868
 (48) —
 —
 132,915
Issuance of shares from equity-based awards—
 —
 284,078
 3
 (1,653) (1) —
 —
 (1,651)
Retired shares—
 —
 (265,908) (3) (2,534) (1,253) —
 —
 (3,790)
Preferred dividends declared—
 —
 —
 —
 —
 (1,575) —
 —
 (1,575)
Employee receivables from sale of stock—
 —
 —
 —
 8
 —
 64
 —
 72
Share-based compensation—
 —
 —
 —
 4,386
 —
 —
 —
 4,386
Employee stock purchase plan additions—
 —
 —
 —
 127
 —
 —
 —
 127
Balance at September 30, 20181,200,000
 $12
 40,261,480
 $402
 $389,310
 $30,329
 $(192) $(10,081) $409,780
Balance at December 31, 20181,200,000
 $12
 45,074,322
 $451
 $454,512
 $38,567
 $(196) $(3,010) $490,336
Net income  —
 —
 —
 —
 29,173
 —
 —
 29,173
Change in unrealized appreciation on available-for-sale securities—
 —
 —
 —
 

 —
 —
 20,842
 20,842
Issuance of shares—
 —
 6,851,213
 68
 88,869
 —
 —
 —
 88,937
Issuance of shares from equity-based awards—
 —
 53,668
 1
 (246) —
 —
 —
 (245)
Retired shares(1,200,000) (12) (10,000) —
 (30,088) (55) —
 

 (30,155)
Preferred dividends declared—
 —
 —
 —
 —
 (175) —
 —
 (175)
Employee receivables from sale of stock—
 —
 —
 —
 5
 —
 112
 —
 117
Share-based compensation—
 —
 —
 —
 3,569
 —
 —
 —
 3,569
Employee receivables from sale of stock—
 —
 —
 —
 36
 —
 —
 —
 36
Adoption of ASU 2016-01—
 —
 —
 —
 —
 (69) —
 69
 —
Adoption of ASU 2018-07—
 —
 —
 —
 2,159
 (2,159) —
 —
 —
Balance at September 30, 2019—
 $—
 51,969,203
 $520
 $518,816
 $65,282
 $(84) $17,901
 $602,435
(1) Share data has been adjusted to reflect a 2-for-1 stock split effectedPolicies” in the formNotes to Condensed
Consolidated Financial Statements (unaudited) for more information on the
Company’s adoption of a dividend on December 21, 2018.this guidance
and the impact to the Company’s
results of operations.


See Notes to Consolidated Financial Statements (unaudited)

9
Table of Contents

See Notes to Condensed Consolidated Financial Statements (unaudited)
9
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

Nine Months Ended

September 30,
2022
2021
(Dollars in thousands)
Operating Activities
Net income
$
49,653
$
48,612
Items not requiring (providing) cash

Depreciation and amortization
3,716
3,993
Provision for credit losses
(1)
4,844
1,000
Accretion of discounts and amortization of premiums on securities
3,259
3,876
Stock based compensation
3,304
3,373
Foreclosed asset impairment
-
630
Deferred income taxes
1,713
2,233
Net increase in bank owned life insurance
(1,200)
(3,088)
Net unrealized losses on equity securities
261
6,243
Net realized (gains) losses on available-for-sale securities
43
(1,043)
Changes in
 Nine months ended
 September 30,
 2019 2018
 (Dollars in thousands)
Operating Activities   
Net income$29,173
 $9,256
Items not requiring (providing) cash   
Depreciation and amortization4,015
 3,299
Provision for loan losses10,550
 9,000
Accretion of discounts and amortization of premiums on securities4,098
 4,134
Equity based compensation3,606
 4,513
(Gain) loss on disposal of fixed assets64
 (4)
Gain on sale of loans(207) (618)
Deferred income taxes2,088
 (1,105)
Net increase in bank owned life insurance(1,416) (1,511)
Net realized gains on available-for-sale securities(539) (608)
Impairment of assets held for sale424
 171
Dividends on FHLB stock(797) (713)
Stock dividends on CRA mutual fund(38) (34)
Changes in   
Interest receivable(1,817) (2,105)
Other assets(7,795) (170)
Other liabilities13,261
 4,237
Net cash provided by operating activities54,670
 27,742
Investing Activities   
Net change in loans(576,897) (741,784)
Purchases of available-for-sale securities(157,492) (198,214)
Proceeds from maturities of available-for-sale securities48,658
 35,755
Proceeds from sale of available-for-sale securities63,515
 149,271
Purchase of premises and equipment(649) (41,268)
Purchase of restricted equity securities(1,673) (1,300)
Proceeds from the sale of fixed assets3,324
 1,862
Proceeds from sale of restricted equity securities941
 942
Net cash used in investing activities(620,273) (794,736)
Financing Activities   
Net increase in demand deposits, savings, NOW and money market accounts237,934
 456,487
Net increase in time deposits212,077
 46,729
Net increase (decrease) in repurchase agreements and fed funds purchased(50,596) 77,479
Net increase in federal funds sold25,000
 55,000
Proceeds from line of credit—
 30,000
Repayment of line of credit—
 (30,000)
Proceeds from Federal Home Loan Bank advances45,000
 28,000
Repayment of Federal Home Loan Bank advances(50,181) (10,171)
Net repayments of Federal Home Loan Bank line of credit—
 (25,000)

Interest receivable
(4,530)
1,308
Other assets
3,802
(1,753)
Other liabilities
(2,989)
(541)
Net cash provided by operating activities
61,876
64,843
Investing Activities
Net change in loans
(425,494)
196,637
Purchases of available-for-sale securities
(82,305)
(168,705)
Proceeds from maturities of available-for-sale securities
29,587
83,546
Proceeds from sale of available-for-sale securities
-
15,923
Proceeds from the sale of foreclosed assets
237
628
Purchase of premises and equipment
(1,878)
(671)
Proceeds from the sale of premises and equipment and related insurance claims
-
547
Purchase of restricted equity securities
(6,957)
-
Proceeds from sale of restricted equity securities
10,111
3,143
Proceeds from death benefit on bank owned life insurance
-
3,483
Net cash provided by (used in) investing activities
(476,699)
134,531
Financing Activities
Net increase in demand deposits, savings, NOW and money market accounts
178,134
84,218
Net increase (decrease) in time deposits
125,784
(342,361)
Net decrease in fed funds purchased and repurchase agreements
-
(2,306)
Proceeds from Federal Home Loan Bank advances
50,000
-
Repayment of Federal Home Loan Bank advances
(149,000)
(16,500)
Net proceeds of Federal Home Loan Bank line of credit
67,748
-
Issuance of common shares, net of issuance cost
171
3
Proceeds from employee stock purchase plan
364
172
Repurchase of common stock
(30,981)
(13,939)
Acquisition of common stock for tax withholding obligations
(995)
(784)
Net decrease in employee receivables
6
35
Net cash provided by (used in) financing activities
241,231
(291,462)
Decrease in Cash and Cash Equivalents
(173,592)
(92,088)
Cash and Cash Equivalents, Beginning of Period
482,727
408,810
Cash and Cash Equivalents, End of Period
$
309,135
$
316,722
Supplemental Cash Flows Information
Interest paid
$
25,648
$
19,402
Income taxes paid
$
10,545
$
8,370
(1)
For the nine-months ended September 30, 2021, this line represents
the Provision for loan losses.
See Notes to Consolidated Financial Statements (unaudited)

10

Notes to Condensed Consolidated Financial Statements
CROSSFIRST BANKSHARES, INC.(unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED



 Nine months ended
 September 30,
 2019 2018
 (Dollars in thousands)
Retirement of preferred stock$(30,000) $—
Issuance of common shares, net of issuance cost88,390
 132,550
Proceeds from employee stock purchase plan547
 367
Common stock purchased and retired(155) (3,790)
Acquisition of common stock for tax withholding obligations(245) (1,651)
Net decrease in employee receivables117
 72
Dividends paid on preferred stock(700) (1,575)
Net cash provided by financing activities477,188
 754,497
Decrease in Cash and Cash Equivalents(88,415) (12,497)
Cash and Cash Equivalents, Beginning of Period216,541
 130,820
Cash and Cash Equivalents, End of Period$128,126
 $118,323
Supplemental Cash Flows Information   
Interest paid$54,998
 $31,437
Income taxes paid1,030
 19
Foreclosed assets in settlement of loans2,471
 —
Dividends declared and unpaid on preferred stock—
 525


10
See Notes to Consolidated Financial Statements (unaudited)

11
Note 1: Nature of Operations and Summary of Significant Accounting Policies
Table of Contents
Notes to Unaudited Consolidated Financial Statements

Note 1:Nature of Operations and Summary of Significant Accounting Policies
Organization and Nature of Operations
CrossFirst Bankshares, Inc. (the ‘‘Company’’“Company”), a Kansas corporation, was incorporated in December 2017. Prior to incorporation, the Company was registered as a limited liability company under the name CrossFirst Holdings, LLC. The Company is a bank holding company whose principal activities
are the ownership and
management of its wholly-owned subsidiaries,subsidiary, CrossFirst Bank (the ‘‘Bank’’
“Bank”) and CFSA, LLC (“CFSA”), which holds title to certain assets.. In addition, the Bank has
three
subsidiaries including
CrossFirst Investments, Inc. (‘‘CFI’’(“CFI”) is a wholly-owned subsidiary of the Bank, whichthat holds investments in marketable securities.
securities, CFBSA I, LLC and CFBSA II, LLC.
The Bank is primarily engaged in providing a full range of banking and financial
services to individual and corporate customers
through its branches in: (i) Leawood, Kansas; (ii) Wichita, Kansas; (iii) Kansas City, Missouri;
(iv) Oklahoma City, Oklahoma; (v)
Tulsa, Oklahoma; (vi) Dallas, Texas; (vii) Frisco, Texas; and (viii) Phoenix, Arizona.
On June 13, 2022, the Company announced its entry into an agreement under
which the Bank will acquire Farmers & Stockmens
Bank, the bank subsidiary of Central Bancorp, Inc. (collectively, Farmers
& Stockmens Bank and Central Bancorp, Inc. are herein
referred as “Central”), for approximately $
75
million in cash. Central has branches in Colorado and New Mexico. The transaction is
currently expected to close in the fourth quarter of 2022, subject to the satisfaction
or waiver of customary closing conditions. Refer to
“Note 16: Subsequent Events” for further information about the acquisition.
Basis of Presentation
The Company’s accounting and reporting policies conform to accounting
principles generally accepted in the United States (‘‘GAAP’’
(“GAAP”). The consolidated financial statements include the accounts of the Company; Company,
the Bank, CFI, CFBSA I, LLC and CFSA.CFBSA II,
LLC. All significant intercompany accounts and transactions have been eliminated in consolidation.
The condensed consolidated interim financial statements are unaudited and certain unaudited. Certain
information and footnote disclosures presented in
accordance with GAAP have been condensed or omitted and should be read in conjunction with the Company’s
consolidated financial
statements and notes thereto, for the six-months ended June 30, 2019 and year ended December 31, 2018footnotes included in the Company’s prospectus, dated August 14, 2019,Annual Report on Form 10-K for the year ended December
31, 2021 (the “2021
Form 10-K”), filed with the Securities and Exchange Commission (‘‘SEC’’(the “SEC”) pursuant to Rule 424(b) of the Securities Act of 1933, as amended, on August 15, 2019, related to the Company’s initial public offering (the ‘‘IPO Prospectus’’).
February 28, 2022.
In the opinion of management, the interim financial statements include all adjustments all of
which are of a normal, recurring nature
necessary for the fair presentation of the financial position, results of operations,
and cash flows of the Company and the disclosures made are adequate to make the interim financial information not misleading.Company. The consolidated
financial statements have been prepared in accordance with GAAP for interim financial information and the instructions
to Form 10-Q
adopted by the SEC.
There have been no significant Refer to the “accounting pronouncements implemented” below for
changes in the accounting policies
of the CompanyCompany.
No
significant changes to the Company’s accounting policies, other
than those mentioned under “accounting pronouncements implemented”
below, have occurred since June 30, 2019,December 31, 2021, the most recent date
audited financial statements were provided within the IPO Prospectus.  The information contained in the financial statements and footnotes for the period ended June 30, 2019 included in the Company’s IPO Prospectus should be referred to in connection with these unaudited interim consolidated financial statements.
2021
Form 10-K. Operating results for the interim periods disclosed herein are not necessarily
indicative of the results that may be
expected for a full year or any future period.
Use of Estimates
The Company has identified accounting policies and estimates that, due
to the difficult, subjective, or complex judgments and
assumptions inherent in those policies and estimates and the potential sensitivity
of the Company’s financial statements to those
judgments and assumptions, are critical to an understanding of the Company’s
financial condition and results of operations. Actual
results could differ from those estimates. The Allowanceallowance for Loancredit losses, deferred
tax asset, and Lease Losses, Investment Securities Impairment, Deferred Tax Asset, and Fair Valuefair value of Financial Instrumentsfinancial instruments are
particularly susceptible to significant change.
Change in Presentation Due
Notes to Stock SplitCondensed Consolidated Financial Statements
On December 18, 2018, the Company announced a 2-for-1 stock split, effected in the form of a dividend, effective December 21, 2018. Share data and per share data were retroactively adjusted for the periods presented to reflect the change in capital structure.(unaudited)
11
Cash Equivalents
The Company had $85.0 $
205
million of cash and cash equivalents at the Federal Reserve Bank of Kansas City as of September
30, 2019. The reserve required at September 30, 2019 was approximately $63.3 million. In addition, the

2022.
Emerging Growth Company (“EGC”)
12
Table of Contents
Notes to Unaudited Consolidated Financial Statements

The Company is at times required to place cash collateral with a third party as part of its back-to-back swap agreements. At September 30, 2019, approximately $18.2 million was required as cash collateral.
Initial Public Offering
On August 19, 2019, the Company completed its initial public offering of common shares. The Company issued and sold 5,750,000 common shares at a public offering price of $14.50 per share. After deducting the underwriting discounts and offering expenses, the Company received total net proceeds of $75.6 million from the initial public offering. In addition, certain selling stockholders participated in the offering and soldcurrently an aggregate of 1,261,589 common shares at a public offering price of $14.50 per share. The Company did not receive any proceeds from the sales of shares by the selling stockholders.
On September 17, 2019, the underwriters partially exercised their option to purchase additional shares. The Company issued and sold 844,362 common shares at a public offering price of $14.50 per share. After deducting the underwriting discounts and offering expenses, the Company received total net proceeds of $11.4 million.
As of September 30, 2019, the Company qualified as an emerging growth company (‘‘EGC’’) under the Jumpstart Our Business Startups Act of 2012 (the ‘‘JOBS Act’’).EGC. An EGC may take advantage of reduced reporting requirements and is relieved of certain
other significant requirements that are otherwise generally applicable
to public companies. AmongstAmong the reductions and reliefs, the
Company elected to extend the transition period for complying with new or revised
accounting standards affecting public companies.
This means that the financial statements the Company files or furnishes will not be
subject to all new or revised accounting standards
generally applicable to public companies for the transition period for
so long as the Company remains an EGC or until the Company
affirmatively and irrevocably optopts out of the extended transition period
under the JOBS Act.
Accounting Pronouncements Implemented
ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement
of Credit Losses on Financial
Instruments:
Background
– ASU 2016-13 and its subsequent amendments provide new guidance on the impairment model for financial assets
measured at amortized cost, including loans held-for-investment and
off-balance sheet credit exposures. The Current Expected
Credit Loss (“CECL”) model requires an estimate of expected credit losses, measured
over the contractual life of an instrument,
that considers forecasts of future economic conditions in addition to information
about past events and current conditions. ASU
2016-13 requires new disclosures, including the use of vintage
analysis on the Company’s credit quality indicators.
In addition, ASU 2016-13 removes the available-for-sale (“AFS”) securities other-than-temporary-impairment model
that reduced
the cost basis of the investment and is replaced with an impairment model that
will recognize an allowance for credit losses on
available-for-sale securities.
Implementation
– The Company established a CECL committee to formulate and oversee the implementation process including
selection, implementation, and testing of third-party software.
The Company used a loss-rate ("cohort") method to estimate the expected allowance
for credit losses ("ACL") for all loan pools.
The cohort method identifies and captures the balance of a pool of loans with similar
risk characteristics, as of a particular point
in time to form a cohort, then tracks the respective losses generated by that cohort of loans over
their remaining lives, or until the
loans are “exhausted” (i.e., have reached an acceptable point in time at which
a significant majority of all losses are
expected to have been recognized). The cohort method closely aligned
with the Company's incurred loss model. This allowed the
Company to take advantages of the efficiencies of processes and procedures already
in practice.
The Company began parallel processing with the existing allowance
for loan losses model during the first quarter of 2019
recalibrating inputs as necessary. The Company formulated changes to policies, procedures,
disclosures, and internal controls that
were necessary to transition to the new standard. A third-party completed validation of the completeness, accuracy, and
reasonableness of the model in the fourth quarter of 2021. Refer to
“Note 4: Loans and Allowance for Credit Losses” for
additional information regarding the policies, procedures, and credit
quality indicators used by the Company.
Impact of adoption
– The Company adopted ASU 2016-13 on January 1, 2022 using the modified retrospective approach. All
disclosures as of and for the three-
and nine-month periods ended September 30, 2022 are presented in accordance
with ASC 326,
Financial Instruments-Credit Losses. The Company did not recast comparative
financial periods and has presented those
disclosures under previously applicable GAAP. Because the Company
chose the cohort method, the model must consider net
Notes to Condensed Consolidated Financial Statements
(unaudited)
12
deferred fees and costs. As a result, the Company transferred the previously disclosed unearned fees into the applicable loan
segments.
The Company used the prospective transition approach for AFS securities for which other-than-temporary-impairment
has been
recognized prior to January 1, 2022. As a result, the amortized cost basis remains the same before and after the effective date of
ASU 2016-13.
The following table illustrates the impact of adopting ASU 2016-13 and details how outstanding loan balances have been
reclassified because of changes made to the Company’s loan segments under
CECL:
January 1, 2022
As Reported under ASU
2016-13
Pre-ASU 2016-13
Impact of ASU 2016-13
Adoption
(Dollars in thousands)
Assets:
Loans (outstanding balance)
Commercial and Industrial
$
843,024
$
1,401,681
$
(558,657)
Commercial and Industrial lines of credit
617,398
-
617,398
Energy
278,579
278,860
(281)
Commercial real estate
1,278,479
1,281,095
(2,616)
Construction and land development
574,852
578,758
(3,906)
Residential real estate
360,046
600,816
(240,770)
Multifamily real estate
240,230
-
240,230
PPP
-
64,805
(64,805)
Consumer
63,605
63,605
-
Gross Loans
4,256,213
4,269,620
(13,407)
Net deferred loan fees and costs
-
13,407
(13,407)
Allowance for credit losses on loans
56,628
58,375
(1,747)
Loans, net of the allowance for credit
losses on loans
4,199,585
4,197,838
1,747
Deferred tax asset
$
13,647
$
14,474
$
(827)
Liabilities
Allowance for credit losses on off-balance
sheet exposures
$
5,184
$
-
$
5,184
Stockholders' equity
Retained earnings
$
144,489
$
147,099
$
(2,610)
In connection with adoption of ASU 2016-13, changes were made to the Company’s loan segments to align with the methodology
applied in determining the allowance under CECL. The commercial and industrial loan portfolio
was separated into term loans
and lines of credit. In addition, the remaining Paycheck Protection Program (“PPP”)
loans were consolidated into the commercial
and industrial term loan segment due to their declining outstanding balance.
The Company also separated the residential and
multifamily real estate loan segments. Refer to “Note 4: Loans and Allowance for Credit Losses” for detail on the
loan segments.
Accounting Policies:
The Company updated the below accounting policies due to adoption of ASU 2016-13:
Notes to Condensed Consolidated Financial Statements
(unaudited)
13
Accrued Interest -
The Company made an accounting policy election to exclude accrued interest from
the amortized cost basis of loans. In addition,
the Company elected not to measure an allowance for credit losses for accrued
interest receivable, because a timely write-off
policy exists. The policy generally requires loans to be placed on non-accrual
when principal or interest is 90 days or more past
due unless the loan is well-secured and in the process of collection. A well-secured loan means that collateral or a guaranty has
sufficient value to pay off the loan in full. When a loan is placed on non-accrual, accrued
interest is reversed against interest
income.
The Company made a policy election to exclude accrued interest from
the amortized cost basis of AFS securities. AFS securities
are placed on non-accrual status when the Company no longer expects
to receive all contractual amounts due, which is generally
at 90 days past due. Accrued interest receivable is reversed against interest income when a security is placed on non-accrual
status. Accordingly, the Company did not recognize an allowance for credit loss against accrued interest receivable.
Available-for-sale Securities in an Unrealized Loss Position –
For AFS securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more
likely than not
that it will be required to sell the security before recovery of its amortized cost basis. If
either of the criteria regarding
intent or
requirement to sell is met, the securities’ amortized cost basis is written down to fair value through income. For AFS securities
that do not meet the criteria above, the Company evaluates whether the decline
in fair value has resulted from credit losses or
other factors. Management considers the extent to which fair value is less than amortized
cost, any changes to the rating of the
security by a rating agency, and adverse conditions specifically related to
the security, among other factors.
If this assessment indicates that a credit loss exists, the present value of cash flows
expected to be collected from the security is
compared to the amortized cost basis of the security. If the present value of
cash flows expected to be collected is less than the
amortized cost basis, a credit loss exists and an allowance for credit losses is recorded
for the credit loss, limited by the amount
that the fair value is less than amortized cost basis.
ASU 2016-02, Leases (Topic 842):
Background
– ASU 2016-02 and its subsequent amendments require lessees to recognize the assets and liabilities that arise
from
such leases. This represents a change from previous GAAP that did not require operating leases to be recognized on the lessees’
balance sheet. The purpose
of Topic 842 is to increase transparency and comparability between organizations
that enter into lease
agreements.
The update modifies lease disclosure requirements as well.
On the lease commencement date (or on the date of adoption), a lessee is required
to measure and record a lease liability equal to
the present value of the remaining lease payments, discounted using an appropriate
discount rate. In addition, a right-of-use asset
is recorded that consists of the initial measurement of the lease liability adjusted for
certain payments, including lease incentives
received and initial direct costs.
For operating leases, after lease commencement, the lease liability is reported
at the present value of the unpaid lease payments
discounted using the discount rate established at lease commencement. The
lease expense is calculated by summing all future
lease payments in the lease term and lease incentives not yet recognized. The sum is then
amortized on a straight-line basis over
the lease term. The right-of-use asset is amortized as the difference between
the straight-line expense and the amortizing lease
liability.
Implementation
– The Company’s lease agreements to which Topic 842 has been applied primarily relate
to branch real estate
properties located in the Kansas City, Missouri; Tulsa, Oklahoma; Dallas, Texas; Frisco, Texas; and Phoenix, Arizona markets.
The remaining lease terms range from two to twenty years with potential renewal
terms. The leases include various payment
Notes to Condensed Consolidated Financial Statements
(unaudited)
14
terms including fixed payments with annual increases to variable payments.
In addition, several of the leases include lease
incentives.
The discount rates were not readily determinable in the lease agreements. As a result, the Company used the incremental
borrowing rate in accordance with Topic 842. The Company used the Federal Home Loan Bank (“FHLB”)
yield curve as the
incremental borrowing rate.
The Company elected several practical expedients that are listed below:
Practical Expedient Elected
Impact to Lease Accounting Implementation
An entity need not reassess whether any expired
or existing contracts are or contain leases.
The Company was not required to re-evaluate previously identified leases,
including embedded leases, that existed as of the adoption date.
An entity need not reassess the lease classification
for an expired or existing leases.
The Company was not required to re-classify previously identified operating
leases that existed as of the adoption date. The Company did not have any
capital leases as of December 31, 2021.
An entity need not reassess initial direct costs for
any existing leases.
The Company was not required to review previously established lease
agreements as of the adoption date for initial direct costs. Initial direct costs
increase the right-of-use asset and do not impact the lease liability.
An entity may combine lease and non-lease
components.
If not elected, the Company would be required to allocate the total
consideration in a lease contract to lease and non-lease components based
on
their relative standalone price. The election results in higher right-of-use
assets and lease liabilities.
Short-term lease exemption.
The Company is not required to record a right-of-use asset and lease liability
for a lease whose term is 12 months or less and does not include a purchase
option that the lessee is reasonably certain to exercise.
Impact of Adoption
– The Company adopted ASU 2016-02 on January 1, 2022 using the modified retrospective approach. The
Company did not recast comparative financial periods and has presented
those disclosures under previously applicable GAAP.
The following table illustrates the impact of adopting ASU 2016-02 on the Company’s financial statements:
January 1, 2022
As Reported under ASU
2016-02
Pre-ASU 2016-02
Impact of ASU 2016-02
Adoption
(Dollars in thousands)
Assets:
Right-of-use asset
$
23,589
$
-
$
23,589
Liabilities:
Lease incentive
-
2,125
(2,125)
Accrued rent payable
-
904
(904)
Lease liability
$
26,618
$
-
$
26,618
Recent Accounting Pronouncements
ASU 2022-02, Financial Instruments-Credit Losses (Topic 326):
Troubled Debt Restructurings and Vintage Disclosures
Background
– ASU 2022-02 provides
new guidance on (i) troubled debt restructurings
(“TDRs”) and (ii) vintage disclosures for
gross write-offs. The update eliminates the accounting guidance for TDRs and requires a company to
determine if a modification
results in a new loan or a continuation of an existing loan. The update enhances the required
disclosures for certain modifications
made to borrowers experiencing financial difficulty.
Notes to Condensed Consolidated Financial Statements
(unaudited)
15
In addition, the update requires disclosure of current-period gross charge
-offs by year of origination for financing receivables.
For the Company, the amendments are effective as of January 1, 2023, but early
adoption is permitted and would be applied as of
the beginning of the fiscal year of adoption.
Impact of adoption
– The Company has implementedanticipates adopting ASU 2022-02 as of January 1, 2023. At this time, an estimate of the following Accounting Standards Updates (‘‘ASU’’) during 2019:
impact cannot be established.
StandardDate of AdoptionDescriptionEffect on Financial Statements or Other Significant Matters
ASU 2018-07 -

Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
January 2019

Early adoption
Expanded the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees, excluding share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers.

The amendments include (1) grants are measured at grant-date fair value of the equity instruments, (2) equity-classified nonemployee share-based payment awards are measured at the grant date,
(3) performance based awards are measured based on the probability of satisfying the performance conditions, and (4) in general, non-employee share-based payment awards will continue to be subject to the requirements of ASC 718 unless modified after the good has been delivered, the service has been rendered, any other conditions necessary to earn the right to benefit from the instrument have been satisfied, and the nonemployee is no longer providing goods or services.
The Company had 216,960 stock-based awards to non-employees as of the implementation date, including 116,960 performance-based restricted stock units. The adoption of the ASU allowed the Company to (i) set the fair market value of the non-employee awards as of the adoption date and (ii) start to expense the performance-based restricted stock units based on the probability of satisfying the performance conditions.

Adoption of ASU 2018-07 required the Company to make a one-time transfer of $2.2 million from retained earnings to additional paid in capital. The Company will record forfeitures as they occur and base fair market values on the expected term, like the Company’s accounting for employee-based awards.

Note 2: Earnings Per Share
13
Table of Contents
Notes to Unaudited Consolidated Financial Statements

StandardDate of AdoptionDescriptionEffect on Financial Statements or Other Significant Matters
ASU 2016-01 -

Financial Instruments-Overall (Subtopic 825-10)
January 2019
Required equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income.

Emphasized the existing requirement to use exit prices to measure fair value for disclosure purposes and clarifies that entities should not make use of practicability exceptions in determining the fair value of loans.
The Company transferred $68.7 thousand from accumulated other comprehensive loss to retained earnings in January 2019.

There was no impact to the income statement on the adoption date.


ASU 2014-09 -

Revenue from Contracts with Customers
January 2019
Amended guidance related to revenue from contracts with customers.

The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Replaced nearly all existing revenue recognition guidance, including industry-specific guidance, established a new control-based revenue recognition model, changed the basis for deciding when revenue is recognized over time or at a point in time, provided new and more detailed guidance on specific topics and expands and improves disclosures about revenue.

The accounting update did not materially impact the financial statements or recognition of revenues.

The update did not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other GAAP, which comprises a significant portion of the Company’s revenue stream.

In addition, the Company’s non-interest income is generated by customer transactions or through the passage of time and as a result the pattern or timing of income recognition was not impacted.
The Company has updates to the following ASUs that have not yet been adopted. A complete list of recent, applicable accounting pronouncements was provided in the IPO Prospectus:
StandardAnticipated Date of AdoptionDescriptionEffect on Financial Statements or Other Significant Matters
ASU 2016-13

Financial Instruments-Credit Losses
The Company expects to implement this standard in 2020; however, the Company is not required to implement this standard until January 2023 if it maintains its EGC status.Requires an entity to utilize a new impairment model known as the current expected credit loss (’’CECL’’) model to estimate its lifetime expected credit loss and record an allowance that, when deducted from amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset.
The Company has established a committee of individuals from applicable departments to oversee the implementation process.

The Company implemented a third-party software solution and completed the software implementation phase of the transition. The software implementation phase included data capture and portfolio segmentation amongst other items.

The Company has completed an initial parallel run using 2019 data and expects to complete a second parallel run using third quarter data during the fourth quarter.

At this time, an estimate of the impact cannot be established as the Company continues to evaluate the inputs into the model. The fourth quarter parallel run may provide a better estimate of the impact to the Company’s financial statements, but the actual impact could be significantly affected by the composition, characteristics and quality of the underlying loan portfolio at the time of adoption.


14
Table of Contents
Notes to Unaudited Consolidated Financial Statements

StandardAnticipated Date of AdoptionDescriptionEffect on Financial Statements or Other Significant Matters
ASU 2016-02

Leases (Topic 842)
The Company expects to implement this standard in 2020; however, the Company is not required to implement this standard until January 2021 if it maintains its EGC status.
Requires lessees and lessors to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements.

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

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

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

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

Note 2:Earnings Per Share
The following table presents the computation of basic and diluted earnings per
share:
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2019 2018 2019 2018
 (Dollars in thousands)
Earnings per Share       
Net income$10,384
 $6,354
 $29,173
 $9,256
Less: preferred stock dividends—
 525
 175
 1,575
Net income available to common stockholders$10,384
 $5,829
 $28,998
 $7,681
Weighted average common shares(1)
48,351,553
 37,790,614
 46,239,021
 33,918,540
Earnings per share$0.22
 $0.15
 $0.63
 $0.23
Dilutive Earnings Per Share       
Net income available to common stockholders$10,384
 $5,829
 $28,998
 $7,681
Weighted average common shares(1)
48,351,553
 37,790,614
 46,239,021
 33,918,540
Effect of dilutive shares(1)
812,996 988,010 842,706 1,133,888
Weighted average dilutive common shares(1)
49,164,549
 38,778,624
 47,081,727
 35,052,428
Diluted earnings per share$0.21
 $0.15
 $0.61
 $0.22
        
SARs, RSUs, RSAs, PRSUs, PSSs not included because to do so would be antidilutive(1)
541,556
 442,452
 507,167
 273,180
        
1 Share data has been adjusted to reflect a 2-for-1 stock split effected in the form of a dividend on December 21, 2018.


Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
(Dollars in thousands except per share data)
Earnings per Share
Net income available to common stockholders
$
17,280
$
21,000
$
49,653
$
48,612
Weighted average common shares
49,266,811
50,990,113
49,755,184
51,368,957
Earnings per share
$
0.35
$
0.41
$
1.00
$
0.95
Diluted Earnings per Share
Net income available to common stockholders
$
17,280
$
21,000
$
49,653
$
48,612
Weighted average common shares
49,266,811
50,990,113
49,755,184
51,368,957
Effect of dilutive shares
454,682
615,608
525,409
699,257
Weighted average dilutive common shares
49,721,493
51,605,721
50,280,593
52,068,214
Diluted earnings per share
$
0.35
$
0.41
$
0.99
$
0.93
Stock-based awards not included because to do so would be
antidilutive
529,336
587,200
334,725
657,887
15
Table of Contents
Notes to Unaudited Consolidated Financial Statements

Note 3:Securities
Available-for-Sale Debt and Equity Securities
The amortized cost and approximate fair values, together with gross unrealized
gains and losses, of period end available-for-sale debt and equity
securities consisted of the following:
 September 30, 2019
 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Approximate Fair Value
 (Dollars in thousands)
Available-for-sale debt securities       
Mortgage-backed - GSE residential$158,897
 $2,009
 $192
 $160,714
Collateralized mortgage obligations - GSE residential147,917
 1,002
 244
 148,675
State and political subdivisions398,963
 21,051
 5
 420,009
Corporate bonds1,444
 92
 —
 1,536
Total available-for-sale debt securities707,221
 24,154
 441
 730,934
Equity securities       
Mutual funds2,179
 —
 20
 2,159
Total equity securities2,179
 —
 20
 2,159
Total available-for-sale securities$709,400
 $24,154
 $461
 $733,093
 December 31, 2018
 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Approximate Fair Value
 (Dollars in thousands)
Available-for-sale debt securities       
Mortgage-backed - GSE residential$131,215
 $162
 $2,090
 $129,287
Collateralized mortgage obligations - GSE residential154,110
 287
 1,771
 152,626
State and political subdivisions378,595
 3,908
 4,445
 378,058
Corporate bonds1,613
 70
 26
 1,657
Total available-for-sale debt securities665,533
 4,427
 8,332
 661,628
Equity securities       
Mutual funds2,141
 —
 91
 2,050
Total equity securities2,141
 —
 91
 2,050
Total available-for-sale securities$667,674
 $4,427
 $8,423
 $663,678


The carrying value of securities pledged as collateral was $36.6 million and $108.6 million at
September 30, 20192022
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Approximate
Fair Value
(Dollars in thousands)
Available-for-sale securities
Mortgage-backed - GSE residential
$
178,287
$
-
$
27,761
$
150,526
Collateralized mortgage obligations - GSE residential
12,489
-
752
11,737
State and political subdivisions
568,863
299
79,696
489,466
Corporate bonds
5,110
13
325
4,798
Total available-for-sale securities
$
764,749
$
312
$
108,534
$
656,527
Notes to Condensed Consolidated Financial Statements
(unaudited)
16
December 31, 2018, respectively.2021

Amortized

Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Approximate
Fair Value
(Dollars in thousands)
Available-for-sale securities
Mortgage-backed - GSE residential
$
161,675
$
1,809
$
1,774
$
161,710
Collateralized mortgage obligations - GSE residential
18,130
311
10
18,431
State and political subdivisions
532,906
29,329
767
561,468
Corporate bonds
4,241
119
-
4,360
Total available-for-sale securities
$
716,952
$
31,568
$
2,551
$
745,969
As of September 30, 2022, the available-for-sale securities had $
16
6
million of accrued interest, excluded from the amortized cost
Table of Contentsbasis.
Notes to Unaudited Consolidated Financial Statements

The amortized cost and fair value of available-for-sale debt securities at September
30, 2019,2022, by contractual maturity, are shown
below:
 September 30, 2019
 Within After One to After Five to After  
 One Year Five Years Ten Years Ten Years Total
 (Dollars in thousands)
Available-for-sale debt securities         
Mortgage-backed - GSE residential(1)
         
Amortized cost$—
 $—
 $1,411
 $157,486
 $158,897
Estimated fair value—
 —
 1,471
 159,243
 160,714
Collateralized mortgage obligations - GSE residential(1)
         
Amortized cost—
 —
 2,876
 145,041
 147,917
Estimated fair value—
 —
 3,011
 145,664
 148,675
State and political subdivisions         
Amortized cost—
 3,580
 40,410
 354,973
 398,963
Estimated fair value—
 3,674
 43,071
 373,264
 420,009
Corporate bonds         
Amortized cost—
 —
 1,444
 —
 1,444
Estimated fair value—
 —
 1,536
 —
 1,536
Total available-for-sale debt securities         
Amortized cost—

3,580

46,141

657,500

707,221
Estimated fair value$—

$3,674

$49,089

$678,171

$730,934
(1) Actual maturities may differ from contractual maturities because issuers may have the rights to call or prepay obligations with or without prepayment penalties.
September 30, 2022

Within
After One to
After Five to
After
One Year
Five Years
Ten Years
Ten Years
Total
(Dollars in thousands)
Available-for-sale securities
Mortgage-backed - GSE residential
(1)
Amortized cost
$
-
$
24
$
105
$
178,158
$
178,287
Estimated fair value
$
-
$
23
$
101
$
150,402
$
150,526
Weighted average yield
(2)
-
%
4.78
%
4.01
%
2.06
%
2.06
%
Collateralized mortgage obligations -
GSE residential
(1)
Amortized cost
$
-
$
-
$
2,365
$
10,124
$
12,489
Estimated fair value
$
-
$
-
$
2,241
$
9,496
$
11,737
Weighted average yield
(2)
-
%
-
%
2.77
%
2.27
%
2.37
%
State and political subdivisions
Amortized cost
$
1,127
$
5,028
$
112,642
$
450,066
$
568,863
Estimated fair value
$
1,131
$
5,070
$
110,310
$
372,955
$
489,466
Weighted average yield
(2)
3.37
%
3.88
%
3.26
%
2.73
%
2.85
%
Corporate bonds
Amortized cost
$
-
$
498
$
4,612
$
-
$
5,110
Estimated fair value
$
-
$
501
$
4,297
$
-
$
4,798
Weighted average yield
(2)
-
%
6.22
%
4.31
%
-
%
4.49
%
Total available-for-sale securities
Amortized cost
$
1,127
$
5,550
$
119,724
$
638,348
$
764,749
Estimated fair value
$
1,131
$
5,594
$
116,949
$
532,853
$
656,527
Weighted average yield
(2)
3.37
%
4.09
%
3.29
%
2.53
%
2.66
%
(1)
Actual maturities may differ from contractual maturities because issuers may have
the rights to call or prepay obligations with or
without prepayment penalties.
(2)
Yields are calculated based on amortized cost.
Notes to Condensed Consolidated Financial Statements
(unaudited)
17
The following tables show 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, that are not deemed to be other-than-temporarily impaired, aggregated by investment class and length of time that individual
securities have been in a continuous unrealized loss position at
September 30, 20192022 and December 31, 2018:2021:
 September 30, 2019
 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 Debt Securities            
Mortgage-backed - GSE residential$3,988
 $4
 1
 $27,889
 $188
 5
 $31,877
 $192
 6
Collateralized mortgage obligations - GSE residential48,851
 149
 6
 9,792
 95
 10
 58,643
 244
 16
State and political subdivisions2,952
 4
 3
 146
 1
 1
 3,098
 5
 4
Corporate bonds—
 —
 0
 —
 —
 0
 —
 —
 0
Total temporarily impaired debt securities$55,791
 $157
 10
 $37,827
 $284
 16
 $93,618
 $441
 26


September 30, 2022
Less than 12 Months
12 Months or More
Total
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
Number of
Securities
(Dollars in thousands)
Available-for-sale
securities
Mortgage-backed -
GSE residential
$
104,743
$
16,106
43
$
45,783
$
11,655
14
$
150,526
$
27,761
57
Collateralized
mortgage obligations
- GSE residential
11,430
740
18
307
12
1
11,737
752
19
State and political
subdivisions
410,905
55,588
344
48,255
24,108
39
459,160
79,696
383
Corporate bonds
4,535
325
4
-
-
-
4,535
325
4
Total temporarily
impaired securities
$
531,613
$
72,759
409
$
94,345
$
35,775
54
$
625,958
$
108,534
463
17
December 31, 2021
Less than 12 Months
12 Months or More
Total
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
Number of
Securities
(Dollars in thousands)
Available-for-sale
securities
Mortgage-backed -
GSE residential
$
87,306
$
1,774
16
$
-
$
-
-
$
87,306
$
1,774
16
Collateralized
mortgage obligations
- GSE residential
803
10
2
-
-
-
803
10
2
State and political
subdivisions
72,915
762
39
1,310
5
4
74,225
767
43
Corporate bonds
-
-
-
-
-
-
-
-
-
Total temporarily
impaired securities
$
161,024
$
2,546
57
$
1,310
$
5
4
$
162,334
$
2,551
61
Table of Contents
Notes to Unaudited Consolidated Financial Statements

 December 31, 2018
 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 Debt Securities            
Mortgage-backed - GSE residential$66,232
 $369
 10
 $44,280
 $1,721
 11
 $110,512
 $2,090
 21
Collateralized mortgage obligations - GSE residential4,639
 42
 1 68,362
 1,729
 20 73,001
 1,771
 21
State and political subdivisions85,181
 1,210
 68 97,721
 3,235
 74 182,902
 4,445
 142
Corporate bonds723
 26
 1
 —
 —
 0
 723
 26
 1
Total temporarily impaired debt securities$156,775
 $1,647
 80
 $210,363
 $6,685
 105
 $367,138
 $8,332
 185


The unrealized lossesBased on the Company’s investments in state and political subdivisions were caused by interest rate changes and adjustments inevaluation at September 30, 2022, under
the new impairment model, an allowance for credit ratings. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Thelosses has
no
t been recorded
no
r have unrealized losses on the Company’s investments in collateralized mortgage-backed securities and corporate bonds were caused by interest rate changes and market assumptions about prepayment speeds.
been recognized into income. The Company expects to recover the amortized cost basis over the termissuers of the securities excludingare of high
credit quality and
have a previously disclosed impaired security. Because the Companylong history of no credit losses; management does not intend to sell, the investments and
it is not more likely thanthat management will not the Company will be required to sell
the investments before recoverysecurities prior to their anticipated recovery;
and the decline in fair value is largely attributed to changes in interest rates and other
market conditions. The issuers continue to make timely principal and interest
payments.
Notes to Condensed Consolidated Financial Statements
(unaudited)
18
The following tables show the Company does not consider those investments to be other-than-temporarily impaired (‘‘OTTI’’) at gross gains and losses on securities that matured
or were sold:
For the Three Months Ended
For the Nine Months Ended
September 30, 2019.2022
Gross gains of $506.2 thousand and $2.0 million and gross losses of $39.4 thousand and $1.4 million resulting from sales of available-for-sale securities were realized for the nine-months ended September 30, 2019 and 2018, respectively.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)
For the Three Months Ended
For the Nine Months Ended
September 30, 2021
September 30, 2021
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Loss
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Loss
(Dollars in thousands)
Available-for-sale securities
$
1,125
$
(79)
$
1,046
$
1,151
$
(108)
$
1,043
Equity Securities

Equity securities consist of a $
2
million investment in a Community Reinvestment Act (“CRA”) mutual fund and $
2
million in
three private equity funds. Equity securities are included in “other assets” on
the Consolidated Balance Sheets.
The Company elected a measurement alternative for the three private
equity funds that allows the securities to remain at cost until
an impairment is identified or an observable price change for an identical
or similar investment of the same issuer occurs. Impairment is
recorded when there is evidence that the expected fair value of the equity securities was $2.2 million and $2.1 million at
investment has declined to below the recorded cost. No such events
occurred during the three or nine-month periods ended September
30, 2019 and December 31, 2018, respectively. Prior to January 1, 2019, equity securities were stated at fair value with unrealized gains and losses reported as a separate component of accumulated other comprehensive income, net of tax. A net unrealized loss of $68.7 thousand had been recognized in accumulated other comprehensive income as of December 31, 2018. On January 1, 2019, the unrealized loss was reclassified out of accumulated other comprehensive income and into retained earnings with subsequent changes in fair value being recognized in other non-interest income. 2022.
The following is a summary of the recorded fair value and the unrealized and realized gains and losses on equity
securities recognized in net income on available-for-sale equity securities:
 September 30, 2019
 Three months ended Nine months ended
 (Dollars in thousands)
Net gains recognized during the period on equity securities$16
 $72
Less: net gains recognized during the period on equity securities sold during the period—
 —
Unrealized gain recognized during the reporting period on equity securities still held at the reporting date$16
 $72
income:


Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
(Dollars in thousands)
Net gains (losses) recognized during the reporting period on equity securities
$
(87)
$
(6,210)
$
(261)
$
(6,243)
Less: net gains recognized during the reporting period on equity securities sold
during the reporting period
-
-
-
-
Unrealized gains (losses) recognized during the reporting period on equity
securities still held at the reporting date
$
(87)
$
(6,210)
$
(261)
$
(6,243)
18
Notes to Condensed Consolidated Financial Statements
(unaudited)
19
Note 4:
Loans and Allowance for Credit Losses
Table of ContentsLoan Portfolio Segments
Notes to Unaudited Consolidated Financial Statements

Note 4:Loans and Allowance for Loan Losses
Categories of loans at September 30, 20192022 and December 31, 20182021 include:
 September 30, 2019 December 31, 2018
 (Dollars in thousands)
Commercial$1,312,647
 $1,134,414
Energy396,132
 358,283
Commercial real estate993,153
 846,561
Construction and land development527,582
 440,032
Residential real estate365,435
 246,275
Equity lines of credit22,192
 20,286
Consumer installment21,552
 23,528
Gross loans3,638,693

3,069,379
Less: Allowance for loan losses42,995
 37,826
Less: Net deferred loan fees and costs8,901

8,632
Net loans$3,586,797
 $3,022,921

September 30, 2022

December 31, 2021
The(Dollars in thousands)
Commercial and industrial
$
857,836
$
843,024
Commercial and industrial lines of credit
831,187
617,398
Energy
178,855
278,579
Commercial real estate
1,400,338
1,278,479
Construction and land development
674,041
574,852
Residential real estate
393,867
360,046
Multifamily real estate
275,795
240,230
Consumer
65,727
63,605
Loans, net of unearned fees
4,677,646
4,256,213
Less: allowance for credit losses
(1)
55,864
58,375
Loans, net
$
4,621,782
$
4,197,838
(1)
As of December 31, 2021, this line represents the allowance for loan lossesand lease losses. See
further discussion in "Note 1: Nature of
Operations and Summary of Significant Accounting Policies.”
Accrued interest of $
15
million and $
10
million at September 30, 2022 and December 31, 2021, respectively,
presented in “other
assets” on the Consolidated Balance Sheets is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged againstexcluded from the allowance when management believesamortized cost basis disclosed
in the above table.
The Company aggregates the loan balanceportfolio by similar credit risk characteristics. The
loan segments are described in additional
detail below:
●
Commercial and Industrial
- The category includes loans to commercial and industrial customers for use in property,
plant, and equipment purchases and expansions. Loan terms typically require
principal and interest payments that
decrease the outstanding loan balance.
Repayment is not collectible. Subsequent recoveries, if any, are credited toprimarily from the allowance.cash flow of a borrower’s principal business
operation. Credit risk is driven by creditworthiness of a borrower and
the economic conditions that impact the cash flow
stability from business operations.
The allowancecategory also includes the remaining PPP loans outstanding. These loans were established by the
Coronavirus Aid,
Relief, and Economic Security Act which authorized forgivable loans to small businesses to pay their employees during
the COVID-19 pandemic. The loans are
100
percent guaranteed by the Small Business Administration (“SBA”) and
repayment is primarily dependent on the borrower’s cash flow or SBA repayment approval.
●
Commercial and Industrial Lines of Credit
– The category includes lines of credit to commercial and industrial
customers for working capital needs. The loan lossesterms typically require interest-only
payments, mature in one year, and
require the full balance paid-off at maturity. Lines of credit allow the borrower
to drawdown and repay the line of credit
based on the customer’s cash flow needs. Repayment is evaluatedprimarily from the operating
cash flow of the business. Credit
risk is driven by creditworthiness of a borrower and the economic conditions that impact
the cash flow stability from
business operations.
●
Energy
- The category includes loans to oil and natural gas customers for use in financing working
capital needs,
exploration and production activities, and acquisitions. The loans are repaid primarily
from the conversion of crude oil
and natural gas to cash. Credit risk is driven by creditworthiness of a borrower and the
economic conditions that impact
the cash flow stability from business operations. Energy loans are typically collateralized
with the underlying oil and gas
reserves.
Notes to Condensed Consolidated Financial Statements
(unaudited)
20
●
Commercial Real Estate
- The category includes loans that typically involve larger principal amounts and repayment
of
these loans is generally dependent on the successful operations of the property
securing the loan or the business
conducted on the property securing the loan. These are viewed primarily as cash flow loans and
secondarily as loans
secured by real estate. Credit risk may be impacted by the creditworthiness of
a regular basis by managementborrower, property values and isthe local
economies in the borrower’s market areas.
●
Construction and Land Development
- The category includes loans that are usually based upon management’s periodic reviewestimates of its abilitycosts and
estimated value of the completed project and include independent appraisal reviews
and a financial analysis of the
developers and property owners. Sources of repayment include permanent
loans, sales of developed property or an
interim loan commitment from the Company until permanent financing
is obtained. These loans are higher risk than
other real estate loans due to collecttheir ultimate repayment being sensitive to interest rate changes,
general economic
conditions, and the availability of long-term financing. Credit risk may
be impacted by the creditworthiness of a
borrower, property values and the local economies in the borrower’s market
areas.
●
Residential Real Estate
- The category includes loans that are generally secured by owner-occupied
1-4 family
residences.
Repayment of these loans is primarily dependent on the personal income and
credit rating of the borrowers.
Credit risk in light these loans can be impacted by economic conditions within or outside
the borrower’s market areas that
might impact either property values or a borrower’s personal income.
●
Multifamily Real Estate -
The category includes loans that are generally secured by multifamily properties.
Repayment
of these loans is primarily dependent on occupancy rates and the personal
income of the tenants. Credit risk in these
loans can be impacted by economic conditions within or outside the
borrower’s market areas that might impact either
property values or the tenants’ personal income.
●
Consumer
- The category includes revolving lines of credit and various term loans such
as automobile loans and loans
for other personal purposes. Repayment is primarily dependent on
the personal income and credit rating of the
borrowers. Credit risk is driven by consumer economic factors (such as unemployment
and general economic conditions
in the borrower’s market area) and the creditworthiness of a borrower.
Allowance for Credit Losses
The Company established a CECL committee that meets at least quarterly to oversee the ACL methodology. The committee
estimates the ACL using relevant available information, from internal and external sources, relating to past events, current conditions,
and reasonable and supportable forecasts. The ACL represents the Company’s current estimate of lifetime credit losses inherent in the
loan portfolio at the balance sheet date. The ACL is adjusted for expected prepayments when appropriate and excludes expected
extensions, renewals, and modifications.
The ACL is the sum of three components: (i) asset specific / individual loan reserves; (ii) quantitative (formulaic or pooled)
reserves; and (iii) qualitative (judgmental) reserves.
Asset Specific -
When unique qualities cause a loan’s exposure to loss to be inconsistent with the
pool segments, the loan is
individually evaluated. Individual reserves are calculated for loans
that are risk-rated substandard and on non-accrual and loans that are
risk-rated doubtful or loss that are greater than a defined dollar threshold.
In addition, TDRs are also individually evaluated. Reserves on
asset specific loans may be based on collateral, for collateral-dependent
loans, or on quantitative and qualitative factors, including
expected cash flow, market sentiment, and guarantor support.
Quantitative
- The Company used the cohort method, which identifies and captures the balance of a pool of loans with
similar
risk characteristics as of a particular time to form a cohort. For example, the
outstanding commercial and industrial loans and
commercial and industrial lines of credit loan segments as of quarter
-end are considered cohorts. The cohort is then tracked for losses
over the remaining life of loans or until the pool is exhausted. The Company used a lookback
period of approximately six-years to
establish the cohort population. By using the historical experience, data timeframe,
the Company can establish a historical loss factor for each of its
loan segments and adjust the losses with qualitative and forecast factors.
Notes to Condensed Consolidated Financial Statements
(unaudited)
21
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, adverse situations that may affectincluding the existence, growth,
and effect of any concentrations of credit;
◾
Changes in the Institute of Supply Management’s Purchasing Manager Indices
(“PMI”) for services and manufacturing;
◾
Changes in collateral values;
◾
Changes in lending policies, procedures, and quality of loan reviews;
◾
Changes in lending staff; and
◾
Changes in competition, legal and regulatory environments
In addition to the current condition qualitative adjustments, the Company uses the
Federal Reserve’s unemployment forecast to
adjust the ACL based on forward looking guidance. The Federal Reserve’s unemployment forecast extends three-years and is eventually
reverted to the mean of six percent by year 10.
Drivers of Change in the ACL
The ACL increased by less than $
0.1
million during the three-month period ended September 30, 2022 driven by an
increase of
$
2.1
million related to loan growth, performance and economic factors, partially offset by $
1.9
million in net charge-offs and a reduction
of $
0.2
million in reserves on impaired loans. The ACL decreased by $
2.5
million between January 1, 2022 and September 30, 2022
driven by $
4.1
million in net charge-offs and a reduction of $
5.8
million in reserves on impaired loans which were partially offset by an
increase of $
7.4
million related to loan growth, performance and economic factors.
Credit Quality Indicators
Internal Credit Risk Ratings
The Company uses a weighted average risk rating factor to adjust the historical
loss factors for current events. Risk ratings
incorporate the criteria utilized by regulatory authorities to describe criticized
assets, but separate various levels of risk concentrated
within the regulatory “Pass” category. Risk ratings are established for
loans at origination and are monitored on an ongoing basis. The
rating assigned to a loan reflects the risks posed by the borrower’s abilityexpected
performance and the transaction’s structure. Performance
metrics used to repay, estimated valuedetermine a risk rating include, but are not limited to, cash flow
adequacy, liquidity, and collateral. A description of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.the
loan risk ratings follows:
Loan Grades
●
Pass (risk rating 1-4)
- The allowance consists of allocated and general components. The allocated component relates tocategory includes loans that are classified as impaired. For those loans considered satisfactory. The category includes borrowers
that are classified as impaired, 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 allowance imbalanced position in their balance sheet that has not reached a point where repayment
is established whenjeopardized. Credits are
currently protected but, if left uncorrected, the discounted cash flows (or collateral value or observable market price)potential weaknesses may
result in deterioration of the impaired loan is lower thanrepayment
prospects for the carrying valuecredit 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 loan. The general component covers unclassifiedthe 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
Notes to Condensed Consolidated Financial Statements
(unaudited)
22
individual assets classified substandard. Substandard loans include both
performing and non-performing loans and isare
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 historical charge-off experience
existing facts, conditions, and expectedvalues. Because of reasonably specific pending
factors, which may work to the advantage
and strengthening of the assets, classification as a loss given default derived from the Company’s internal risk rating process and loan categories. Other adjustmentsis deferred until its more
exact status may be made to the allowance for poolsdetermined.
●
Loss (risk rating 8)
- Credits which are considered uncollectible or of loans after an assessment of internal or external influences on credit qualitysuch little value that aretheir continuance
as a
bankable asset is not fully reflected in the historical loss or risk rating data.warranted.
The following tables summarize the activity in the allowance for loan losses by portfolio segment and disaggregated based on the Company’s impairment methodology. The allocation in one portfolio segment does not preclude its availability to absorb losses in other segments:
 Commercial Energy Commercial Real Estate Construction and Land Development Residential Real Estate Equity Lines of Credit Consumer Installment Total
 (Dollars in thousands)
Three months ended September 30, 2019            
Allowance for loan losses              
Beginning balance$22,975
 $7,300
 $7,533
 $2,602
 $2,138
 $155
 $149
 $42,852
Provision charged to expense3,535
 1,077
 (249) 414
 82
 5
 (14) 4,850
Charge-offs(1,700) (3,000) —
 —
 —
 —
 (8) (4,708)
Recoveries1
 —
 —
 —
 —
 —
 —
 1
Ending balance$24,811
 $5,377
 $7,284
 $3,016
 $2,220
 $160
 $127
 $42,995

19
Table of Contents
Notes to Unaudited Consolidated Financial Statements


Notes to Condensed Consolidated Financial Statements (unaudited)
23
 Commercial Energy Commercial Real Estate Construction and Land Development Residential Real Estate Equity Lines of Credit Consumer Installment Total
 (Dollars in thousands)
Three months ended September 30, 2018            
Allowance for loan losses              
Beginning balance$11,739
 $7,957
 $6,584
 $2,530
 $1,103
 $170
 $114
 $30,197
Provision charged to expense1,102
 1,184
 315
 137
 261
 4
 (3) 3,000
Charge-offs(97) —
 —
 —
 —
 —
 —
 (97)
Recoveries439
 —
 —
 —
 —
 —
 1
 440
Ending balance$13,183
 $9,141
 $6,899
 $2,667
 $1,364
 $174
 $112
 $33,540

 Commercial Energy Commercial Real Estate Construction and Land Development Residential Real Estate Equity Lines of Credit Consumer Installment Total
 (Dollars in thousands)
Nine months ended September 30, 2019            
Allowance for loan losses              
Beginning balance$16,584
 $10,262
 $6,755
 $2,475
 $1,464
 $159
 $127
 $37,826
Provision charged to expense11,166
 (2,461) 529
 541
 756
 1
 18
 10,550
Charge-offs(2,954) (3,000) —
 —
 —
 —
 (19) (5,973)
Recoveries15
 576
 —
 —
 —
 —
 1
 592
Ending balance$24,811
 $5,377
 $7,284
 $3,016
 $2,220
 $160
 $127
 $42,995
 Commercial Energy Commercial Real Estate Construction and Land Development Residential Real Estate Equity Lines of Credit Consumer Installment Total
 (Dollars in thousands)
Nine months ended September 30, 2018            
Allowance for loan losses              
Beginning balance$11,378
 $7,726
 $4,668
 $1,200
 $905
 $122
 $92
 $26,091
Provision charged to expense2,031
 2,671
 2,231
 1,467
 459
 77
 64
 9,000
Charge-offs(681) (1,256) —
 —
 —
 (25) (45) (2,007)
Recoveries455
 —
 —
 —
 —
 —
 1
 456
Ending balance$13,183
 $9,141
 $6,899
 $2,667
 $1,364
 $174
 $112
 $33,540


20
Table of Contents
Notes to Unaudited Consolidated Financial Statements

 Commercial Energy Commercial Real Estate Construction and Land Development Residential Real Estate Equity Lines of Credit Consumer Installment Total
 (Dollars in thousands)
September 30, 2019               
Ending balance               
Individually evaluated for impairment$10,398
 $854
 $343
 $—
 $219
 $—
 $—
 $11,814
Collectively evaluated for impairment$14,413
 $4,523
 $6,941
 $3,016
 $2,001
 $160
 $127
 $31,181
Allocated to loans:               
Individually evaluated for impairment$66,162
 $10,226
 $16,544
 $—
 $2,537
 $—
 $—
 $95,469
Collectively evaluated for impairment$1,246,485
 $385,906
 $976,609
 $527,582
 $362,898
 $22,192
 $21,552
 $3,543,224
Ending balance$1,312,647
 $396,132
 $993,153
 $527,582
 $365,435
 $22,192
 $21,552
 $3,638,693

 Commercial Energy Commercial Real Estate Construction and Land Development Residential Real Estate Equity Lines of Credit Consumer Installment Total
 (Dollars in thousands)
December 31, 2018               
Ending balance               
Individually evaluated for impairment$5,814
 $3,108
 $473
 $—
 $5
 $—
 $—
 $9,400
Collectively evaluated for impairment$10,770
 $7,154
 $6,282
 $2,475
 $1,459
 $159
 $127
 $28,426
Allocated to loans:               
Individually evaluated for impairment$78,147
 16,250
 $15,227
 $—
 $2,027
 $—
 $—
 $111,651
Collectively evaluated for impairment$1,056,267
 $342,033
 $831,334
 $440,032
 $244,248
 $20,286
 $23,528
 $2,957,728
Ending balance$1,134,414
 $358,283
 $846,561
 $440,032
 $246,275
 $20,286
 $23,528
 $3,069,379


Credit Risk Profile

The Company analyzes its loan portfolio based on an internal rating category (grades 1 - 8), portfolio segment and payment activity. These categories are utilized to develop the associated allowance for loan losses. A description of the loan grades and segments follows:
Loan Grades
•
Pass & Watch (risk rating 1 - 4) - Considered satisfactory. 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) - Borrowers 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) - Credits generally exhibit a 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.
•
Doubtful (risk rating 7) - Credits which exhibit weaknesses inherent in a substandard credit with the added characteristic that these weaknesses make collection or liquidation in full highly questionable and improbable based on existing facts, conditions and values. Because of reasonably specific pending factors, which may work to the advantage and strengthening of the assets, classification as a loss is deferred until its more exact status may be determined.
•
Loss (risk rating 8) - Credits which are considered uncollectible or of such little value that their continuance as a bankable asset is not warranted.
Loan Portfolio Segments
•
Commercial - Includes loans to commercial customers for use in financing working capital needs, equipment purchases and expansions. Repayment is primarily from the cash flow of a borrower’s principal business operation. Credit risk is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability from business operations.
•
Energy - Includes loans to oil and natural gas customers for use in financing working capital needs, exploration and production activities, and acquisitions. The loans in this category 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.
•
Commercial Real Estate - Loans typically involve larger principal amounts, and repayment of these loans is generally dependent on the successful operations of the property securing the loan or the business conducted on the property securing the loan. These are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Credit risk may be impacted by the creditworthiness of a borrower, property values and the local economies in the company’s market areas.
•
Construction and Land Development - Loans are usually based upon estimates of costs and estimated value of the completed project and include independent appraisal reviews and a financial analysis of the developers and property owners. Sources of repayment include permanent loans, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are higher risk than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, general economic conditions and the availability of long-term financing. Credit risk may be impacted by the creditworthiness of a borrower, property values and the local economies in the company’s market areas.
•
Residential Real Estate - The loans are generally secured by owner-occupied 1-4 family residences. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers. Credit risk in these loans can be impacted by economic conditions within or outside the company’s market areas that might impact either property values or a borrower’s personal income. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over many borrowers.
•
Equity Lines of Credit - The loans are revolving lines of credit extended to consumers secured through a first or second mortgage on their personal residence. Repayment is primarily dependent on the personal income and credit rating of the borrowers. Credit risk in these loans may be impacted by economic conditions within the company’s market areas that may impact either property values or a borrower’s personal income.
•
Consumer Installment - The loan portfolio consists of various term and line of credit loans such as automobile loans and loans for other personal purposes. Repayment comes from a borrower’s income sources that are typically independent of the loan purpose. Credit risk is driven by consumer economic factors (such as unemployment and general economic conditions in the Company’s market area) and the creditworthiness of a borrower.
The following tables present the credit risk profile of the Company’s loan portfolio
based on an internal rating category (grades 1 - 8), portfolio segmentcategories and payment activity:loan segments:
 Pass & Watch Special Mention Substandard Doubtful Loss Total
 (Dollars in thousands)
September 30, 2019           
Commercial$1,217,280
 $29,350
 $66,017
 $—
 $—
 $1,312,647
Energy378,533
 10,342
 2,580
 4,677
 —
 396,132
Commercial real estate976,262
 7,529
 8,402
 960
 —
 993,153
Construction and land development527,582
 —
 —
 —
 —
 527,582
Residential real estate362,625
 273
 2,537
 —
 —
 365,435
Equity lines of credit22,192
 —
 —
 —
 —
 22,192
Consumer installment21,552
 —
 —
 —
 —
 21,552
 $3,506,026
 $47,494
 $79,536
 $5,637
 $—
 $3,638,693
 Pass & Watch Special Mention Substandard Doubtful Loss Total
 (Dollars in thousands)
December 31, 2018           
Commercial$1,056,505
 $—
 $73,824
 $4,085
 $—
 $1,134,414
Energy339,720
 5,376
 13,187
 —
 —
 358,283
Commercial real estate831,290
 6,950
 7,209
 1,112
 —
 846,561
Construction and land development440,032
 —
 —
 —
 —
 440,032
Residential real estate244,178
 70
 2,027
 —
 —
 246,275
Equity lines of credit20,286
 —
 —
 —
 —
 20,286
Consumer installment23,528
 —
 —
 —
 —
 23,528
 $2,955,539
 $12,396
 $96,247
 $5,197
 $—
 $3,069,379


The Company evaluates the loan risk grading system definitions, portfolio segment definitions and allowance for loan loss methodology on an ongoing basis. No significant changes were made to either during the past year.


As of September 30, 2022
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
Loans
Revolving
Loans
converted to
Term Loans
Total
(Dollars in thousands)
Commercial and industrial
Pass
$
285,880
$
287,991
$
70,591
$
55,167
$
55,665
$
21,134
$
-
$
30,392
$
806,820
Special mention
1,283
2,241
12,063
996
302
112
-
6,501
23,498
Substandard - accrual
-
455
1,485
2,165
758
46
-
20,416
25,325
Substandard - non-
accrual
-
104
-
6
1,383
700
-
-
2,193
Doubtful
-
-
-
-
-
-
-
-
-
Total
$
287,163
$
290,791
$
84,139
$
58,334
$
58,108
$
21,992
$
-
$
57,309
$
857,836
Commercial and industrial
lines of credit
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
780,710
$
-
$
780,710
Special mention
-
-
-
-
-
-
32,814
-
32,814
Substandard - accrual
-
-
-
-
-
-
11,188
-
11,188
Substandard - non-
accrual
-
-
-
-
-
-
6,475
-
6,475
Doubtful
-
-
-
-
-
-
-
-
-
Total
$
-
$
-
$
-
$
-
$
-
$
-
$
831,187
$
-
$
831,187
Energy
Pass
$
7,446
$
403
$
246
$
-
$
7
$
-
$
156,119
$
188
$
164,409
Special mention
-
-
-
-
-
-
7,152
-
7,152
Substandard - accrual
-
-
-
-
-
-
2,131
-
2,131
Substandard - non-
accrual
-
-
-
-
-
-
3,375
-
3,375
Doubtful
-
-
-
-
-
-
1,788
-
1,788
Total
$
7,446
$
403
$
246
$
-
$
7
$
-
$
170,565
$
188
$
178,855
21
Notes to Condensed Consolidated Financial Statements (unaudited)
24
As of September 30, 2022
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
Loans
Revolving
Loans
converted to
Term Loans
Total
(Dollars in thousands)
Commercial real estate
Pass
$
270,669
$
259,299
$
145,530
$
110,155
$
67,990
$
74,465
$
293,169
$
98,783
$
1,320,060
Special mention
11,927
9,870
-
422
6,280
290
2,420
33,086
64,295
Substandard - accrual
10,535
-
327
-
-
1,232
-
992
13,086
Substandard - non-
accrual
408
2,489
-
-
-
-
-
-
2,897
Doubtful
-
-
-
-
-
-
-
-
-
Total
$
293,539
$
271,658
$
145,857
$
110,577
$
74,270
$
75,987
$
295,589
$
132,861
$
1,400,338
Construction and land development
Pass
$
205,062
$
290,753
$
126,364
$
24,323
$
3,663
$
1,367
$
14,679
$
-
$
666,211
Special mention
-
7,830
-
-
-
-
-
-
7,830
Substandard - accrual
-
-
-
-
-
-
-
-
-
Substandard - non-
accrual
-
-
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
-
-
-
Total
$
205,062
$
298,583
$
126,364
$
24,323
$
3,663
$
1,367
$
14,679
$
-
$
674,041
Residential real estate
Pass
$
64,540
$
79,235
$
120,891
$
46,023
$
38,417
$
35,590
$
1,894
$
-
$
386,590
Special mention
253
3,290
-
231
-
-
-
-
3,774
Substandard - accrual
142
-
3,166
-
-
-
-
-
3,308
Substandard - non-
accrual
-
-
-
-
-
-
-
195
195
Doubtful
-
-
-
-
-
-
-
-
-
Total
$
64,935
$
82,525
$
124,057
$
46,254
$
38,417
$
35,590
$
1,894
$
195
$
393,867
Table of Contents
Notes to Unaudited Consolidated Financial Statements

Notes to Condensed Consolidated Financial Statements (unaudited)
25
As of September 30, 2022
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
Loans
Revolving
Loans
converted to
Term Loans
Total
(Dollars in thousands)
Multifamily real estate
Pass
$
78,194
$
33,272
$
5,363
$
12,005
$
3,078
$
822
$
126,518
$
16,506
$
275,758
Special mention
-
-
-
-
-
-
-
37
37
Substandard - accrual
-
-
-
-
-
-
-
-
-
Substandard - non-
accrual
-
-
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
-
-
-
Total
$
78,194
$
33,272
$
5,363
$
12,005
$
3,078
$
822
$
126,518
$
16,543
$
275,795
Consumer
Pass
$
11,629
$
2,512
$
1,914
$
221
$
110
$
30
$
49,311
$
-
$
65,727
Special mention
-
-
-
-
-
-
-
-
-
Substandard - accrual
-
-
-
-
-
-
-
-
-
Substandard - non-
accrual
-
-
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
-
-
-
Total
$
11,629
$
2,512
$
1,914
$
221
$
110
$
30
$
49,311
$
-
$
65,727
Total
Pass
$
923,420
$
953,465
$
470,899
$
247,894
$
168,930
$
133,408
$
1,422,400
$
145,869
$
4,466,285
Special mention
13,463
23,231
12,063
1,649
6,582
402
42,386
39,624
139,400
Substandard - accrual
10,677
455
4,978
2,165
758
1,278
13,319
21,408
55,038
Substandard - non-
accrual
408
2,593
-
6
1,383
700
9,850
195
15,135
Doubtful
-
-
-
-
-
-
1,788
-
1,788
Total
$
947,968
$
979,744
$
487,940
$
251,714
$
177,653
$
135,788
$
1,489,743
$
207,096
$
4,677,646
Notes to Condensed Consolidated Financial Statements (unaudited)
26
Loan Portfolio Aging Analysis
The following tables present the Company’s loan portfolio aging analysis as of the recorded investment in loans asSeptember
30, 2022:
As of September 30, 20192022
Amortized Cost Basis by Origination Year and December 31, 2018: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
$
600
$
-
$
-
$
15
$
-
$
-
$
-
$
-
$
615
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
124
7
75
1,383
655
-
-
2,244
Total past due
600
124
7
90
1,383
655
-
-
2,859
Current
286,563
290,667
84,132
58,244
56,725
21,337
-
57,309
854,977
Total
$
287,163
$
290,791
$
84,139
$
58,334
$
58,108
$
21,992
$
-
$
57,309
$
857,836
Greater than 90 days
and accruing
$
-
$
20
$
7
$
73
$
-
$
-
$
-
$
-
$
100
Commercial and industrial lines of credit
30-59 days
$
-
$
-
$
-
$
-
$
-
$
-
$
3,796
$
-
$
3,796
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
-
-
-
-
-
1,568
-
1,568
Total past due
-
-
-
-
-
-
5,364
-
5,364
Current
-
-
-
-
-
-
825,823
-
825,823
Total
$
-
$
-
$
-
$
-
$
-
$
-
$
831,187
$
-
$
831,187
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
83
$
-
$
83
Energy
30-59 days
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
-
-
-
-
-
5,163
-
5,163
Total past due
-
-
-
-
-
-
5,163
-
5,163
Current
7,446
403
246
-
7
-
165,402
188
173,692
Total
$
7,446
$
403
$
246
$
-
$
7
$
-
$
170,565
$
188
$
178,855
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Total Past Due Current Total Loans Receivable Loans >= 90 Days and Accruing
 (Dollars in thousands)
September 30, 2019             
Commercial$42,039
 $2,785
 $1,101
 $45,925
 $1,266,722
 $1,312,647
 $—
Energy7,122
 —
 5,319
 12,441
 383,691
 396,132
 642
Commercial real estate317
 —
 93
 410
 992,743
 993,153
 —
Construction and land development12,345
 —
 —
 12,345
 515,237
 527,582
 —
Residential real estate68
 —
 2,012
 2,080
 363,355
 365,435
 —
Equity lines of credit—
 —
 —
 —
 22,192
 22,192
 —
Consumer installment50
 —
 —
 50
 21,502
 21,552
 —
 $61,941
 $2,785
 $8,525
 $73,251
 $3,565,442
 $3,638,693
 $642
 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Total Past Due Current Total Loans Receivable Loans >= 90 Days and Accruing
 (Dollars in thousands)
December 31, 2018             
Commercial$1,040
 $—
 $4,137
 $5,177
 $1,129,237
 $1,134,414
 $—
Energy1,994
 —
 9,218
 11,212
 347,071
 358,283
 —
Commercial real estate—
 425
 2,253
 2,678
 843,883
 846,561
 —
Construction and land development—
 —
 —
 —
 440,032
 440,032
 —
Residential real estate28
 194
 —
 222
 246,053
 246,275
 —
Equity lines of credit—
 —
 —
 —
 20,286
 20,286
 —
Consumer installment—
 —
 —
 —
 23,528
 23,528
 —
 $3,062
 $619
 $15,608
 $19,289
 $3,050,090
 $3,069,379
 $—

Impaired Loans

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. The intent of concessions is to maximize collection.

Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans.

��
Notes to Condensed Consolidated Financial Statements (unaudited)
27
As of September 30, 2022
Amortized Cost Basis by Origination Year and Past Due Status
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
loans
Revolving
loans
converted to
term loans
Total
(Dollars in thousands)
Commercial real estate
30-59 days
$
408
$
-
$
-
$
-
$
-
$
195
$
-
$
-
$
603
60-89 days
-
-
-
-
-
1,032
-
-
1,032
Greater than 90 days
-
-
-
-
-
-
-
-
-
Total past due
408
-
-
-
-
1,227
-
-
1,635
Current
293,131
271,658
145,857
110,577
74,270
74,760
295,589
132,861
1,398,703
Total
$
293,539
$
271,658
$
145,857
$
110,577
$
74,270
$
75,987
$
295,589
$
132,861
$
1,400,338
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Construction and land development
30-59 days
$
-
$
-
$
-
$
-
$
-
$
-
$
10,629
$
-
$
10,629
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
-
-
-
-
-
-
-
-
Total past due
-
-
-
-
-
-
10,629
-
10,629
Current
205,062
298,583
126,364
24,323
3,663
1,367
4,050
-
663,412
Total
$
205,062
$
298,583
$
126,364
$
24,323
$
3,663
$
1,367
$
14,679
$
-
$
674,041
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Residential real estate
30-59 days
$
142
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
142
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
120
-
-
-
-
-
-
120
Total past due
142
120
-
-
-
-
-
-
262
Current
64,793
82,405
124,057
46,254
38,417
35,590
1,894
195
393,605
Total
$
64,935
$
82,525
$
124,057
$
46,254
$
38,417
$
35,590
$
1,894
$
195
$
393,867
Greater than 90 days
and accruing
$
-
$
120
$
-
$
-
$
-
$
-
$
-
$
-
$
120
22
Notes to Condensed Consolidated Financial Statements (unaudited)
28
As of September 30, 2022
Amortized Cost Basis by Origination Year and Past Due Status
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
loans
Revolving
loans
converted to
term loans
Total
(Dollars in thousands)
Multifamily real estate
30-59 days
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
60-89 days
4,566
-
-
-
-
-
-
-
4,566
Greater than 90 days
-
-
-
-
-
-
-
-
-
Total past due
4,566
-
-
-
-
-
-
-
4,566
Current
73,628
33,272
5,363
12,005
3,078
822
126,518
16,543
271,229
Total
$
78,194
$
33,272
$
5,363
$
12,005
$
3,078
$
822
$
126,518
$
16,543
$
275,795
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Consumer
30-59 days
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
-
-
-
-
-
-
-
-
Total past due
-
-
-
-
-
-
-
-
-
Current
11,629
2,512
1,914
221
110
30
49,311
-
65,727
Total
$
11,629
$
2,512
$
1,914
$
221
$
110
$
30
$
49,311
$
-
$
65,727
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Total
30-59 days
$
1,150
$
-
$
-
$
15
$
-
$
195
$
14,425
$
-
$
15,785
60-89 days
4,566
-
-
-
-
1,032
-
-
5,598
Greater than 90 days
-
244
7
75
1,383
655
6,731
-
9,095
Total past due
5,716
244
7
90
1,383
1,882
21,156
-
30,478
Current
942,252
979,500
487,933
251,624
176,270
133,906
1,468,587
207,096
4,647,168
Total
$
947,968
$
979,744
$
487,940
$
251,714
$
177,653
$
135,788
$
1,489,743
$
207,096
$
4,677,646
Greater than 90 days
and accruing
$
-
$
140
$
7
$
73
$
-
$
-
$
83
$
-
$
303
Table of Contents
Notes to Unaudited Consolidated Financial Statements

The following tables present impaired loans for the periods ended September 30, 2019 and December 31, 2018:
 
 Unpaid 
 Recorded Balance Principal Balance Specific Allowance
 (Dollars in thousands)
September 30, 2019     
Loans without a specific valuation     
Commercial$25,770
 $25,770
 $—
Energy2,969
 2,969
 —
Commercial real estate12,501
 12,501
 —
Construction and land development—
 —
 —
Residential real estate2,195
 2,195
 —
Equity lines of credit—
 —
 —
Consumer installment—
 —
 —
Loans with a specific valuation     
Commercial40,392
 40,392
 10,398
Energy7,257
 7,257
 854
Commercial real estate4,043
 4,043
 343
Construction and land development—
 —
 —
Residential real estate342
 342
 219
Equity lines of credit—
 —
 —
Consumer installment—
 —
 —
Total     
Commercial66,162
 66,162
 10,398
Energy10,226
 10,226
 854
Commercial real estate16,544
 16,544
 343
Construction and land development—
 —
 —
Residential real estate2,537
 2,537
 219
Equity lines of credit—
 —
 —
Consumer installment—
 —
 —
 $95,469
 $95,469
 $11,814

23
Table of Contents
Notes to Unaudited Consolidated Financial Statements

 
 Unpaid 
 Recorded Balance Principal Balance Specific Allowance
 (Dollars in thousands)
December 31, 2018     
Loans without a specific valuation     
Commercial$40,151
 $40,151
 $—
Energy2,789
 2,789
 —
Commercial real estate7,059
 7,059
 —
Construction and land development—
 —
 —
Residential real estate1,964
 1,964
 —
Equity lines of credit—
 —
 —
Consumer installment—
 —
 —
Loans with a specific valuation     
Commercial37,996
 37,996
 5,814
Energy13,461
 13,461
 3,108
Commercial real estate8,168
 8,168
 473
Construction and land development—
 —
 —
Residential real estate63
 63
 5
Equity lines of credit—
 —
 —
Consumer installment—
 —
 —
Total     
Commercial78,147
 78,147
 5,814
Energy16,250
 16,250
 3,108
Commercial real estate15,227
 15,227
 473
Construction and land development—
 —
 —
Residential real estate2,027
 2,027
 5
Equity lines of credit—
 —
 —
Consumer installment—
 —
 —
 $111,651
 $111,651
 $9,400


The table below shows interest income recognized during the three- and nine-month periods ended September 30, 2019 and September 30, 2018 for impaired loans held at the end of each period:Notes to Condensed Consolidated Financial Statements (unaudited)
 Three months ended Nine months ended
 September 30, September 30,
 2019 2018 2019 2018
 (Dollars in thousands)
Commercial$386
 $402
 $862
 $1,110
Energy98
 93
 324
 369
Commercial real estate200
 88
 613
 291
Construction and land development—
 —
 —
 —
Residential real estate8
 17
 17
 52
Equity lines of credit—
 —
 —
 —
Consumer installment—
 —
 —
 —
Total interest income recognized$692
 $600
 $1,816
 $1,822


29
24
Table of Contents
Notes to Unaudited Consolidated Financial Statements

The table below shows the average balance of impaired loans during the three- and nine-month periods ended September 30, 2019 and September 30, 2018 by loan category for impaired loans held at the end of each period:
 Three months ended Nine months ended
 September 30, September 30,
 2019 2018 2019  
 (Dollars in thousands)
Commercial$54,410
 $27,671
 $49,265
 $26,849
Energy13,623
 17,683
 15,091
 18,992
Commercial real estate16,690
 8,055
 16,528
 8,101
Construction and land development—
 —
 —
 —
Residential real estate2,538
 2,046
 2,354
 2,059
Equity lines of credit—
 —
 —
 —
Consumer installment—
 —
 —
 —
Total average impaired loans$87,261
 $55,455
 $83,238
 $56,001

Non-accrual Loan Analysis
Non-accrual Loans

Nonperforming loans are loans for which the Company does not record interest
income. The accrual of interest on mortgage and commercial 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
All interest accrued but not collected for loans that are placed on non-accrual or charged off are reversed against interest income. The interest on these loans is accounted for on the cash basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due
are
brought current and future payments are reasonably assured. The following
table presents the Company’s non-accrual
loans atby loan segments:
As of September 30, 20192022
Amortized Cost Basis by Origination Year and December 31, 2018:On Non-accrual
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
loans
Revolving
loans
converted
to term
loans
Total Non-
accrual
Loans
Non-accrual
Loans with no
related
Allowance
(Dollars in thousands)
Commercial and industrial
$
-
$
104
$
-
$
6
$
1,383
$
700
$
-
$
-
$
2,193
$
2,193
Commercial and industrial
lines of credit
-
-
-
-
-
-
6,475
-
6,475
6,475
Energy
-
-
-
-
-
-
5,163
-
5,163
3,587
Commercial real estate
408
2,489
-
-
-
-
-
-
2,897
2,897
Construction and land
development
-
-
-
-
-
-
-
-
-
-
Residential real estate
-
-
-
-
-
-
-
195
195
195
Multifamily real estate
-
-
-
-
-
-
-
-
-
-
Consumer
-
-
-
-
-
-
-
-
-
-
Total
$
408
$
2,593
$
-
$
6
$
1,383
$
700
$
11,638
$
195
$
16,923
$
15,347
 September 30, 2019 December 31, 2018
 (Dollars in thousands)
Commercial$34,201
 $4,781
Energy4,677
 9,219
Commercial real estate2,680
 3,517
Construction and land development—
 —
Residential real estate2,068
 301
Equity lines of credit—
 —
Consumer installment—
 —
Total non-accrual loans$43,626
 $17,818

Interest income recognized on non-accrual loans was $

0.9
million and $
1.3
million for the three- and nine-month periods ended September 30,
2022, respectively.
Notes to Condensed Consolidated Financial Statements (unaudited)
30
Allowance for Credit Losses
The following table presents the activity in the allowance for credit losses and
allowance for credit losses on off-balance sheet credit exposures by portfolio
segment for the
three-month period ended September 30, 2022:
For the Three Months Ended September 30, 2022
Commercial
and Industrial
Commercial
and
Industrial
Lines of
Credit
Energy
Commercial
Real Estate
Construction
and Land
Development
Residential
Real Estate
Multifamily
Real Estate
Consumer
Total
(Dollars in thousands)
Allowance for Credit Losses:
Beginning balance
$
10,920
$
11,267
$
6,428
$
17,042
$
3,918
$
3,134
$
2,427
$
681
$
55,817
Charge-offs
-
(2,000)
(642)
-
-
-
-
-
(2,642)
Recoveries
-
9
-
748
-
-
-
9
766
Provision (credit)
417
2,781
(958)
(1,335)
669
103
246
-
1,923
Ending balance
$
11,337
$
12,057
$
4,828
$
16,455
$
4,587
$
3,237
$
2,673
$
690
$
55,864
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures:
Beginning balance
$
63
$
-
$
470
$
657
$
4,016
$
4
$
109
$
1
$
5,320
Provision (credit)
34
-
78
19
1,304
(2)
(25)
3
1,411
Ending balance
$
97
$
-
$
548
$
676
$
5,320
$
2
$
84
$
4
$
6,731
Notes to Condensed Consolidated Financial Statements (unaudited)
31
For the Nine Months Ended September 30, 2022
Commercial and
Industrial
(1)
Commercial
and
Industrial
Lines of
Credit
(1)
Energy
Commercial
Real Estate
Construction
and Land
Development
Residential
Real
Estate
(2)
Multifamily
Real
Estate
(2)
Consumer
Total
(Dollars in thousands)
Allowance for Credit Losses:
Beginning balance, prior to
adoption of ASU 2016-13
$
20,352
$
-
$
9,229
$
19,119
$
3,749
$
5,598
$
-
$
328
$
58,375
Impact of ASU 2016-13
adoption
(10,213)
8,866
(39)
(186)
(83)
(2,552)
2,465
(5)
(1,747)
Charge-offs
(790)
(3,971)
(4,609)
(1,102)
-
(217)
-
(13)
(10,702)
Recoveries
755
1,788
1,754
2,333
-
-
-
11
6,641
Provision (credit)
1,233
5,374
(1,507)
(3,709)
921
408
208
369
3,297
Ending balance
$
11,337
$
12,057
$
4,828
$
16,455
$
4,587
$
3,237
$
2,673
$
690
$
55,864
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures:
Beginning balance, prior to
adoption of ASU 2016-13
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Impact of ASU 2016-13
adoption
107
44
265
711
3,914
5
137
1
5,184
Provision (credit)
(10)
(44)
283
(35)
1,406
(3)
(53)
3
1,547
Ending balance
$
97
$
-
$
548
$
676
$
5,320
$
2
$
84
$
4
$
6,731
(1)
Prior to the adoption of ASU 2016-13, the Commercial and industrial and Commercial and industrial lines of credit
were consolidated under the Commercial and industrial
segment.
(2)
Prior to the adoption of ASU 2016-13, the Residential real estate and Multifamily real estate segments were consolidated
under the Residential and Multifamily Real Estate
segment.
Notes to Condensed Consolidated Financial Statements
(unaudited)
32
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, 2022:
As of September 30, 2022
Loan Segment and Collateral Description
Amortized Cost of
Collateral Dependent
Loans
Related Allowance for
Credit Losses
Amortized Cost of
Collateral Dependent
Loans with no related
Allowance
(Dollars in thousands)
Commercial and Industrial
All business assets
$
2,668
$
-
$
2,668
Commercial and Industrial Lines of Credit
All business assets
5,519
-
5,519
Energy
Oil and natural gas properties
9,626
157
9,469
Commercial Real Estate
Commercial real estate properties
2,489
-
2,489
$
20,302
$
157
$
20,145
Troubled Debt Restructurings

Restructured loansTDRs are those extended to borrowers who are experiencing financial
difficulty and who have been granted a concession. concession,
excluding loan modifications as a result of the COVID-19 pandemic.
The modification of terms typically includes the extension of
maturity, reduction or deferment of monthly payment, or reduction of the
stated interest rate.

25
Table of Contents
Notes to Unaudited Consolidated Financial Statements

The table below presents loans restructured duringFor the three- and nine-monthsnine-month periods ended September 30, 20192022 and 2018, including2021,
no
loans were restructured under the post-modification TDR guidance. The
outstanding balance of TDRs was $
34
million and the type of concession made:
 Three Months Ended Nine Months Ended
 September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018
 (Dollars in thousands)
Commercial       
- Deferred payment$—
 $—
 $—
 $61
- Reduction of monthly payment—
 —
 994
 —
- Extension of maturity date—
 —
 30,005
 300
Energy       
- Reduction of monthly payment—
 —
 —
 2,972
Commercial real estate       
- Reduction of monthly payment—
 —
 3,767
 —
- Interest rate reduction—
 1,153
 —
 2,256
Total troubled debt restructurings$—
 $1,153

$34,766

$5,589

$
As40
million as of September 30, 20192022 and December 31, 2018,2021, respectively.
Notes to Condensed Consolidated Financial Statements
(unaudited)
33
Disclosures under Previously Applicable
GAAP
The following disclosures are presented under previously applicable GAAP. The description
of the Company had $896 thousandgeneral characteristics of the
loan rating categories is as described above. The following table presents
the credit risk profile of the Company’s loan portfolio based on
an internal rating category and $0, respectively, in commitments to borrowers whose terms have been modified in troubled debt restructurings. portfolio segment as of December 31, 2021:
As of September 30, 2019,December 31, 2021
Pass
Special
Mention
Substandard
Performing
Substandard
Non-
performing
Doubtful
Loss
Total
(Dollars in thousands)
Commercial and
industrial
$
1,356,883
$
16,201
$
23,739
$
4,858
$
-
$
-
$
1,401,681
Energy
184,269
73,196
5,246
13,595
2,554
-
278,860
Commercial real
estate
1,172,323
86,768
11,782
10,222
-
-
1,281,095
Construction and
land development
578,758
-
-
-
-
-
578,758
Residential and
multifamily real
estate
593,847
257
6,508
204
-
-
600,816
PPP
64,805
-
-
-
-
-
64,805
Consumer
63,605
-
-
-
-
-
63,605
$
4,014,490
$
176,422
$
47,275
$
28,879
$
2,554
$
-
$
4,269,620
The following table presents the modifications relatedCompany’s loan portfolio aging analysis of the
recorded investment in loans as of December 31,
2021:
As of December 31, 2021
30-59 Days
Past Due
60-89 Days
Past Due
90 Days or
More
Total Past
Due
Current
Total Loans
Receivable
Loans >= 90
Days and
Accruing
(Dollars in thousands)
Commercial and industrial
$
183
$
499
$
1,037
$
1,719
$
1,399,962
$
1,401,681
$
90
Energy
-
-
4,644
4,644
274,216
278,860
-
Commercial real estate
85
992
-
1,077
1,280,018
1,281,095
-
Construction and land
development
966
117
-
1,083
577,675
578,758
-
Residential and multifamily
real estate
437
151
-
588
600,228
600,816
-
PPP
-
-
-
-
64,805
64,805
-
Consumer
-
99
-
99
63,506
63,605
-
$
1,671
$
1,858
$
5,681
$
9,210
$
4,260,410
$
4,269,620
$
90
Notes to Condensed Consolidated Financial Statements
(unaudited)
34
The following table presents the troubled debt restructurings above did not impactCompany’s loans on non-accrual as of
December 31, 2021:
December 31, 2021
(Dollars in thousands)
Commercial and industrial
$
4,858
Energy
16,148
Commercial real estate
10,222
Construction and land development
-
Residential and multifamily real estate
204
PPP
-
Consumer
-
Total non-accrual loans
$
31,432
The following table presents the allowance for loan losses becauseby portfolio segment
and disaggregated based on the Company’s
impairment methodology:
As of December 31, 2021
Commercial
and
Industrial
Energy
Commercial
Real Estate
Construction
and Land
Development
Residential
and
Multifamily
Real Estate
PPP
Consumer
Total
(Dollars in thousands)
Period end allowance for loan losses allocated to:
Individually
evaluated for
impairment
$
333
$
2,100
$
3,164
$
-
$
-
$
-
$
-
$
5,597
Collectively
evaluated for
impairment
20,019
7,129
15,955
3,749
5,598
-
328
52,778
Ending
balance
$
20,352
$
9,229
$
19,119
$
3,749
$
5,598
$
-
$
328
$
58,375
Allocated to loans:
Individually
evaluated for
impairment
$
5,739
$
16,204
$
31,597
$
-
$
3,387
$
-
$
-
$
56,927
Collectively
evaluated for
impairment
1,395,942
262,656
1,249,498
578,758
597,429
64,805
63,605
4,212,693
Ending
balance
$
1,401,681
$
278,860
$
1,281,095
$
578,758
$
600,816
$
64,805
$
63,605
$
4,269,620
Notes to Condensed Consolidated Financial Statements
(unaudited)
35
A loan is considered impaired when based on current information and events, it is probable the Company will be unable to
collect
all amounts due from the borrower in accordance with the contractual terms
of the loan. Impaired loans were previously impaired andinclude non-performing loans
but also include loans modified in TDRs where concessions have been granted to borrowers experiencing
financial difficulties. The
intent of concessions is to maximize collection. The following table presents loans
individually evaluated on an individual basis or enough collateral was obtained to provide an additional commitment. The restructured loans hadfor impairment:
As of December 31, 2021
Recorded Balance
Unpaid Principal Balance
Specific Allowance
(Dollars in thousands)
Loans without a total specific valuation allowance of $8.8
Commercial and industrial
$
4,659
$
4,740
$
-
Energy
3,509
7,322
-
Commercial real estate
1,729
1,729
-
Construction and land development
-
-
-
Residential and multifamily real estate
3,387
3,387
-
PPP
-
-
-
Consumer
-
-
-
Loans with a specific valuation
Commercial and industrial
1,080
1,080
333
Energy
12,695
17,977
2,100
Commercial real estate
29,868
30,854
3,164
Construction and land development
-
-
-
Residential and multifamily real estate
-
-
-
PPP
-
-
-
Consumer
-
-
-
Total
Commercial and industrial
5,739
5,820
333
Energy
16,204
25,299
2,100
Commercial real estate
31,597
32,583
3,164
Construction and land development
-
-
-
Residential and multifamily real estate
3,387
3,387
-
PPP
-
-
-
Consumer
-
-
-
$
56,927
$
67,089
$
5,597
Total interest income recognized during the three and nine-month periods
ended September 30, 2021 for impaired loans was $
0.6
million and $2.4 $
1.9
million, asrespectively. The three- and nine-month average balance of impaired loans for the period
ended September 30, 2019
2021 was $
95
million and December 31, 2018,$
97
million, respectively.
Notes to Condensed Consolidated Financial Statements
(unaudited)
36
The following table presents the activity in the allowance for loan losses by portfolio
segment for the three-
and nine-month
periods ended September 30, 2021:
Three Months Ended September 30, 2021
Commercial
and
Industrial
Energy
Commercial
Real Estate
Construction
and Land
Development
Residential
and
Multifamily
Real Estate
PPP
Consumer
Total
(Dollars in thousands)
Allowance for loan losses:
Beginning
balance
$
28,433
$
17,849
$
19,181
$
3,885
$
5,826
$
-
$
319
$
75,493
Provision
(3,666)
(4,798)
(236)
(694)
(561)
-
(45)
(10,000)
Charge-offs
(1,071)
(503)
-
-
-
-
(1)
(1,575)
Recoveries
225
-
-
-
5
-
4
234
Ending balance
$
23,921
$
12,548
$
18,945
$
3,191
$
5,270
$
-
$
277
$
64,152
Nine Months Ended September 30, 2021
Commercial
and
Industrial
Energy
Commercial
Real Estate
Construction
and Land
Development
Residential
and
Multifamily
Real Estate
PPP
Consumer
Total
(Dollars in thousands)
Allowance for loan losses:
Beginning
balance
$
24,693
$
18,341
$
22,354
$
3,612
$
5,842
$
-
$
453
$
75,295
Provision
10,881
(5,290)
(3,409)
(421)
(577)
-
(184)
1,000
Charge-offs
(11,903)
(503)
-
-
-
-
(1)
(12,407)
Recoveries
250
-
-
-
5
-
9
264
Ending balance
$
23,921
$
12,548
$
18,945
$
3,191
$
5,270
$
-
$
277
$
64,152
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
The Company estimates expected credit losses for off-balance sheet credit
exposures unless the obligation is unconditionally
cancellable by the Company. The ACL on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The
estimate is calculated for each loan segment and includes consideration of the
likelihood that funding will occur and an estimate of the
expected credit losses on commitments expected to be funded over its estimated life.
For each pool of contractual obligations expected
to be funded, the Company uses the reserve rate established for the related
loan pools.
The $7 million allowance for credit losses on off
balance of restructured loans is provided below as of September 30, 2019 and December 31, 2018. In addition, the balance of those loans that are in default at any time during the past twelve monthssheet credit exposures at September 30, 2019 2022 is included in “interest payable
and other liabilities” on the balance sheet.
The following categories of off-balance sheet credit exposures have been
identified:
Loan commitments – include revolving lines of credit, non-revolving lines
of credit, and loans approved that are not yet funded.
Risks inherent to revolving lines of credit often are related to the susceptibility of
an individual or business experiencing
unpredictable cash flow or financial troubles, thus leading to payment default.
The primary risk associated with non-revolving
lines of credit is the diversion of funds for other expenditures.
Letters of credit – are primarily established to provide assurance to the beneficiary
that the applicant will perform certain
obligations arising out of a separate transaction between the beneficiary and
applicant. If the obligation is not met, it gives the
beneficiary the right to draw on the letter of credit.
Notes to Condensed Consolidated Financial Statements
(unaudited)
37
Note 5:
Derivatives and Hedging
The Company is exposed to certain risks arising from both its business operations and
economic conditions, including interest
rate, liquidity, and
credit risk. The Company uses derivative financial instruments as part of its risk management
activities to manage
exposures that arise from business activities that result in the receipt or payment
of future known and uncertain cash amounts, the value
of which are determined by interest rates.
Cash Flow Hedges of Interest Rate Risk
The Company uses interest rate derivatives to add stability to interest 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 2022, such derivatives were used to hedge the variable cash flows
associated with existing variable-rate loan assets.
The 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 will start in 2023 based on the original effective dates
of these swaps.
The Company also entered into a new interest rate
collar during the third quarter of 2022. Derivatives designated and
that qualify as cash flow hedges include
one
instrument with a
notional amount of $
250
million at September 30, 2022 and
five
instruments with an aggregate notional value of $
100
million at
December 31, 20182021.
For derivatives designated and that qualify as cash flow hedges of interest rate
risk, the gain or loss on the derivative is provided below: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
liabilities. The derivative financial instruments did not impact the Condensed Consolidated
Statements of Income for the three-
and
nine-month periods ended September 30, 2022. The Company estimates that less than $
0.1
 September 30, 2019 December 31, 2018
 Number of Loans Outstanding Balance 
Balance 90 days past due at any time during previous 12 months(1)
 Number of Loans Outstanding Balance 
Balance 90 days past due at any time during previous 12 months(1)
 (Dollars in thousands)
Commercial7 $36,865
 $—
 6 $5,022
 $55
Energy2 2,969
 —
 2 3,631
 —
Commercial real estate3 4,947
 —
 2 1,382
 —
Construction and land development— —
 —
 — —
 —
Residential real estate— —
 —
 1 237
 —
Equity lines of credit— —
 —
 — —
 —
Consumer installment— —
 —
 — —
 —
Total restructured loans12 $44,781
 $—
 11 $10,272
 $55
(1) Default is considered to mean 90 days or more past due as to interest or principal.

million will be reclassified as a decrease to

interest expense during the next twelve months.
The Company is hedging its exposure to the variability in future cash flows for forecasted
Note 5:Derivatives and Hedging
transactions over a maximum period of
6.6
years.
Non-designated Hedges
Derivatives not designated as hedges are not speculative and result from
a service the Company providesprovided 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, third-party,
such that the Company minimizes its net risk exposure
resulting from such transactions. As the interestInterest rate derivatives associated

26
Table of Contents
Notes to Unaudited Consolidated Financial Statements

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.
During the quarter ended September 30, 2019, the Company changed an input associated with the fair market value related to derivatives not designated as hedges. The model utilized to calculate the non-performance risk, also known as theearnings.
Swap fees earned upon origination and credit valuation adjustment, or CVA, was adjusted fromadjustments that represent
the risk of a more conservativecounterparty’s default methodology to a revieware reported
on the Consolidated Statements of the historical defaults recognized by the Company. Management believes this change better aligns with the Company’s credit methodology and underwriting standards.
As a result of the change in methodology, the Company increasedIncome as swap fee income, net by approximately $800 thousand, related to net. The effect of the
Company’s derivative financial instruments gain
(loss) is reported on the Consolidated Statements of Cash Flows within “other
assets” and “other liabilities”.
These
48
and
54
swaps closed on or before June 30, 2019. If no defaults occur for derivatives not designated as hedges, the change in methodology will lower future swap fee income, net by the same amount.had an aggregate notional amount of $
As of409
million and $
535
million at September 30, 20192022 and December
31, 2018,2021, respectively.
Notes to Condensed Consolidated Financial Statements
(unaudited)
38
Fair Values
of Derivative Instruments on the Company had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships:
 September 30, 2019 December 31, 2018
ProductNumber of Instruments Notional Amount Number of Instruments Notional Amount
 (Dollars in thousands)
Back-to-back swaps46 $308,960
 20 $77,709

Consolidated Balance Sheets
The table below presents the fair value of the Company’s derivative financial
instruments and their classification on the
Consolidated Balance SheetSheets as of September 30, 20192022 and December
31, 2018:2021:
 Asset Derivatives Liability Derivatives
 Balance Sheet September 30, December 31, Balance Sheet September 30, December 31,
 Location 2019 2018 Location 2019 2018
 (Dollars in thousands)
Derivatives not designated as hedging instruments        
Interest rate productsOther assets $13,735
 $1,051
 Other liabilities $13,782
 $1,136

Asset Derivatives
The effect of the Company’s derivative financial instruments that areLiability Derivatives
Balance Sheet
September 30,
December 31,
Balance Sheet
September 30,
December 31,
Location
2022
2021
Location
2022
2021
(Dollars in thousands)
Interest rate products:
Derivatives not
designated as hedging
instruments are reported on the Statements of Income
Interest
receivable and
Other assets
$
11,430
$
11,305
Interest payable
and other
liabilities
$
11,431
$
11,322
Derivatives
designated as swap fee income, net. hedging
instruments
Other assets
-
3
Interest payable
and other
liabilities
6,891
565
Total
$
11,430
$
11,308
$
18,322
$
11,887
The table below presents the effect of cash flow hedge accounting on Accumulated Other Comprehensive Income
(Loss) for the Company’s derivative financial instruments gain
three-
and loss are reported on the Statements of Cash Flows within other assets and other liabilities.
The tables below show a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as ofnine-months ended September 30, 2019 and December 31, 2018:2022. The Company had no cash flow hedges for
the nine-months ended September 30,
2021.
September 30, 2019
(Dollars in thousands)
       Gross Amounts Not Offset in the Statement of Financial Position
 Gross Amounts of Recognized Assets and Liabilities Gross Amounts Offset in the Statement of Financial Position Net Amounts of Assets presented in the Statement of Financial Position Financial Instruments Cash Collateral Received Net Amount
Offsetting of derivative assets          
Derivatives$13,735
 $—
 $13,735
 $—
 $—
 $13,735
Offsetting of derivative liabilities        
Derivatives$13,782
 $—
 $13,782
 $—
 $—
 $13,782

For the Three Months Ended
For the Nine Months Ended
September 30, 2022
September 30, 2022
Location of
Gain or (Loss)
Recognized
from
Accumulated
Other
Comprehensive
Income into
Income
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)
Recognized
in OCI on
Derivative
Gain or
(Loss)
Recognized
in OCI
Included
Component
Gain or
(Loss)
Recognized
in OCI
Excluded
Component
(Dollars in thousands)
Derivatives in Cash Flow Hedging Relationships:
Interest Rate Products
Interest Income
$
(6,891)
$
(6,891)
$
-
$
(6,891)
$
(6,891)
$
-
Interest Rate Products
Interest expense
(185)
(185)
-
3,855
$
3,855
-
$
(7,076)
$
(7,076)
$
-
$
(3,036)
$
(3,036)
$
-
27
Notes to Condensed Consolidated Financial Statements
(unaudited)
39
Note 6:
Table of Contents
Notes to Unaudited Consolidated Financial Statements

December 31, 2018
(Dollars in thousands)
       Gross Amounts Not Offset in the Statement of Financial Position
 Gross Amounts of Recognized Assets and Liabilities Gross Amounts Offset in the Statement of Financial Position Net Amounts of Assets presented in the Statement of Financial Position Financial Instruments Cash Collateral Received Net Amount
Offsetting of derivative assets          
Derivatives$1,051
 $—
 $1,051
 $72
 $—
 $979
Offsetting of derivative liabilities        
Derivatives$1,136
 $—
 $1,136
 $72
 $—
 $1,064

The net presentation above can be reconciled to the tabular disclosure of fair value.
As of September 30, 2019, the Company had minimum collateral posting thresholds with certain of its derivative counter-partiesTime Deposits and had posted collateral of $18.2 million. If the Company had breached any of these provisions at September 30, 2019, it could have been required to settle its obligations under the agreements at their termination value of $13.8 million.Borrowings
Note 6:Interest-Bearing Deposits and Borrowings
The scheduled maturities, excluding interest, of the Company’s borrowings at
September 30, 20192022 were as follows:
 September 30, 2019
 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$822,439
 $216,486
 $105,559
 $52,055
 $25,215
 $—
 $1,221,754
Fed funds purchased & repurchase agreements49,810
 —
 —
 —
 —
 —
 49,810
FHLB borrowings24,000
 76,500
 16,500
 39,704
 —
 151,100
 307,804
Trust preferred securities(1)
—
 —
 —
 —
 —
 912
 912
 $896,249
 $292,986
 $122,059
 $91,759
 $25,215
 $152,012
 $1,580,280
September 30, 2022
Within One
Year
One to Two
Years
Two to
Three Years
Three to
Four Years
Four to Five
Years
After Five
Years
Total
(Dollars in thousands)
Time deposits
$
487,378
$
244,594
$
673
$
1,722
$
15,804
$
-
$
750,171
FHLB borrowings
35,000
-
-
5,100
-
97,500
137,600
FHLB line of credit
67,749
-
-
-
-
-
67,749
Trust preferred securities
(1)
-
-
-
-
-
1,048
1,048
$
590,127
$
244,594
$
673
$
6,822
$
15,804
$
98,548
$
956,568
(1)
The contract value of the trust preferred securities is $2.5 $
2.6
million and is currently being accreted to the maturity date of 2035.

Note 7:
Note 7:Change in Accumulated Other Comprehensive Income (AOCI)
Change in Accumulated Other Comprehensive (Loss) Income
Amounts reclassified from AOCI and the affected line items in the consolidatedCondensed Consolidated Statements of Income
during the three
three-
and nine monthsnine-month periods ended September 30, 20192022 and 2018,2021, were as follows:
 Three Months Ended Nine Months Ended  
 September 30, September 30, Affected Line Item in the
 2019 2018 2019 2018 Statements of Income
 (Dollars in thousands)  
Unrealized gains on available-for-sale securities$34
 $195
 $467
 $608
 Gain on sale of available for sale securities
Amount reclassified before tax34
 195
 467
 608
  
Less: tax effect9
 47
 115
 149
 Income tax expense
Net reclassified amount$25
 $148
 $352
 $459
  


Three Months Ended
Nine Months Ended
September 30,
September 30,
Affected Line Item in the
2022
2021
2022
2021
Statements of Income
(Dollars in thousands)
Unrealized gains (losses) on available-for-sale
securities
$
(4)
$
1,046
$
(43)
$
1,043
Gain (loss) on sale of available-
for-sale securities
Less: tax benefit effect
(1)
256
(11)
255
Income tax expense (benefit)
Net reclassified amount
$
(3)
$
790
$
(32)
$
788
28
Note 8:
Regulatory Matters
Table of Contents
Notes to Unaudited Consolidated Financial Statements

Note 8:Regulatory Matters
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory
and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on the Company’s consolidated
financial statements. Management believes that,
as of September 30, 2019,2022, the Company and the Bank meetmet all capital adequacy
requirements to which they are subject.
The capital rules require the Company to maintain a
2.5
% capital conservation buffer with respect to Common Equity Tier I
capital, Tier I capital to risk-weighted assets, and total capital to risk-weighted assets, which
is included in the column “Minimum
Capital Required - Basel III” within the table below. A financial institution with a conservation buffer of less than the required amount is
subject to limitations on capital distributions, including dividend payments and
stock repurchases, as well as certain discretionary bonus
payments to executive officers.
The Company and the Bank opted to exclude AOCI from the regulatory capital calculations. As a result, change in AOCI,
including the recent decrease in the available-for-sale securities portfolio, net
of tax, did not impact the Company’s or Bank’s regulatory
capital ratios.
Notes to Condensed Consolidated Financial Statements
(unaudited)
40
The Company’s and the Bank’s actual capital amounts and ratios as of September
30, 20192022 and December 31, 20182021 are presented
in the following table:
 Actual Minimum Capital Required - Basel III Phase-In Schedule Minimum Capital Required - Basel III Fully Phase-In Required to be Considered Well Capitalized
 Amount Ratio Amount Ratio Amount Ratio Amount Ratio
 (Dollars in thousands)
September 30, 2019               
Total Capital to Risk-Weighted Assets              
Consolidated$618,407
 13.9% $467,160
 10.5% $467,160
 10.5% N/A
 N/A
Bank567,667
 12.8
 467,085
 10.5
 467,085
 10.5
 $444,843
 10.0%
Tier I Capital to Risk-Weighted Assets              
Consolidated575,412
 12.9
 378,177
 8.5
 378,177
 8.5
 N/A
 N/A
Bank524,672
 11.8
 378,117
 8.5
 378,117
 8.5
 355,875
 8.0
Common Equity Tier 1 to Risk-Weighted Assets            
Consolidated574,500
 12.9
 311,440
 7.0
 311,440
 7.0
 N/A
 N/A
Bank524,672
 11.8
 311,390
 7.0
 311,390
 7.0
 289,148
 6.5
Tier I Capital to Average Assets              
Consolidated575,412
 12.6
 183,152
 4.0
 183,152
 4.0
 N/A
 N/A
Bank$524,672
 11.5% $183,109
 4.0% $183,109
 4.0% $228,886
 5.0%
December 31, 2018               
Total Capital to Risk-Weighted Assets              
Consolidated$521,111
 13.5% $380,873
 9.9% $404,979
 10.5% N/A
 N/A
Bank481,287
 12.5
 380,369
 9.9
 404,443
 10.5
 $385,184
 10.0%
Tier I Capital to Risk-Weighted Assets              
Consolidated483,285
 12.5
 303,734
 7.9
 327,840
 8.5
 N/A
 N/A
Bank443,461
 11.5
 303,332
 7.9
 327,406
 8.5
 308,147
 8.0
Common Equity Tier 1 to Risk-Weighted Assets            
Consolidated453,049
 11.7
 245,880
 6.4
 269,986
 7.0
 N/A
 N/A
Bank443,461
 11.5
 245,555
 6.4
 269,629
 7.0
 250,369
 6.5
Tier I Capital to Average Assets              
Consolidated483,285
 12.4
 155,538
 4.0
 155,538
 4.0
 N/A
 N/A
Bank$443,461
 11.4% $155,420
 4.0% $155,420
 4.0% $194,275
 5.0%



Actual
Minimum Capital
Required - Basel III
Required to be Considered
Well Capitalized
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
September 30, 2022
Total Capital to Risk-Weighted Assets
Consolidated
$
728,639
12.1
%
$
632,742
10.5
%
N/A
N/A
Bank
712,631
11.8
632,414
10.5
$
602,299
10.0
%
Tier I Capital to Risk-Weighted Assets
Consolidated
666,044
11.1
512,220
8.5
N/A
N/A
Bank
650,036
10.8
511,954
8.5
481,839
8.0
Common Equity Tier 1 to Risk-Weighted Assets
Consolidated
664,997
11.0
421,828
7.0
N/A
N/A
Bank
650,036
10.8
421,609
7.0
391,495
6.5
Tier I Capital to Average Assets
Consolidated
666,044
11.4
233,086
4.0
N/A
N/A
Bank
$
650,036
11.2
%
$
233,019
4.0
%
$
291,274
5.0
%
December 31, 2021
Total Capital to Risk-Weighted Assets
Consolidated
$
704,544
13.6
%
$
544,060
10.5
%
N/A
N/A
Bank
681,980
13.2
543,708
10.5
$
517,817
10.0
%
Tier I Capital to Risk-Weighted Assets
Consolidated
646,169
12.5
440,430
8.5
N/A
N/A
Bank
623,605
12.0
440,144
8.5
414,253
8.0
Common Equity Tier 1 to Risk-Weighted Assets
Consolidated
645,160
12.5
362,707
7.0
N/A
N/A
Bank
623,605
12.0
362,472
7.0
336,581
6.5
Tier I Capital to Average Assets
Consolidated
646,169
11.8
218,510
4.0
N/A
N/A
Bank
$
623,605
11.4
%
$
218,366
4.0
%
$
272,958
5.0
%
29
Note 9:
Stock-Based Compensation
Table of Contents
Notes to Unaudited Consolidated Financial Statements

Note 9:Revenue from Contracts with Customers
The Company adopted ASU 2014-09, ‘‘Revenue from Contracts with Customers (Topic 606)’’ and its related amendments as of January 1, 2019 using the modified retrospective approach. The implementation had no material impact on the measurement or recognition of revenue of either current or prior periods.
The categories are selected based on the nature, amount, timing, and uncertainty of revenue and cash flows. The following presents descriptions of revenue categories within the scope of ASU 2014-09 (ASC 606):
Service charges and fees (rebates) on customer accounts - This segment consists of monthly fees for the services rendered on customer deposit accounts, including maintenance charges, overdraft fees, and processing fees. The monthly fee structures are typically based on type of account, volume, and activity. The customer is typically billed monthly and pays the bill from their deposit account. The Company satisfies the performance obligation related to providing depository accounts monthly as transactions are processed and deposit service charge revenue is recorded.
ATM and credit card interchange income - This segment consists of fees charged for use of the Company’s ATMs, as well as, an interchange fee with credit card and debit card service providers. ATM fees and interchange fees are based on the number of transactions, as well as, the underlying agreements. Customers are typically billed monthly. The Company satisfies the performance obligation related to ATM and interchange fees monthly as transactions are processed and revenue is recorded.
International fees - This segment consists of fees earned from foreign exchange transactions and preparation of international documentation. International fees are based on underlying agreements that describe the Company’s performance obligation and the related fee. Customers are typically billed and cash is received once the service or transaction is complete. The Company satisfies the performance obligation related to international fees monthly as transactions are processed and revenue is recorded.
Other fees - This segment consists of numerous, smaller fees such as wire transfer fees, check cashing fees, and check printing fees. Other fees are typically billed to customers on a monthly basis. Performance obligations for other fees are satisfied at the time that the service is rendered.
The following table disaggregates the non-interest income subject to ASU 2014-09 by category:
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2019 2018 2019 2018
 (Dollars in thousands)
Non-interest income subject to ASU 2014-09       
Service charges and fees (rebates) on customer accounts$72
 $(100) $441
 $506
ATM and credit card interchange income476
 301
 1,312
 827
International fees199
 160
 506
 579
Other fees12
 10
 104
 30
Total non-interest income from contracts with customers759
 371
 2,363
 1,942
Non-interest income not subject to ASU 2014-09       
Other non-interest income2,453
 814
 4,166
 2,946
Total non-interest income$3,212
 $1,185
 $6,529
 $4,888



30
Table of Contents
Notes to Unaudited Consolidated Financial Statements

Note 10:Equity-Based Compensation
The Company issues stock-based compensation in the form of nonvested non-vested
restricted stock, restricted stock units and stock
appreciation rights under the 2018 Omnibus Equity Incentive Plan.Plan (as amended,
the “Omnibus Plan”). The Omnibus Plan will expire on
the tenth anniversary of its effective date. In addition, the Company
has an Employee Stock Purchase Plan that was indefinitely suspended effective April 1, 2019.reinstated during the
third quarter of 2020. The aggregate number of shares authorized for future issuance under the
Omnibus Plan is 2,275,721
1,441,879
shares as of
September 30, 2019.2022.
Notes to Condensed Consolidated Financial Statements
(unaudited)
41
The table below summarizes the stock-based compensation for the three
three- and nine-monthsnine-month periods ended September 30, 20192022 and 2018:
2021:
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2019 2018 2019 2018
 (Dollars in thousands)
Stock appreciation rights$446
 $220
 $977
 $1,905
Performance based restricted units and stock159
 28
 409
 524
Restricted stock units510
 280
 1,528
 1,957
Restricted stock awards209
 —
 656
 —
Employee stock purchase plan—
 38
 36
 127
Total stock-based compensation$1,324
 $566
 $3,606
 $4,513

Three Months Ended

Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
(Dollars in thousands)
Stock appreciation rights
$
75
$
150
$
262
$
584
Performance-based stock awards
200
75
611
337
Restricted stock units and awards
763
895
2,336
2,394
Employee stock purchase plan
31
29
95
58
Total stock-based compensation
$
1,069
$
1,149
$
3,304
$
3,373
Performance-Based Restricted Stock Units
The Company awards performance-based restricted stock units (“PBRSUs”) to
key officers of the Company. The performance-
based shares typically cliff-vest at the end of
three years
based on attainment of certain performance metrics developed by the
Compensation Committee. The ultimate number of shares issuable under each performance
award is the product of the award target and
the award payout percentage given the level of achievement. The award payout percentages
by level of achievement range between
0
%
of target and
150
% of target.
During the nine-month period ended September 30, 2022, the Company
granted
66,667
PBRSUs. The performance metrics
include
three year
cumulative, adjusted earnings per share and relative total shareholder return.
The following table summarizes the status of and changes in the performance
-based awards:
Performance-Based Restricted
Stock Unit Awards
Number of Shares
Weighted-Average
Grant Date Fair Value
Unvested, January 1, 2022
98,352
$
13.59
Granted
66,667
16.04
Vested
-
-
Forfeited
(24,944)
15.03
Unvested, September 30, 2022
140,075
$
14.51
Unrecognized stock-based compensation related to the performance
awards issued through September 30, 2022 was $
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
.
Note 11:Income Tax
A reconciliationNotes to Condensed Consolidated Financial Statements
(unaudited)
42
The following table summarizes the status of and changes in the RSUs and RSAs:
Restricted Stock Units and Awards
Number of Shares
Weighted-Average
Grant Date Fair Value
Unvested, January 1, 2022
383,630
$
13.52
Granted
259,627
14.97
Vested
(197,536)
13.83
Forfeited
(35,612)
14.22
Unvested, September 30, 2022
410,109
$
14.22
Unrecognized stock-based compensation related to the RSUs and RSAs issued through
September 30, 2022 was $
4
million and is
expected to be recognized over
1.9
years.
Note 10:
Income Tax
An income tax expense (benefit)reconciliation at the statutory rate to the Company’s actual
income tax expense (benefit) is shown below:
 Three months ended Nine months ended
 September 30, September 30,
 2019 2018 2019 2018
 (Dollars in thousands)
Computed at the statutory rate (21%)$2,725
 $1,529
 $7,241
 $1,754
Increase (decrease) resulting from       
Tax-exempt income(722) (860) (2,147) (2,754)
Nondeductible expenses71
 87
 208
 261
State tax credit—
 —
 (1,361) —
State income taxes566
 124
 1,526
 245
Equity based compensation(5) —
 (66) (400)
Other adjustments(43) 44
 (93) (10)
Actual tax expense (benefit)$2,592
 $924
 $5,308
 $(904)



Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
(Dollars in thousands)
Computed at the statutory rate (
21
%)
$
4,555
$
5,598
$
13,078
$
12,693
Increase (decrease) resulting from
Tax-exempt income
(903)
(828)
(2,647)
(2,830)
Non-deductible expenses
72
55
265
145
State income taxes
740
912
2,164
2,090
Equity based compensation
(47)
(40)
(201)
(157)
Other adjustments
(7)
(37)
(34)
(110)
Actual tax expense
$
4,410
$
5,660
$
12,625
$
11,831
31
Table of Contents
Notes to Unaudited Consolidated Financial Statements

Notes to Condensed Consolidated Financial Statements
(unaudited)
43
The tax effects of temporary differences related to deferred taxes shownlocated
in “other assets” on the consolidated Condensed Consolidated
Balance Sheets are presented below:
 September 30, 2019 December 31, 2018
 (Dollars in thousands)
Deferred tax assets   
Net unrealized loss on securities available-for-sale$—
 $986
Allowance for loan losses10,637
 9,358
Lease incentive306
 329
Impairment of available for sale securities498
 498
Valuation allowance on real estate—
 396
Loan fees2,202
 2,135
Net operating loss carryover370
 398
Accrued expenses105
 1,927
Deferred compensation2,317
 1,838
Alternative minimum tax credits—
 2,365
State tax credit3,517
 2,506
Other63
 79
 20,015
 22,815
Deferred tax liability   
Fair market value adjustments - trust preferred securities(350) (356)
Net unrealized gain on securities available-for-sale(5,812) —
FHLB stock basis(936) (739)
Premises and equipment(4,301) (5,019)
Other(1,187) (385)
 (12,586) (6,499)
Net deferred tax asset$7,429
 $16,316

September 30, 2022

December 31, 2021
(Dollars in thousands)
Note 12:Disclosures about Fair Value of Financial Instruments
Deferred tax assets
Net unrealized loss on securities available-for-sale
$
27,374
$
-
Allowance for credit losses
15,067
14,051
Lease incentive
467
508
Loan fees
3,645
3,227
Accrued expenses
2,438
2,735
Deferred compensation
1,969
2,418
State tax credit
-
1,033
Other
495
2,057
Total deferred tax asset
51,455
26,029
Deferred tax liability
Net unrealized gain on securities available-for-sale
-
(6,967)
FHLB stock basis
(735)
(757)
Premises and equipment
(2,209)
(2,602)
Other
(1,410)
(1,229)
Total deferred tax liability
(4,354)
(11,555)
Net deferred tax asset
$
47,101
$
14,474
Note 11:
Disclosures about Fair Value of Financial Instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between
market participants at the measurement date. Fair value measurements must
maximize the use of observable inputs and minimize the use
of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair
value:
Level 1Quoted prices in active markets for identical assets or liabilities
Level 2Observable 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 3Unobservable inputs supported by little or no market activity and significant to the fair value of the assets or liabilities.

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.
32
Notes to Condensed Consolidated Financial Statements
(unaudited)
44
Table of Contents
Notes to Unaudited Consolidated Financial Statements

Recurring Measurements
The following tables presentlist presents the fair value measurements of assets and liabilities recognized in the accompanying consolidated
Condensed Consolidated Balance Sheets
measured at fair value on a recurring basis and the level within the fair value
hierarchy in which the fair value measurements fall at
September 30, 20192022 and December 31, 2018:2021:
   September 30, 2019
   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)
Available-for-sale securities       
Mortgage-backed - GSE residential$160,714
 $—
 $160,714
 $—
Collateralized mortgage obligations - GSE residential148,675
 —
 148,675
 —
State and political subdivisions420,009
 —
 420,009
 —
Corporate bonds1,536
 —
 1,536
 —
Mutual funds2,159
 —
 2,159
 —
Derivative assets13,735
 —
 13,735
 —
Derivative liabilities$13,782
 $—
 $13,782
 $—
Fair Value Description
   December 31, 2018
   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)
Available-for-sale securities       
Mortgage-backed - GSE residential$129,287
 $—
 $129,287
 $—
Collateralized mortgage obligations - GSE residential152,626
 —
 152,626
 —
State and political subdivisions378,058
 —
 378,058
 —
Corporate bonds1,657
 —
 1,657
 —
Mutual funds2,050
 —
 2,050
 —
Derivative assets1,051
 —
 1,051
 —
Derivative liabilities$1,136
 $—
 $1,136
 $—

Valuation

Hierarchy
Following is a description of the valuation methodologiesLevel
Where Fair
Value Balance
Can Be Found
Available-for-
Sale Securities and inputs used for assets and liabilities measured at fair value on a recurring basis and recognized in the Company’s accompanying consolidated balance sheets.
Available-for-Sale SecuritiesCRA Equity Security
Where quoted market prices are available in an active market, securities are
classified within Level 1 of the valuation hierarchy. If quoted market prices
are not available, then fair values are estimated by using quoted prices 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. Such securities are classified in
Level 2 of the valuation hierarchy.

Note 3:
Securities
33
Table of Contents
Notes to Unaudited Consolidated Financial Statements

Derivatives
Fair value of the interest rate swaps is obtained from independent pricing
services based on quoted market prices for similar derivative contracts.
NonrecurringLevel 2
Note 5:
Derivatives and
Hedging
Non-recurring Measurements
The following tables present assets measured at fair value on a nonrecurring non-recurring
basis and the level within the fair value hierarchy in
which the fair value measurements fall at September 30, 20192022 and December
31, 2018:2021:
September 30, 2022
Fair Value Measurements Using
Fair Value
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
(Dollars in thousands)
Collateral-dependent loans
$
20,302
$
-
$
-
$
20,302
Foreclosed assets held-for-sale
$
1,588
$
-
$
-
$
1,588
   September 30, 2019
   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$40,220
 $—
 $—
 $40,220
Premises and equipment held-for-sale—
 —
 —
 —
Foreclosed assets held for sale$2,471
 $—
 $—
 $2,471
December 31, 2021
Fair Value Measurements Using
Fair Value
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
(Dollars in thousands)
Collateral-dependent impaired loans
$
38,046
$
-
$
-
$
38,046
Foreclosed assets held-for-sale
$
1,148
$
-
$
-
$
1,148
   December 31, 2018
   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$50,288
 $—
 $—
 $50,288
Premises and equipment held-for-sale3,444
 —
 3,444
 —
Foreclosed assets held for sale$—
 $—
 $—
 $—


Following is a description of the valuation methodologies and inputs used for
assets measured at fair value on a nonrecurring non-recurring
basis and recognized in the accompanying consolidated balance sheets.Condensed Consolidated Balance Sheets.
Collateral-dependent ImpairedCollateral-Dependent Loans, Net of ALLLACL
The estimated fair value of collateral-dependent impaired 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 impaired
loans are classified within Level 3 of the fair value hierarchy.
Notes to Condensed Consolidated Financial Statements
(unaudited)
45
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. The impaired loans had a carrying value of $52.0 million and $59.7 million and were reduced by specific valuation allowance allocations totaling $11.8 million and $9.4 million at September 30, 2019 and December 31, 2018, respectively.
Appraisals of the collateral underlying collateral-dependent collateral dependent
loans are
obtained when the loan is determined to be collateral-dependentcollateral 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 Officelist of the Chief Credit Officer.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.
Premises and EquipmentForeclosed Assets Held-for-Sale
The estimated fair value of premises and equipment held-for-saleforeclosed assets-held-for-sale is based on the appraised fair value of the collateral, less estimated cost to sell.

34
Table of Contents
Notes to Unaudited Consolidated Financial Statements

Foreclosed Assets Held-for-Sale
The estimated 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 nonrecurringnon-recurring Level 3 fair value
measurements at September 30, 20192022 and December 31, 2018:2021:
September 30, 2022
Fair Value
Valuation Techniques
Unobservable
Inputs
Range
(Weighted Average)
(Dollars in thousands)
$
Market comparable
properties
Marketability
discount
 September 30, 2019
 Fair Value Valuation Techniques Unobservable Inputs Range (Weighted Average)
 (Dollars in thousands)
Collateral-dependent impaired loans$40,220
 Market comparable properties Marketability discount 
10% - 15%
(12%)
Foreclosed assets held for sale$2,471
 Market comparable properties Marketability discount 25%
-
 December 31, 2018
 Fair Value Valuation Techniques Unobservable Inputs Range (Weighted Average)
 (Dollars in thousands)
Collateral-dependent impaired loans$50,288
 Market comparable properties Marketability discount 10% - 15%
(12%)
Foreclosed assets held for sale$—
      


%
-
100
%
Collateral dependent loans
20,302
(
21
)%
$
Market comparable
properties
Marketability
discount
Foreclosed assets held-for-sale
1,588
(
11
)%
December 31, 2021
Fair Value
Valuation Techniques
Unobservable
Inputs
Range
(Weighted Average)
(Dollars in thousands)
$
Market comparable
properties
Marketability
discount
7
%
-
100
%
Collateral-dependent impaired loans
38,046
(
26
)%
$
Market comparable
properties
Marketability
discount
Foreclosed assets held-for-sale
1,148
(
10
)%
Notes to Condensed Consolidated Financial Statements
(unaudited)
46
The following tables present the estimated fair values of the Company’s financial
instruments at September 30, 20192022 and
December 31, 2018:
2021:
 September 30, 2019
 Carrying Fair Value Measurements
 Amount Level 1 Level 2 Level 3 Total
 (Dollars in thousands)
Financial Assets         
Cash and cash equivalents$128,126
 $128,126
 $—
 $—
 $128,126
Available-for-sale securities733,093
 —
 733,093
 —
 733,093
Loans, net of allowance for loan losses3,586,797
 —
 —
 3,607,276
 3,607,276
Restricted equity securities16,053
 —
 —
 16,053
 16,053
Interest receivable15,909
 —
 15,909
 —
 15,909
Derivative assets13,735
 —
 13,735
 —
 13,735
 $4,493,713
 $128,126
 $762,737
 $3,623,329
 $4,514,192
Financial Liabilities         
Deposits$3,658,108
 $513,832
 $—
 $3,162,740
 $3,676,572
Federal funds purchased and repurchase agreements49,810
 —
 49,809
 —
 49,809
Federal Home Loan Bank advances307,804
 —
 311,583
 —
 311,583
Other borrowings912
 —
 2,054
 —
 2,054
Interest payable4,643
 —
 4,643
 —
 4,643
Derivative liabilities13,782
 —
 13,782
 —
 13,782
 $4,035,059
 $513,832
 $381,871
 $3,162,740
 $4,058,443

35
Table of Contents
Notes to Unaudited Consolidated Financial Statements

 December 31, 2018
 Carrying Fair Value Measurements
 Amount Level 1 Level 2 Level 3 Total
 (Dollars in thousands)
Financial Assets         
Cash and cash equivalents$216,541
 $216,541
 $—
 $—
 $216,541
Available-for-sale securities661,628
 —
 661,628
 —
 661,628
Loans, net of allowance for loan losses3,022,921
 —
 —
 3,027,930
 3,027,930
Restricted equity securities14,525
 —
 —
 14,525
 14,525
Interest receivable14,092
 —
 14,092
 —
 14,092
Derivative assets1,051
 —
 1,051
 —
 1,051
 $3,930,758
 $216,541
 $676,771
 $3,042,455
 $3,935,767
Financial Liabilities         
Deposits$3,208,097
 $484,284
 $—
 $2,696,212
 $3,180,496
Federal funds purchased and repurchase agreements75,406
 —
 75,404
 —
 75,404
Federal Home Loan Bank advances312,985
 —
 298,017
 —
 298,017
Other borrowings884
 —
 2,022
 —
 2,022
Interest payable2,868
 —
 2,868
 —
 2,868
Derivative liabilities1,136
 —
 1,136
 —
 1,136
 $3,601,376
 $484,284
 $379,447
 $2,696,212
 $3,559,943


Following is a description of the valuation methodologies and inputs used for assets and liabilities measured at fair value categorized within level 2 or level 3 above and not yet disclosed:
Loans
The Company adopted ASU 2016-01 on January 1, 2019. In accordance with its requirements, the fair value of loans as of September 30, 2019 was measured using an exit price notion. Methodologies utilized for this financial statement period are as follows: (i) Income Approach: Fair value is determined based on a discounted cash flow analysis. The discounted cash flow analysis was based on the contractual maturity of the loan and market indications of rates, prepayment speeds, defaults and credit risk; and (ii) Asset Approach: Fair value is determined based on the estimated values of the underlying collateral or individual analysis of receipts. This provides a better indication of value than the contractual income streams as these loans are not performing or exhibit strong signs indicative of non-performance. Fair value has been established in accordance with ASC 820, 2022
Carrying
Fair Value Measurements
Amount
Level 1
Level 2
Level 3
(Dollars in thousands)
Financial Assets
Cash and Disclosures, and is intended to represent the price that would be received in an orderly transaction between market participants ascash equivalents
$
309,135
$
309,135
$
-
$
-
Available-for-sale securities
656,527
-
656,527
-
Loans, net of the measurement date. In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, at least one significant assumption not observable in the market was utilized. These unobservable assumptions reflect estimates that market participants would use in pricing the asset or liability. Inputs to these valuation techniques are subjective in nature, involve uncertainties and require significant judgment and therefore cannot be determined with precision. Accordingly, the fair value estimates presented are not necessarily indicative of the amounts to be realized in a current market exchange.allowance for credit losses
For December 31, 2018, fair value was estimated by discounting the future cash flows using the market rates at which similar notes would be made to borrowers with similar credit ratings and for the same remaining maturities. The market rates used were based on current rates the Company would impose for similar loans and reflect a market participant assumption about risks associated with nonperformance, illiquidity, and the structure and term of the loans along with local economic and market conditions.4,621,782
-
-
4,599,659
Restricted Equity Securitiesequity securities
Fair value is estimated at book value due to restrictions that limit the sale or transfer of such securities.9,277

-
-
36
Table of Contents
Notes to Unaudited Consolidated Financial Statements

9,277
Interest Receivable and Payablereceivable
The carrying amount approximates fair value. The carrying amount is determined using the interest rate, balance and last payment date.20,553
-
20,553
-
Equity securities
4,022
-
1,969
2,053
Derivative assets
11,430
-
11,430
-
$
5,632,726
$
309,135
$
690,479
$
4,610,989
Financial Liabilities
Deposits
Fair value of term deposits is estimated by discounting the future cash flows using rates of similar deposits with similar maturities. The estimated fair value of demand, transaction, savings and money market deposits is the book value since rates are regularly adjusted to market rates and amounts are payable on demand at the reporting date.$
4,987,515
$
1,113,934
$
-
$
3,731,781
Federal Home Loan Bank Advances
Fair value is estimated by discounting the future cash flows using rates of similar advances with similar maturities. These rates were obtained from current rates offered by FHLB.
Fed Funds Purchased and Repurchase Agreements
Fair value for fed funds purchased is book value. Fair value of repurchase agreements estimated by discounting the future cash flows using rates of similar maturities.
Other Borrowings
Fair value of the Company’s line of credit with another financial institution is estimated at book value due
67,749
-
67,749
-
Federal Home Loan Bank advances
137,600
-
130,684
-
Other borrowings
1,048
-
1,875
-
Interest payable
2,318
-
2,318
-
Derivative liabilities
18,322
-
18,322
-
$
5,214,552
$
1,113,934
$
220,948
$
3,731,781
December 31, 2021
Carrying
Fair Value Measurements
Amount
Level 1
Level 2
Level 3
(Dollars in thousands)
Financial Assets
Cash and cash equivalents
$
482,727
$
482,727
$
-
$
-
Available-for-sale securities
745,969
-
745,969
-
Loans, net of allowance for loan losses
4,197,838
-
-
4,178,268
Restricted equity securities
11,927
-
-
11,927
Interest receivable
16,023
-
16,023
-
Equity securities
2,642
-
2,209
433
Derivative assets
11,308
-
11,308
-
$
5,468,434
$
482,727
$
775,509
$
4,190,628
Financial Liabilities
Deposits
$
4,683,597
$
1,163,224
$
-
$
3,482,218
Federal Home Loan Bank advances
236,600
-
241,981
-
Other borrowings
1,009
-
2,318
-
Interest payable
1,336
-
1,336
-
Derivative liabilities
11,887
-
11,887
-
$
4,934,429
$
1,163,224
$
257,522
$
3,482,218
Notes to its short-term nature. The estimated fair value for the Trust Preferred Securities is based on current borrowing rates currently available to the Company, considering the sizeCondensed Consolidated Financial Statements
(unaudited)
47
Note 12:
Commitments and quality of the credit and liquidity of the debt as a security.Credit Risk
Commitments
Note 13:Commitments and Credit Risk
The Company had the following commitments at September 30, 2019 2022
and December 31, 2018:2021:
 September 30, 2019 December 31, 2018
 (Dollars in thousands)
Commitments to originate loans$176,598
 $190,997
Standby letters of credit35,699
 32,439
Lines of credit1,255,764
 1,174,166
Future lease commitment19,054
 19,054
Total$1,487,115
 $1,416,656

September 30, 2022

December 31, 2021
(Dollars in thousands)
Note 14:Legal and Regulatory Proceedings
General LitigationCommitments to originate loans
$
353,783
$
118,651
Standby letters of credit
56,791
51,114
Lines of credit
2,288,742
1,768,231
Future lease commitments
-
11,100
Commitments related to investment fund
3,947
2,067
$
2,703,263
$
1,951,163
Note 13:
Legal and Regulatory Proceedings
We accrue estimates for resolution of any legal and other contingencies when
losses are probable and reasonably estimable in
accordance with ASC 450,
Contingencies
("ASC 450"). No less than quarterly, and as facts and circumstances change, we review
the
status of each significant matter underlying a legal proceeding or claim and
assess our potential financial exposure. The Company
establishes reserves for litigation-related matters when it is probable
that a loss associated with a claim or proceeding has been incurred
and the amount of the loss can be reasonably estimated. If the assessment indicates
that a potentially material loss contingency is not
probable, but is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an
estimate of the range of possible loss if determinable and material, would
be disclosed. Loss contingencies considered remote are
generally not disclosed unless they involve guarantees, in which case the nature
of the guarantee would be disclosed.
Significant
judgment is required in both the determination of probability and the determination
as to whether the amount of an exposure is
reasonably estimable, and accruals are based only on the information available
to our management at the time the judgment is made,
which may prove to be incomplete or inaccurate or unanticipated events
and circumstances may occur that might cause us to change
those estimates and assumptions. Furthermore, the outcome of legal proceedings
is inherently uncertain, and we may incur substantial
defense costs and expenses defending any of these matters. Should any one or
a combination of more than one of these proceedings be
successful, or should we determine to settle any one or a combination of these
matters, we may be required to pay substantial sums,
become subject to the entry of an injunction or be forced to change the manner in
which we operate our business, which could have a
material adverse impact on our business, results of operations, cash flows or financial
condition.
The Company is subject to claimsvarious legal proceedings and lawsuitsclaims that arise primarily
in the ordinary course of business. It isAt this
time, we do not believe the opinionrange of management the disposition or ultimate resolution of such claims and lawsuitspotential losses will not have a material adverse effect on the
consolidated financial position, resultresults of
operations and cash flows of the Company.

Note 14:
Leases
37
The Company’s leases primarily include bank branches located in
Kansas City, Missouri; Tulsa, Oklahoma; Dallas, Texas; Frisco,
Texas; and Phoenix, Arizona. The remaining lease terms on these branch leases range from less than
one year
to
twenty years
with
certain options to renew. Renewal terms can extend the lease term between
five years
and
twenty years
. The exercise of lease renewal
options is at the Company’s sole discretion. When it is reasonably certain that the Company
will exercise its option to renew or extend
the lease term, that option is included in the estimated value of the right
of use (“ROU”) asset and lease liability. The Company’s lease
agreements do not contain any material residual value guarantees or material
restrictive covenants.
As of September 30, 2022, the
Company recognized one finance lease and the remaining Company
leases are classified as operating leases.
Notes to Condensed Consolidated Financial Statements
(unaudited)
48
Under ASC 842, a modified retrospective transition approach is required, applying the new standard to all leases existing at
the
date of initial application. The Company chose to use the adoption date of January 1, 2022, for ASC 842. As such, all periods presented
after January 1, 2022, are under ASC 842 whereas periods presented prior to January 1, 2022, are in accordance with prior
lease
accounting of ASC 840. Financial information was not updated, and the disclosures required under ASC 842 were not provided for dates
and periods before January 1, 2022.

The Company’s right to use an asset over the life of a lease is recorded as an ROU asset, is included
in “Other assets” on the
Condensed Consolidated Balance Sheets and was $
29
million at September 30, 2022. Certain adjustments to the ROU asset may be
required for items such as initial direct costs paid or incentives received. The lease liability
is located in “Interest payable and other
liabilities” on the Condensed Consolidated Balance Sheets of $
32
million at September 30, 2022.
The Company was unable to determine the implicit rate in the leases and used the incremental borrowing
rate instead. The
Company used the FHLB yield curve on the lease commencement date and
selected the rate closest to the remaining lease term. The
remaining weighted-average lease term is
12.3
years, and the weighted-average discount rate was
2.39
% as of September 30, 2022.
The following table presents components of operating lease expense
in the accompanying Condensed Consolidated Statements of
Income for the three- and nine-month periods ended September
30, 2022:
For the Three Months Ended
September 30, 2022
For the Nine Months Ended
September 30, 2022
(Dollars in thousands)
Finance lease amortization of right-of-use asset
$
69
$
161
Finance lease interest on lease liability
69
115
Operating lease expense
603
1,932
Variable lease expense
297
855
Short-term lease expense
5
15
Total lease expense
$
1,043
$
3,078
Future minimum commitments due under these lease agreements as of
September 30, 2022 are as follows:
Operating Leases
Finance Lease
(Dollars in thousands)
Remainder of 2022
$
762
$
123
2023
3,070
490
2024
2,793
490
2025
2,804
490
2026
2,836
490
Thereafter
15,243
8,823
Total lease payments
$
27,508
$
10,906
Less imputed interest
2,965
3,232
Total
$
24,543
$
7,674
Supplemental cash flow information –
Operating cash flows paid for operating lease amounts included in the measurement
of
lease liabilities was $
0.7
million and $
2.2
million for the three- and nine-months ended September 30, 2022, respectively. Operating
cash flows paid for finance lease amounts included in the measurement of
lease liabilities was $
0.1
million and $
0.2
million for the
three-
and nine-month periods ended September 30, 2022, respectively. During the
three- and nine-months ended September 30 2022,
the Company did
no
t record any ROU assets that were exchanged for operating lease liabilities.
Notes to Condensed Consolidated Financial Statements
(unaudited)
49
Note 15:
Stock Warrants
During the nine-month period ended September 30, 2022,
33,500
warrants were exercised at a strike price of $
5.00
per share and
33,500
common shares were issued.
The Company had
80,000
and
113,500
outstanding, fully vested warrants to purchase common stock at a strike price
of $
5.00
per
share as of September 30, 2022 and December 31, 2021, respectively.
The
80,000
warrants expire on April 26, 2023.
Note 16:
Subsequent Events
On November 7, 2022, the Company announced its receipt of regulatory
approval from the Federal Deposit Insurance
Corporation to complete the previously announced acquisition of Central Bancorp,
Inc.’s (“Central”) bank subsidiary, Farmers &
Stockmens Bank (“F&S Bank”).
The Company and Central expect to complete the merger during the fourth
quarter of 2022 pending
satisfaction or waiver of customary closing conditions set forth in the agreement.
50
ITEM 2. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION AND
RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction
with the consolidated financial statements and related notes
and with the statistical information and financial data appearing in this report
as well as in Thethe Company’s prospectus (File No. 333-232704)Annual Report on Form 10-K
for the fiscal year ended December 31, 2021 filed with the Securities &and Exchange
Commission (‘‘SEC’’(“SEC”) pursuant to Rule 424(b) of the Securities Act of 1933, as amended, on August 15, 2019, related to The Company’s initial public offeringFebruary 28, 2022 (the ‘‘IPO Prospectus’’
“2021 Form 10-K”). Results of operations for the three-
and nine-month periods ended September 30, 20192022 are not necessarily
indicative of results to be attained for any other period.
Unless we state otherwise or the context otherwise requires, references in the below section to ‘‘we,’’ ‘‘our,’’ ‘‘us,’’ ‘‘ourselves,’’ ‘‘our company,’’ and the ‘‘Company’’ refer to CrossFirst Bankshares, Inc., a Kansas corporation, its predecessors and its consolidated subsidiaries. References to ‘‘CrossFirst Bank’’ and the ‘‘Bank’’ refer to CrossFirst Bank, a Kansas chartered bank and our wholly-owned consolidated subsidiary.
On December 21, 2018, we effected a two-for-one split of our common stock in the form of a stock dividend, whereby each holder of our common stock received one additional share of common stock for each share owned as of the record date of December 19, 2018. The effect of the stock dividend on outstanding shares and per share figures has been retroactively applied to all periods presented Certain statements in this Form 10-Q.report
contain forward-looking statements regarding
our plans, objectives, beliefs, expectations, representations,
and projections.
See “Forward-Looking Information”
which is incorporated
Recent Developmentsherein by reference.

We completed our initial public offering on August 19, 2019 in which we issued and sold 6,594,362 common shares including 844,362 shares pursuant to the underwriters’ partial exercise of their overallotment option. The common shares were sold at an initial public offering price of $14.50 per share. After deducting the underwriting discounts and offering expenses, the Company received total net proceeds of $87.0 million. The shares began trading on the Nasdaq Global Select Market under the symbol ‘‘CFB.’’Third Quarter 2022 Highlights
During the third quarter ended September 30, 2019,2022, we accomplished
the following:
Increased total•
$5.8 billion of assets $178.1 million or 4.0% during the quarter to $4.7 billion, driven by a $162.4 million or 4.7% increase in our loan portfolio.with 5% operating revenue
Increased quarterly net income $945.0 thousand or 10.0% on a linked quarter basis, resulting in a quarterly return on average assets of 0.89% and return on average equity of 7.58%.
Achieved an efficiency ratio of 54.3% during the quarter.
Increased diluted earnings per share (‘‘EPS’’) 40% to $0.21 for the quarter from the same period in 2018.
Increased year-to-date 2019 diluted EPS to $0.61, an increase of 177% from the same period in 2018.

(1)
38
Table of Contents

Selected Financial Data (unaudited)

Selected financial data for and as of our previous five quarters and for and as of the nine-months ended September 30, 2019 and 2018 is presented below:
 Third Second First Fourth Third Nine Months Ended
 Quarter Quarter Quarter Quarter Quarter September 30,
 2019 2019 2019 2018 2018 2019 2018
Per Common Share Data             
Basic earnings per share$0.22
 $0.21
 $0.20
 $0.22
 $0.15
 $0.63
 $0.23
Diluted earnings per share0.21
 0.20
 0.20
 0.22
 0.15
 0.61
 0.22
Book value per share11.59
 11.00
 10.63
 10.21
 9.43
 11.59
 9.43
Tangible book value per share(1)
$11.44
 $10.83
 $10.46
 $10.04
 $9.24
 $11.44
 $9.24
Selected Operating Ratios             
Yield on securities - tax equivalent(2)
3.19% 3.42 % 3.59% 3.61% 3.58 % 3.40% 3.62%
Yield on loans5.53
 5.66
 5.75
 5.56
 5.35
 5.64
 5.25
Yield on interest-earning assets(2)
5.00
 5.18
 5.25
 5.08
 4.81
 5.14
 4.65
Cost of interest-bearing deposits2.26
 2.33
 2.30
 2.04
 1.72
 2.30
 1.59
Cost of total deposits1.94
 1.99
 1.96
 1.70
 1.42
 1.96
 1.35
Cost of funds1.94
 1.99
 1.96
 1.72
 1.46
 1.96
 1.40
Net interest margin(2)
3.24
 3.35
 3.46
 3.51
 3.44
 3.35
 3.34
Return on average assets0.89
 0.86
 0.91
 1.06
 0.70
 0.89
 0.37
Non-GAAP core operating return on average assets(3)
0.89
 0.89
 0.78
 0.67
 0.72
 0.86
 0.53
Return on average equity7.58
 7.78
 7.98
 9.03
 6.68
 7.76
 3.51
Non-GAAP core operating return on average equity(4)
7.58
 8.04
 6.79
 5.59
 6.83
 7.48
 5.38
Non-interest expense to average assets1.82
 2.00
 2.20
 2.06
 2.20
 2.00
 2.61
Efficiency ratio(5)
54.29
 60.09
 64.20
 60.18
 65.91
 59.36
 79.08
Non-GAAP core operating efficiency ratio(6)
54.29
 59.40
 64.20
 62.61
 65.54
 59.13
 72.24
Non-GAAP tax equivalent efficiency ratio(7)
53.43
 59.10
 63.10
 59.02
 64.31
 58.38
 76.82
Non-interest-bearing deposits to total deposits14.05
 14.28
 14.36
 15.10
 17.99
 14.05
 17.99
Loans to deposits99.23% 96.74 % 96.40% 95.41% 97.49 % 99.23% 97.49%
Credit Quality Ratios             
Allowance for loan losses to total loans1.18% 1.24 % 1.22% 1.23% 1.22 % 1.18% 1.22%
Nonperforming assets to total assets1.00
 1.18
 0.36
 0.43
 0.35
 1.00
 0.35
Nonperforming loans to total loans1.22
 1.45
 0.40
 0.58
 0.48
 1.22
 0.48
Allowance for loan losses to nonperforming loans97.12
 85.20
 307.27
 212.30
 256.65
 97.12
 256.65
Net charge-offs (recoveries) to average loans(8)
0.53% — % 0.09% 0.03% (0.05)% 0.21% 0.09%

39
Table of Contents

 Third Second First Fourth Third Nine Months Ended
 Quarter Quarter Quarter Quarter Quarter September 30,
 2019 2019 2019 2018 2018 2019 2018
Capital Ratios             
Total stockholders’ equity to total assets12.95% 11.16 % 11.26% 11.94% 11.03 % 12.95% 11.03%
Tier 1 leverage ratio12.57
 10.87
 11.15
 12.43
 11.39
 12.57
 11.39
Common equity tier 1 capital ratio12.91
 11.02
 11.23
 11.75
 10.55
 12.91
 10.55
Tier 1 risk-based capital ratio12.93
 11.04
 11.23
 12.53
 11.38
 12.93
 11.38
Total risk-based capital ratio13.90% 12.04 % 12.20% 13.51% 12.32 % 13.90% 12.32%
(1) Tangible common stockholders’ equity and tangible book value per share are non-GAAP financial measures. The most directly comparable GAAP measure is stockholders’ equity and book value per share. See ’’GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures’’ for a reconciliation of this measure.
(2) Tax exempt income (tax-free municipal securities) is calculated on a tax equivalent basis. The incremental tax rate used is 21.0%.
(3) Non-GAAP core operating income and non-GAAP core operating return on average assets are non-GAAP financial measures. The most directly comparable measure under GAAP is net income and return on average assets, respectively. See ‘‘GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures’’ for a reconciliation of this measure.
(4) Non-GAAP core operating return on average equity is a non-GAAP financial measure. The most directly comparable GAAP financial measure is return on average equity. See ‘‘GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures’’ for a reconciliation of this measure.
(5) We calculate efficiency ratio as non-interest expense divided by the sum of net interest income and non-interest income.
(6) Non-GAAP core operating efficiency ratio is a non-GAAP financial measure. The most directly comparable GAAP financial measure is the efficiency ratio. See ‘‘GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures’’ for a reconciliation of this measure.
(7) Non-GAAP tax equivalent efficiency ratio is a non-GAAP financial measure. The most directly comparable measure is the efficiency ratio. See ‘‘GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures’’ for a reconciliation of this measure.
(8) Interim periods are annualized

GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures

Non-GAAP financial measures are used by managementgrowth compared to evaluate our performance. The non-GAAP financial measures that we discuss should not be considered in isolation or as a substitute for the most directly comparable financial measures calculated in accordance with GAAP. Moreover, the way we calculate these non-GAAP financial measures may differ from that of other companies reporting measures with similar names.
We calculate ‘‘non-GAAP core operating income’’ as net income adjusted to remove non-recurring or non-core income and expense items related to:
Restructuring charges associated with the transition of our former CEO - In connection with the departure of our former CEO in the second quarter of 2018, we incurred restructuring charges related2022;
•
$149 million or 3.3% of total loan growth from the previous quarter and
$445 million or 10.5% loan growth from the same
quarter last year;
•
Continued improvement in credit quality during the third quarter of 2022
as evidenced by the decrease in non-performing
assets to total assets ratio from 0.92% at September 30, 2021 to 0.31% at September
30, 2022;
•
Return on Average Assets of 1.19% and a Return on Equity of 11.18%
for the quarter ended September 30, 2022; and
•
Net Interest Margin (Fully Tax-Equivalent)
(2)
of 3.56% for the quarter ended September 30, 2022, compared to 3.23% for the
same quarter last year.
(1)
Net interest income plus non-interest income
(2)
The Company modified the yield calculation. Refer to the accelerationsection “Update to Net Interest Margin Methodology” below for additional information.
Acquisition Update
As previously disclosed, during the second quarter of certain stock-based compensation2022 the Company entered
into an agreement to acquire Farmers &
Stockmens Bank for approximately $75 million, subject to
the satisfaction or waiver of customary closing conditions. The Company
believes the acquisition will advance its expansion strategy with access to
Colorado and employee costs, someNew Mexico while deploying a portion of which were adjusted inthe
Bank’s capital. The Company believes that the acquisition will increase core deposits and
enhance the Company’s SBA lending and
mortgage operations. The Company anticipates the acquisition will close
during the fourth quarter of 2018.2022 with system integration
Impairment charges associated with two buildingsoccurring in 2023. Refer to “Note 16: Subsequent Events” within the Notes
to Condensed Consolidated Financial Statements
(unaudited) for further information about the acquisition.
Interest Rate Risk Management
The Company is monitoring interest rate sensitivity closely as $3.6
billion or 62% of earning assets mature or reprice within the
twelve-month period following September 30, 2022, including
$2.8 billion that reprices in the first month. $3.8 billion of interest-
bearing liabilities mature or reprice over the same twelve-month
period. The Company is reviewing additional options to manage
balance sheet sensitivity in the event interest rates decline in early 2024.
Credit Quality
Credit quality metrics generally improved during the third quarter
of 2022. Classified loans decreased $8 million from the prior
quarter to $72 million at September 30, 2022. Non-performing assets declined
from $31 million at June 30, 2022 to $18 million at
September 30, 2022. Net charge-offs for the three-month period
ended September 30, 2022 were held-for-sale - We acquired$2 million, or 0.16% of average loans.
The Company continues to monitor the U.S. economic indicators, including
the inflation rate, commodity prices, interest rates,
and potential supply chain disruptions and the impact it may have on the
Company’s markets, clients, and prospects. The Company is
monitoring the impact of a larger corporate headquarters to accommodate our business needsrising interest rate environment on the commercial
real estate market and enterprise and leverage loans that eliminatedis
51
currently mitigated by low debt-to-equity ratios.
As of September 30, 2022, the need for two smaller support buildings. The two smaller support buildings had been acquired recently and were extensively remodeled, which resulted in a difference between book and market value for those assets. We sold oneCompany did not identify any systemic issues within its
loan portfolio that would significantly affect the credit quality of the buildingsloan portfolio.
Update to Net Interest Margin Methodology
The Company modified the yield calculation on the available-for-sale
security portfolio to better conform to peer disclosures in 2018 and
the other in the secondfirst quarter of 2019.2022. All earning-asset yields and net interest margins presented were retroactively updated
for the change in
State tax credits - As a result of the purchase and improvement of our new corporate headquarters we received state tax credits.methodology. The following changes were made:
◾
The most directly comparable GAAP financial measureaverage unrealized gain (loss) on available-for-sale securities balance was removed
from the security lines and placed in
other non-interest earning assets.
◾
The annualization method was changed from Actual/Actual to 30/360 for non-GAAP core operatingthe security yields.
The Company believes the new calculation provides better insight into
why the security yields and net interest margin changed
period-to-period.
Impact to Yield
For the Quarter Ended
For the Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
Lines Impacted
2022
2022
2022
2021
2021
2022
2021
Previous calculation
Yield on securities - taxable
2.50
%
2.77
%
2.20
%
2.11
%
1.96
%
2.41
%
1.87
%
Yield on securities - tax-exempt
(1)
3.64
3.46
3.31
3.17
3.20
3.51
3.32
Total securities yield
(1)
3.33
3.29
3.00
2.89
2.87
3.20
2.90
Yield on interest-earning assets
(1)
4.73
4.01
3.64
3.70
3.62
4.14
3.56
Net interest spread
(1)
3.50
3.51
3.25
3.22
3.16
3.42
3.06
Net interest margin
(1)
3.60
3.55
3.29
3.28
3.20
3.48
3.10
As calculated going forward
Yield on securities - taxable
2.32
2.35
2.15
2.14
2.01
2.28
1.91
Yield on securities - tax-exempt
(1)
3.37
3.36
3.35
3.35
3.43
3.36
3.52
Total securities yield
(1)
3.07
3.07
3.00
3.02
3.04
3.05
3.04
Yield on interest-earning assets
(1)
4.68
3.98
3.64
3.72
3.64
4.11
3.58
Net interest spread
(1)
3.45
3.48
3.25
3.24
3.18
3.39
3.08
Net interest margin
(1)
3.56
3.52
3.29
3.30
3.23
3.46
3.12
Change
Yield on securities - taxable
(0.18)
(0.42)
(0.05)
0.03
0.05
(0.13)
0.04
Yield on securities - tax-exempt
(1)
(0.27)
(0.10)
0.04
0.18
0.23
(0.15)
0.20
Total securities yield
(1)
(0.26)
(0.22)
-
0.13
0.17
(0.15)
0.14
Yield on interest-earning assets
(1)
(0.05)
(0.03)
-
0.02
0.02
(0.03)
0.02
Net interest spread
(1)
(0.05)
(0.03)
-
0.02
0.02
(0.03)
0.02
Net interest margin
(1)
(0.04)
%
(0.03)
%
-
%
0.02
%
0.03
%
(0.02)
%
0.02
%
(1)
Tax exempt income is net income.calculated on a tax equivalent basis. Tax-free municipal securities are
exempt from Federal income taxes. The
We calculate ‘‘non-GAAP core operating returnincremental tax rate used is 21.0%.
Update to Customer Concentrations
As of September 30, 2022, the Company’s
top 20 customer relationships represented approximately 24% or $1.2
billion of total
deposits. The Company believes that there are sufficient
funding sources, including on-balance sheet liquid assets and wholesale deposit
options, so that an immediate reduction in these deposit balances would
not be expected to have a material, detrimental effect on average assets’’ as non-GAAP core operating income (as defined above) divided by average assets. The most directly comparable GAAPthe
Company’s financial measure is returnposition
or operations.
52
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,
2022
2022
2022
2021
2021
2022
2021
(Dollars in thousands, except per share data)
Return on average assets which is calculated as net income divided by average assets.

(1)
1.19
40
Table of Contents
%

1.12
We calculate ‘‘non-GAAP core operating return on average equity’’ as non-GAAP core operating income (defined above) less preferred dividends divided by average common equity. The most directly comparable GAAP financial measure is return%
1.23
%
1.50
%
1.54
%
1.18
%
1.16
%
Return on average equity which is calculated as net income less preferred dividends divided by average common equity.
(1)
11.18
%
10.15
%
10.44
%
12.57
%
12.92
%
10.59
%
10.24
%
Earnings per share
$
0.35
$
0.31
$
0.33
$
0.41
$
0.41
$
1.00
$
0.95
Diluted earnings per share
$
0.35
$
0.31
$
0.33
$
0.40
$
0.41
$
0.99
$
0.93
Efficiency
(2)
53.20
%
57.36
%
57.57
%
55.38
%
59.06
%
55.97
%
54.18
%
Ratio of equity to assets
9.93
%
10.65
%
11.29
%
11.88
%
12.08
%
9.93
%
12.08
%
(1)
Interim periods annualized
(2)
We calculate ‘‘non-GAAP core operating efficiency ratio’’ratio as non-interest expense adjusted to remove non-recurring non-interest expenses as defined under non-GAAP core operating income
divided by the sum of net interest income and non-interest income adjusted to remove non-recurring non-interest income as defined under non-GAAP core operating income. The most directly comparable GAAP financial measure is the efficiency ratio.
Management believes that non-GAAP core operating income, non-GAAP core operating return on average assets, non-GAAP core operating return on average equity and non-GAAP core operating efficiency ratio remove events that are not recurring and not part of core business activities and are useful analytical tools for investors to compare periods excluding these non-recurring or non-core income and charges.
The following table reconciles, as of the dates set forth below, net income to non-GAAP core operating income, non-GAAP core operating return on average assets, non-GAAP core operating return on average equity and non-GAAP core operating efficiency ratio:
 Three Months Ended Nine Months Ended
 September June March December September  
 30, 30, 31, 31, 30, September 30,
 2019 2019 2019 2018 2018 2019 2018
 (Dollars in thousands)
Non-GAAP core operating income:          
Net Income$10,384
 $9,439
 $9,350
 $10,334
 $6,354
 $29,173
 $9,256
Add: restructuring charges—
 —
 —
 (815) —
 —
 5,548
Less: tax effect(1)
—
 —
 —
 (210) —
 —
 1,591
Restructuring charges, net of tax—
 —
 —
 (605) —
 —
 3,957
Add: fixed asset impairments—
 424
 —
 —
 171
 424
 171
Less: tax effect(2)
—
 109
 —
 —
 44
 109
 44
 Fixed asset impairments, net of tax—
 315
 —
 —
 127
 315
 127
Add: state tax credit(3)
—
 —
 (1,361) (3,129) —
 (1,361) —
 Non-GAAP core operating income$10,384
 $9,754
 $7,989
 $6,600
 $6,481
 $28,127
 $13,340
 (1) Represents the tax impact of the adjustments above at a tax rate of 25.73%, plus a permanent tax benefit associated with stock-based grants that were exercised prior to our former CEO’s departure.
 (2) Represents the tax impact of the adjustments above at a tax rate of 25.73%.
 (3) No tax effect.


41
Table of Contents

 Three Months Ended Nine Months Ended
 September June March December September  
 30, 30, 31, 31, 30, September 30,
 2019 2019 2019 2018 2018 2019 2018
 (Dollars in thousands)
Non-GAAP core operating return on average assets:        
 Non-GAAP core operating income$10,384
 $9,754
 $7,989
 $6,600
 $6,481
 $28,127
 $13,340
Average assets4,610,958
 4,402,002
 4,168,243
 3,884,642
 3,588,876
 4,395,356
 3,363,230
Return on average assets0.89% 0.86% 0.91% 1.06% 0.70% 0.89% 0.37%
 Non-GAAP core operating return on average assets0.89% 0.89% 0.78% 0.67% 0.72% 0.86% 0.53%
Non-GAAP core operating return on average equity:        
 Non-GAAP core operating income$10,384
 $9,754
 $7,989
 $6,600
 $6,481
 $28,127
 $13,340
Less: preferred dividends—
 —
 175
 525
 525
 175
 1,575
 Non-GAAP core operating income available to common stockholders10,384
 9,754
 7,814
 6,075
 5,956
 27,952
 11,765
Average common equity$543,827
 $486,880
 $466,506
 $430,881
 $346,025
 $499,354
 $292,589
Return on average equity7.58% 7.78% 7.98% 9.03% 6.68% 7.76% 3.51%
 Non-GAAP core operating return on average equity7.58% 8.04% 6.79% 5.59% 6.83% 7.48% 5.38%
Non-GAAP core operating efficiency ratio        
Non-interest expense$21,172
 $21,960
 $22,631
 $20,166
 $19,875
 $65,763
 $65,589
Less: restructuring charges—
 —
 —
 (815) —
 —
 5,548
 Non-GAAP non-interest expense (numerator)21,172
 21,960
 22,631
 20,981
 19,875
 65,763
 60,041
Net interest income35,786
 34,874
 33,605
 32,315
 28,968
 104,265
 78,053
Non-interest income3,212
 1,672
 1,645
 1,195
 1,185
 6,529
 4,888
Add: fixed asset impairments—
 424
 —
 —
 171
 424
 171
 Non-GAAP operating revenue (denominator)$38,998
 $36,970
 $35,250
 $33,510
 $30,324
 $111,218
 $83,112
Efficiency ratio54.29% 60.09% 64.20% 60.18% 65.91% 59.36% 79.08%
 Non-GAAP core operating efficiency ratio54.29% 59.40% 64.20% 62.61% 65.54% 59.13% 72.24%

We calculate ‘‘tangible common stockholders’ equity’’ as total stockholders’ equity less goodwill and other intangible assets and preferred stock. The most directly comparable GAAP financial measure is total stockholders’ equity.
We calculate ‘‘tangible book value per share’’ as tangible common stockholders’ equity (as defined above) divided by the number of shares of our common stock outstanding at the end of the relevant period. The most directly comparable GAAP financial measure is book value per share.
Management believes that tangible stockholders’ equity and tangible book value per share are important to many investors in the marketplace who are interested in changes from period to period in our stockholders’ equity, exclusive of changes in intangible assets. The following table reconciles, as of the dates set forth below, total stockholders’ equity to tangible stockholders’ equity and presents tangible book value per share compared to book value per share:

42
Table of Contents

 Period Ended
 September June March December September
 30, 30, 31, 31, 30,
 2019 2019 2019 2018 2018
 (Dollars in thousands except per share data)
Tangible common stockholders’ equity:        
Stockholders’ equity$602,435
 $499,195
 $480,514
 $490,336
 $409,780
 Less: goodwill and other intangible assets7,720
 7,745
 7,770
 7,796
 7,821
Less: preferred stock—
 —
 —
 30,000
 30,000
Tangible common stockholders’ equity$594,715
 $491,450
 $472,744
 $452,540
 $371,959
Tangible book value per share:         
Tangible common stockholders’ equity$594,715
 $491,450
 $472,744
 $452,540
 $371,959
Shares outstanding at end of period51,969,203
 45,367,641
 45,202,370
 45,074,322
 40,261,480
Book value per share$11.59
 $11.00
 $10.63
 $10.21
 $9.43
Tangible book value per share$11.44
 $10.83
 $10.46
 $10.04
 $9.24
We calculate ‘‘Non-GAAP tax equivalent efficiency ratio’’ as non-interest expense divided by the sum of net interest income on a tax equivalent basis and non-interest income. Management believes the tax equivalent efficiency ratio provides a better understanding of our efficiency ratio because it gives effect for our tax-exempt security strategy.
The following table reconciles, as of the dates set forth below, the efficiency ratio compared to the tax-equivalent efficiency ratio:
 Three Months Ended Nine Months Ended
 September June March December September  
 30, 30, 31, 31, 30, September 30,
 2019 2019 2019 2018 2018 2019 2018
 (Dollars in thousands)
Non-GAAP Tax Equivalent Efficiency Ratio:        
 Non-interest expense (Numerator)$21,172
 $21,960
 $22,631
 $20,166
 $19,875
 $65,763
 $65,589
Net interest income35,786
 34,874
 33,605
 32,315
 28,968
 104,265
 78,053
Tax equivalent interest income624
 612
 616
 658
 753
 1,852
 2,440
 Net interest income - tax equivalent36,410
 35,486
 34,221
 32,973
 29,721
 106,117
 80,493
Non-interest income3,212
 1,672
 1,645
 1,195
 1,185
 6,529
 4,888
 Total tax-equivalent income (Denominator)$39,622
 $37,158
 $35,866
 $34,168
 $30,906
 $112,646
 $85,381
Efficiency Ratio54.29% 60.09% 64.20% 60.18% 65.91% 59.36% 79.08%
 Non-GAAP Tax Equivalent Efficiency Ratio53.43% 59.10% 63.10% 59.02% 64.31% 58.38% 76.82%

43
Table of Contents

Results of Operations

Summary

The Company’s results of operations depend substantially on net interest income and non-interest income. Other factors contributing to the Company’s results of operations include its non-interest expense, such as salaries and employee benefits, occupancy and equipment and other miscellaneous operating expenses. The components of the Company’s results of operations were as follows for the periods shown:
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2019 2018 % Change 2019 2018 % Change
 (Dollars in thousands)
Net interest income$35,786
 $28,968
 23.5 % $104,265
 $78,053
 33.6 %
Provision for loan losses4,850
 3,000
 61.7
 10,550
 9,000
 17.2
Non-interest income3,212
 1,185
 171.1
 6,529
 4,888
 33.6
Non-interest expense21,172
 19,875
 6.5
 65,763
 65,589
 0.3
Income taxes2,592
 924
 180.5
 5,308
 (904) (687.2)
Net income$10,384
 $6,354
 63.4 % $29,173
 $9,256
 215.2 %
Preferred dividends—
 525
 (100.0) 175
 1,575
 (88.9)
Net income available to common shareholders$10,384
 $5,829
 78.1 % $28,998
 $7,681
 277.5 %
Non-GAAP core operating income(1)
$10,384
 $6,481
 60.2 % $28,127
 $13,340
 110.8 %
            
(1) Non-GAAP core operating income is a non-GAAP financial measure. The most directly comparable measure under GAAP is net income. See ‘‘GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures’’ for a reconciliation of this measure.


44
Table of Contents
Notes to Unaudited Consolidated Financial Statements

Net Interest Income

We present and discuss netNet interest income is presented on a tax-equivalent basis below. APresentation
on a tax-equivalent basis makesreflects all income as taxable at the same rate. For example, $100
of
tax-exempt income would be presented as $126.58, an$121.00, which represents the
tax-exempt income amount that, if taxedplus the tax at the statutory federal income tax rate of 21% would yield $100.. We
believe a tax-equivalenttax-
equivalent basis provides for improved comparability between the various
earning assets.
For the Quarter Ended
For the Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
2022
2022
2022
2021
2021
2022
2021
Yield on securities - tax-equivalent
(1)
3.07
%
3.07
%
3.00
%
3.02
%
3.04
%
3.05
%
3.04
%
Yield on loans
5.08
4.28
4.00
4.17
4.00
4.47
3.98
Yield on earning assets - tax-equivalent
(1)
4.68
3.98
3.64
3.72
3.64
4.11
3.58
Cost of interest-bearing deposits
1.56
0.56
0.41
0.43
0.47
0.87
0.51
Cost of total deposits
1.20
0.42
0.31
0.33
0.38
0.66
0.42
Cost of FHLB and short-term borrowings
2.18
1.66
1.95
3.03
1.82
1.87
1.80
Cost of funds
1.23
0.50
0.39
0.48
0.46
0.72
0.50
Net interest margin - tax-equivalent
(1)
3.56
%
3.52
%
3.29
%
3.30
%
3.23
%
3.46
%
3.12
%
(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%.
53
The following table presents,tables present, for the periodperiods indicated, average balance
sheet information, interest income, interest expense and the corresponding
average yield and rates paid:
paid:
 Three Months Ended
 September 30,
 2019 2018
 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$335,045
 $2,263
 2.68% $304,937
 $2,454
 3.19%
Securities - tax-exempt(1)
392,644
 3,592
 3.63
 447,333
 4,338
 3.85
Federal funds sold16,315
 89
 2.16
 20,674
 110
 2.10
Interest-bearing deposits in other banks171,913
 881
 2.03
 132,585
 613
 1.84
Gross loans, net of unearned income(2)(3)
3,540,707
 49,327
 5.53
 2,523,107
 34,012
 5.35
Total interest-earning assets(1)
4,456,624
 $56,152
 5.00% 3,428,636
 $41,527
 4.81%
Allowance for loan losses(43,327)     (31,716)    
Other non-interest-earning assets197,661
     191,956
    
Total assets$4,610,958
     $3,588,876
    
Interest-bearing liabilities           
Transaction deposits$134,987
 $386
 1.13% $56,072
 $33
 0.24%
Savings and money market deposits1,743,575
 9,553
 2.17
 1,450,397
 6,139
 1.68
Time deposits1,276,571
 8,064
 2.51
 801,416
 3,827
 1.89
Total interest-bearing deposits3,155,133
 18,003
 2.26
 2,307,885
 9,999
 1.72
FHLB and short-term borrowings345,794
 1,703
 1.95
 397,252
 1,772
 1.77
Trust preferred securities, net of fair value adjustments904
 37
 16.06
 868
 36
 16.21
Non-interest-bearing deposits535,467
 —
 —
 491,942
 —
 —
Cost of funds4,037,298
 $19,743
 1.94% 3,197,947
 $11,807
 1.46%
Other liabilities29,833
     14,904
    
Stockholders’ equity543,827
     376,025
    
Total liabilities and stockholders’ equity$4,610,958
     $3,588,876
    
Net interest income(1)
  $36,409
     $29,720
  
Net interest spread(1)
    3.06%     3.35%
Net interest margin(1)
    3.24%     3.44%
(1) Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal taxes. The incremental tax rate used is 21.0%.
(2) Loans, net of unearned income includes non-accrual loans of $43.6 million and $12.5 million as of September 30, 2019 and 2018, respectively.
(3) Loan interest income includes loan fees of $2.4 million and $1.8 million for the three months ended September 30, 2019 and 2018, respectively.
(4) Actual unrounded values are used to calculate the reported yield or rate disclosed. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same amounts.
Three Months Ended
September 30, 2022
September 30, 2021
Average Balance
Interest Income
/ Expense
Average Yield /
Rate
(1)
Average Balance
Interest Income
/ Expense
Average Yield /
Rate
(1)
(Dollars in thousands)
Interest-earning assets:
Securities - taxable
$
213,775
$
1,241
2.32
%
$
191,636
$
964
2.01
%
Securities - tax-exempt
(2)
560,541
4,725
3.37
502,107
4,310
3.43
Interest-bearing deposits in other banks
231,345
1,193
2.05
313,188
121
0.15
Gross loans, net of unearned income
(3)(4)
4,626,684
59,211
5.08
4,230,553
42,664
4.00
Total interest-earning assets
(2)
5,632,345
$
66,370
4.68
%
5,237,484
$
48,059
3.64
%
Allowance for credit losses
(56,995)
(75,103)
Other non-interest-earning assets
188,997
246,603
Total assets
$
5,764,347
$
5,408,984
Interest-bearing liabilities
Transaction deposits
$
531,999
$
1,539
1.95
%
$
510,823
$
259
0.20
%
Savings and money market deposits
2,519,574
10,568
1.66
2,276,436
1,907
0.33
Time deposits
733,607
2,802
1.52
752,012
2,045
1.08
Total interest-bearing deposits
3,785,180
14,909
1.56
3,539,271
4,211
0.47
FHLB and short-term borrowings
165,196
907
2.18
278,154
1,275
1.82
Trust preferred securities, net of fair value
adjustments
1,037
39
14.58
988
24
9.63
Non-interest-bearing deposits
1,137,626
-
-
909,750
-
-
Cost of funds
5,089,039
$
15,855
1.23
%
4,728,163
$
5,510
0.46
%
Other liabilities
62,102
36,106
Stockholders’ equity
613,206
644,715
Total liabilities and stockholders’ equity
$
5,764,347
$
5,408,984
Net interest income - tax-equivalent
(2)
$
50,515
$
42,549
Net interest spread - tax-equivalent
(2)
3.46
%
3.18
%
Net interest margin - tax-equivalent
(2)
3.56
%
3.23
%
(1)
Actual unrounded values are used to calculate the reported yield or rate. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same amounts.
(2)
Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal income taxes. The incremental tax rate used is 21.0%.
(3)
Loans, net of unearned income include non-accrual loans of $17 million and $48 million as of September 30, 2022 and 2021, respectively.
(4)
Loan interest income includes loan fees of $3 million and $4 million for the three months ended September 30, 2022 and 2021, respectively.
 Nine Months Ended
 September 30,
 2019 2018
 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$334,272
 $7,447
 2.98% $273,525
 $6,447
 3.15%
Securities - tax-exempt(1)
378,651
 10,672
 3.77
 484,090
 14,062
 3.88
Federal funds sold18,714
 345
 2.46
 18,782
 281
 2.00
Interest-bearing deposits in other banks135,030
 2,107
 2.09
 174,740
 2,200
 1.68
Gross loans, net of unearned income(2)(3)
3,373,118
 142,319
 5.64
 2,275,039
 89,262
 5.25
Total interest-earning assets(1)
4,239,785
 $162,890
 5.14% 3,226,176
 $112,252
 4.65%
Allowance for loan losses(41,329)     (29,607)    
Other non-interest-earning assets196,900
     166,661
    
Total assets$4,395,356
     $3,363,230
    
Interest-bearing liabilities           
Transaction deposits$127,785
 $1,139
 1.19% $53,995
 $101
 0.25%
Savings and money market deposits1,616,558
 27,326
 2.26
 1,381,291
 15,658
 1.52
Time deposits1,249,219
 22,956
 2.46
 809,550
 10,880
 1.80
Total interest-bearing deposits2,993,562
 51,421
 2.30
 2,244,836
 26,639
 1.59
FHLB and short-term borrowings366,708
 5,240
 1.91
 381,166
 5,020
 1.76
Trust preferred securities, net of fair value adjustments895
 112
 16.74
 860
 100
 15.47
Non-interest-bearing deposits508,888
 —
 —
 402,850
 —
 —
Cost of funds3,870,053
 $56,773
 1.96% 3,029,712
 $31,759
 1.40%
Other liabilities22,762
     10,929
    
Stockholders’ equity502,541
     322,589
    
Total liabilities and stockholders’ equity$4,395,356
     $3,363,230
    
Net interest income(1)
  $106,117
     $80,493
  
Net interest spread(1)
    3.18%     3.25%
Net interest margin(1)
    3.35%     3.34%
(1) Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal taxes. The incremental tax rate used is 21.0%.
(2) Loans, net of unearned income includes non-accrual loans of $43.6 million and $12.5 million as of September 30, 2019 and 2018, respectively.
(3) Loan interest income includes loan fees of $6.6 million and $5.1 million for the nine months ended September 30, 2019 and 2018, respectively.
(4) Actual unrounded values are used to calculate the reported yield or rate disclosed. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same amounts.


45
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54
Nine Months Ended
September 30, 2022
September 30, 2021
Average Balance
Interest Income
/ Expense
Average Yield /
Rate
(1)
Average Balance
Interest Income
/ Expense
Average Yield /
Rate
(1)
(Dollars in thousands)
Interest-earning assets:
Securities - taxable
$
218,421
$
3,728
2.28
%
$
203,633
$
2,911
1.91
%
Securities - tax-exempt
(2)
549,490
13,845
3.36
476,980
12,596
3.52
Interest-bearing deposits in other banks
246,213
1,714
0.93
390,588
359
0.12
Gross loans, net of unearned income
(3)(4)
4,466,887
149,266
4.47
4,381,213
130,268
3.98
Total interest-earning assets
(2)
5,481,011
$
168,553
4.11
%
5,452,414
$
146,134
3.58
%
Allowance for credit losses
(57,213)
(76,726)
Other non-interest-earning assets
201,519
249,816
Total assets
$
5,625,317
$
5,625,504
Interest-bearing liabilities
Transaction deposits
$
541,933
$
2,134
0.89
%
$
629,959
$
936
0.20
%
Savings and money market deposits
2,386,205
15,285
0.86
2,360,559
6,402
0.36
Time deposits
627,458
5,733
1.22
863,592
7,451
1.15
Total interest-bearing deposits
3,555,596
23,152
0.87
3,854,110
14,789
0.51
FHLB and short-term borrowings
241,897
3,385
1.87
285,371
3,841
1.80
Trust preferred securities, net of fair value
adjustments
1,024
94
12.29
976
72
9.80
Non-interest-bearing deposits
1,148,150
-
-
814,924
-
-
Cost of funds
4,946,667
$
26,631
0.72
%
4,955,381
$
18,702
0.50
%
Other liabilities
51,634
35,385
Stockholders’ equity
627,016
634,738
Total liabilities and stockholders’ equity
$
5,625,317
$
5,625,504
Net interest income - tax-equivalent
(2)
$
141,922
$
127,432
Net interest spread - tax-equivalent
(2)
3.39
%
3.08
%
Net interest margin - tax-equivalent
(2)
3.46
%
3.12
%
(1)
Actual unrounded values are used to calculate the reported yield or rate. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same amounts.
(2)
Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal income taxes. The incremental tax rate used is 21.0%.
(3)
Loans, net of unearned income include non-accrual loans of $17 million and $48 million as of September 30, 2022 and 2021, respectively.
(4)
Loan interest income includes loan fees of $10 million and $13 million for the nine months ended September 30, 2022 and 2021, respectively.
55
Changes in interest income and interest expense result from changes in average
balances (volume) of interest earning assets and interest-bearing
liabilities, as well as changes
in average interest rates. The following table sets forth the effects of changing rates and volumes
on our net interest income during the periodperiods shown. Information is provided
with
respect to: (i) changes in volume (change in volume times old rate); (ii) changes
in rates (change in rate times old volume); and (iii) changes in rate/volume (change
in rate times the
change in volume).
Three Months Ended
 Three Months Ended Nine Months Ended
 September 30, 2019 over 2018 September 30, 2019 over 2018
 Average Volume Yield/Rate 
Net Change(2)
 Average Volume Yield/Rate 
Net Change(2)
 (Dollars in thousands)
Interest Income           
Securities - taxable$227
 $(418) $(191) $1,364
 $(364) $1,000
Securities - tax-exempt(1)
(509) (237) (746) (3,000) (390) (3,390)
Federal funds sold(24) 3
 (21) (1) 65
 64
Interest-bearing deposits in other banks199
 69
 268
 (562) 469
 (93)
Gross loans, net of unearned income14,136
 1,179
 15,315
 45,980
 7,077
 53,057
Total interest income(1)
14,029
 596
 14,625
 43,781
 6,857
 50,638
Interest Expense           
Transaction deposits97
 256
 353
 277
 761
 1,038
Savings and money market deposits1,397
 2,017
 3,414
 3,024
 8,644
 11,668
Time deposits2,728
 1,509
 4,237
 7,209
 4,867
 12,076
Total interest-bearing deposits4,222

3,782
 8,004
 10,510
 14,272
 24,782
FHLB and short-term borrowings(241) 172
 (69) (195) 415
 220
Trust preferred securities, net of fair value adjustments1
 —
 1
 4
 8
 12
Total interest expense3,982
 3,954
 7,936
 10,319
 14,695
 25,014
Net interest income(1)
$10,047
 $(3,358) $6,689
 $33,462
 $(7,838) $25,624
            
(1) Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal taxes. The incremental tax rate used is 21.0%.
(2) The change in interest not due solely to volume or rate has been allocated in proportion to the respective absolute dollar amounts of the change in volume or rate.
Nine Months Ended
Three monthsSeptember 30, 2022 over 2021
September 30, 2022 over 2021
Average Volume
Yield/Rate
Net Change
(1)
Average Volume
Yield/Rate
Net Change
(1)
(Dollars in thousands)
Interest Income
Securities - taxable
$
119
$
158
$
277
$
222
$
595
$
817
Securities - tax-exempt
(2)
501
(86)
415
1,840
(591)
1,249
Interest-bearing deposits in other banks
(39)
1,111
1,072
(176)
1,531
1,355
Gross loans, net of unearned income
4,251
12,296
16,547
2,604
16,394
18,998
Total interest income
(2)
$
4,832
$
13,479
$
18,311
$
4,490
$
17,929
$
22,419
Interest Expense
Transaction deposits
$
5
$
1,275
$
1,280
$
(207)
$
1,405
$
1,198
Savings and money market deposits
223
8,438
8,661
69
8,814
8,883
Time deposits
(49)
806
757
(2,145)
427
(1,718)
Total interest-bearing deposits
179
10,519
10,698
(2,283)
10,646
8,363
FHLB and short-term borrowings
(583)
215
(368)
(601)
145
(456)
Trust preferred securities, net of fair value adjustments
1
14
15
4
18
22
Total interest expense
(403)
10,748
10,345
(2,880)
10,809
7,929
Net interest income
(2)
$
5,235
$
2,731
$
7,966
$
7,370
$
7,120
$
14,490
(1)
The change in interest not due solely to volume or rate has been allocated in proportion to the respective absolute dollar amounts of the change in volume or rate.
(2)
Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal income taxes. The incremental tax rate used is 21.0%.
Interest income -
Interest income increased for the three-
and nine-month periods ended September 30, 2019 over 20182022 compared to the same periods
in 2021 driven by higher average loans
Foroutstanding and higher interest rates. The yield on taxable securities benefited from a slowdown
in mortgage-backed securities (“MBS”) prepayments
that reduced the three monthspremium
amortization on MBS by $0.2 million and $0.7 million for the three-
and nine-month periods ended September 30, 2019, net2022, respectively.
The loan yield for the three-month period
ended September 30, 2022, benefited from $1.0 million in interest income increased $6.7
related to recoveries of interest income and loans placed back on accrual status.
Loan yields for the three-
and nine-month periods ended September 30, 2022 compared to the corresponding
periods in 2021 were partially offset by lower PPP loan fees of $1.5 million and $4.8 million,
respectively.
Average earning assets totaled $5.6
billion for the three-month period ended September 30, 2022 and $5.5 billion
for the nine-month period ended September 30, 2022, resulting in
increases of $395 million or 22.5% from8% and $29 million or 1%, respectively compared
to the same periods in 2021. The increases were driven by higher average gross loans
,
average taxable
56
securities,
and average tax-exempt securities, partially offset by a reduction
in average interest-bearing deposits in other banks for the three-
and nine-month periods ended
September 30, 2022 compared to the corresponding periods in 2021.
Interest expense
- Interest expense increased for the three-month period
ended September 30, 2022 compared to the same period in 2021 due to higher interest rates and
higher
average interest-bearing deposits. Interest expense increased for
the nine-month period ended September 30, 2022 compared to the same period
in 2021 due to higher interest rates,
partially offset by lower average interest-bearing deposits.
Average interest-bearing
deposits for the three-month period ended September 30, 2022 increased $246 million
or 7% compared to the same period in the prior year. Net interest income improved as a result of a $1.0 billion or 30.0% increase in average interest-earning assets offset by a 20 basis point decline in our net interest margin (‘‘NIM’’).
Average
For the three months ended September 30, 2019, NIM was 3.24% compared to 3.44% in 2018. The declining margin was attributable to a rising interest rate environment in the third quarter of 2018 compared to two rate cuts by the Federal Open Market Committee (‘‘FOMC’’) in the third quarter of 2019. As a result, we experienced higher cost of funds as interest-bearing deposits repriced slower than our loan portfolio. The margin on gross loans, net of unearned income increased 18 basis points from 5.35% to 5.53% while the Company’s cost of funds increased 48 basis points from 1.46% to 1.94%. Changes in the yield and rate of interest-earning assets and interest-bearing liabilities decreased net interest income by $3.4 million.
Average volume for the three monthsnine-month period ended September
30, 20192022 decreased $299 million or 8% compared to 2018 improved net interest income by $10.0 million. Average interest-earning assets were driven by a $1.0 billion or 40.3% increase in average loans. The growth in loans was primarily supported by a $847.2 million or 36.7% increase in interest-bearing deposits and a $43.5 million or 8.8% increase in non-interest-bearing deposits.

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Nine months ended September 30, 2019 over 2018
For the nine-months ended September 30, 2019, net interest income increased $25.6 million or 31.8% from the same period in the prior year.2021. For the
three-
and nine-month
periods
ended September 30, 2022 non-interest-bearing deposits increased compared
to the corresponding periods in 2021.
Net interest income
- Net interest income was driven by a $1.0 billion or 31.4% increase in average interest-earning assets. NIM increased 1 basis point as a result of four rate increases byfor the FOMC from March 2018 to December 2018, offset by two rate declines by the FOMC in July three-
and September of 2019.
For the nine-monthsnine-month periods ended September 30, 2019, NIM was 3.35%2022 compared to 3.34%the same periods in 2018. The yield on loans, net of unearned income increased 39 basis points to 5.64%, increasing interest income2021
driven by $7.1 million offset by an increase ininterest-
earning assets repricing quicker than the cost of interest-bearing deposits of 71 basis points resulting in a $14.3 million increase in interest expense. While our margin improved,
liabilities as variable rate loans tied to 30-day London Interbank Offered Rate (“LIBOR”) and
Secured Overnight
Financing Rate (“SOFR”) rates were rising faster than the overall impact of interestCompany’s deposit rates decreased
that are typically adjusted when the federal funds rate changes.
The Company currently
anticipates net interest income by $7.8 million. Average volumemargin for the nine-months ended September 30, 2019 compared to 2018 improved net interest income by $33.5 million. Average loans increased $1.1 billion or 48.3%, while average interest-bearing deposits increased $748.7 million or 33.4%. Net interest income reflects the Company’s strong balance sheet growth and maintenance of NIM.
As of September 30, 2019, approximately $223.8 million of time deposits mature in the fourth quarter at an average interestof 2022 to be in the range
of 3.45% to 3.55% because of the Company’s variable-rate assets and the rising rate of 2.51%. An additional $331.2 million of time deposits mature during the first quarter of 2020 at an average interest of 2.67%.environment,
although deposit migration and remaining pressure on loan pricing
are expected to be headwinds.
Impact of Transition Away from LIBOR
The Company has loans, derivative contracts, and other financial instruments that directly or indirectly depend on LIBOR to establish an interest rate and/or value. This included $1.1 billionhad $735 million in loans tied to LIBOR at September
30, 2022. Starting in October 2021, the Company began limiting loans originated using
the LIBOR
index. For current borrowers, the Company is modifying loan document
language to account for the transition away from LIBOR as ofloans renew or
originate. The Company plans to
replace LIBOR-based loans with the Secured Overnight Financing
Rate (“SOFR”). At September 30, 2019. LIBOR is expected2022, the Company had approximately $959 million in loans tied to ceaseSOFR. The
Company adopted Accounting Standards Update (“ASU”) 2020-04 “Reference Rate Reform (Topic 848):
Facilitation of the Effects of Reference Rate Reform on December 31, 2021.Financial
Reporting” in 2020. The impact of alternativesASU allows the Company to recognize the modification related to LIBOR on as a continuation of
the valuations, pricing and operation of our financial instruments is not yet known; however, loans, securities, and derivatives indexed to LIBOR that mature after December 31, 2021 may be impacted. Asold contract, rather than a result, the Company established an internal committee to evaluate potential substitutions and the related financial impact to the Company.
Provision for Loan Losses

The provision for loan losses is a charge to earnings to maintain the allowance for loan losses at a level that reflects management’s assessmentcancellation of the collectabilityold contract
resulting in a write-off of the loan portfolio. Net charge-offs (recoveries) representunamortized fees and creation of a reduction (addition) to the allowance for loan losses for loans we believe are no longer collectible. The provision for loan losses was as follows for the periods shown:
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2019 2018 $ Change % Change 2019 2018 $ Change % Change
 (Dollars in thousands)
Provision for loan losses$4,850
 $3,000
 $1,850
 61.7% $10,550
 $9,000
 $1,550
 17.2%

The allowance for loan losses as of September 30, 2019 was $43.0 million compared to $33.5 million as of September 30, 2018. The increase of $9.5 million or 28.2% was primarily due to an increase in our loan portfolio as well as an increase in non-performing loans, partially offset by a reduction in the energy portfolio’s qualitative factors. The allowance as a percentage of loans was 1.18% at September 30, 2019 compared to 1.22% at September 30, 2018.

47
Table of Contents

new contract.
Non-Interest Income

For the Quarter Ended
For the Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
2022
2022
2022
2021
2021
2022
2021
(Dollars in thousands)
Total non-interest income (expense)
$
3,780
$
4,201
$
4,942
$
4,796
$
(1,105)
$
12,922
$
8,864
Non-interest income (expense) to average assets
(1)
0.26
%
0.30
%
0.36
%
0.34
%
(0.08)
%
0.31
%
0.21
%
(1)
Interim periods annualized.
57
The components of non-interest income were as follows for the periods
shown:
Three Months Ended
Nine Months Ended
September 30,
 Three Months Ended Nine Months Ended
 September 30, September 30,
     Change     Change
 2019 2018 $ % 2019 2018 $ %
 (Dollars in thousands)
Service charges and fees (rebates) on customer accounts$72
 $(100) $172
 NA
 $441
 $506
 $(65) (12.8)%
Gain on sale of available for sale securities34
 195
 (161) (82.6)% 467
 608
 (141) (23.2)
Impairment of premises and equipment held for sale—
 (171) 171
 (100.0) (424) (171) (253) NA
Gain on sale of loans49
 25
 24
 96.0
 207
 618
 (411) (66.5)
Income from bank-owned life insurance476
 513
 (37) (7.2) 1,416
 1,511
 (95) (6.3)
Swap fee income, net1,879
 253
 1,626
 642.7
 2,415
 299
 2,116
 707.7
ATM and credit card interchange income476
 301
 175
 58.1
 1,312
 827
 485
 58.6
Other non-interest income226
 169
 57
 33.7
 695
 690
 5
 0.7
Total non-interest income$3,212
 $1,185
 $2,027
 171.1 % $6,529
 $4,888
 $1,641
 33.6 %
September 30,

Change
Change
2022
2021
$
%
2022
2021
$
%
(Dollars in thousands)
Service charges and fees on customer accounts
$
1,566
$
1,196
$
370
31
%
$
4,520
$
3,330
$
1,190
36
%
Realized gains (losses) on available-for-sale securities
(4)
1,046
(1,050)
NM
(43)
1,043
(1,086)
NM
Unrealized gains (losses), net on equity securities
(87)
(6,210)
6,123
(99)
(261)
(6,243)
5,982
(96)
Income from bank-owned life insurance
405
427
(22)
(5)
1,200
3,088
(1,888)
(61)
Swap fees and credit valuation adjustments, net
(7)
31
(38)
NM
123
156
(33)
(21)
ATM and credit card interchange income
1,326
1,735
(409)
(24)
5,513
5,569
(56)
(1)
Other non-interest income
581
670
(89)
(13)
1,870
1,921
(51)
(3)
Total non-interest income (loss)
$
3,780
$
(1,105)
$
4,885
NM
%
$
12,922
$
8,864
$
4,058
46
%
The changes in non-interest income were driven primarily by the following:
Swap Fee Income, NetService charges and fees on customer accounts
Swap fee income, net
- This category includes both swapaccount analysis fees, frompartially offset by a customer rebate
program. The increase for the execution of new swapsthree- and the credit valuation adjustment (‘‘CVA’’). During the quarter, the Company added several large swaps, resulting in $1.1 million of swap feesnine-
month periods ended September 30, 2022 compared to $272.7 thousandthe corresponding
periods
in 2021 was driven primarily by increases in account analysis fees due to customer growth
,
increases
in outstanding balances, and adjustments to the Company’s fee structure.
Realized gains (losses) on available-for-sale securities
– The decrease for the three- and nine-months ended September 30, 2022 compared
to the same periods for 2021 was due to
the sale of fees from several, smaller swaps$16 million in tax-exempt securities during the third quarter of 2018. Year-to-date 2019 swap fee activity totaled $2.4three-
and nine-month periods
ended September 30, 2021 at a gain due to increases in interest rates.
Unrealized gains (losses), net on equity securities
- The increase for the three- and nine-months ended September 30, 2022 compared
to the same periods for 2021 was due to the
Company recording a $6 million compared to $335.9 thousand in the prior year. The back-to-back swap program increased in activity during 2019 as a result of attractive market conditions.
In addition, the increase included a change in the CVA methodologyunrealized loss during the third quarter
of 2019. Prior to the third quarter, a more conservative default methodology was used to account for non-performance risk. The Company moved to a review of historical defaults and internal credit analysis performed by the Company. The result was an increase to non-interest income of approximately $800 thousand2021 related to swaps enteredan equity investment received as part of a modified loan agreement.
Income from bank-owned life insurance (“BOLI”)
– The decline in previous quarters.BOLI income for the nine-months ended September 30, 2022 compared to
the same period in 2021 related to
the recognition of $1.8 million in tax-free death benefits from a BOLI policy
during 2021 compared to no such proceeds for 2022.
ATM and Credit Card Interchange Incomecredit card interchange income
Increased
- The decrease in ATM and credit card interchange income for the three- and nine-month periods ended September 30, 2022 compared
to
the same periods
in 2021 was driven primarily by the expansion of oura decrease in credit card program to our new and existing customers.interest income
associated with customers that mobilized their workforce during the
COVID-19 pandemic
Service Charges and Fees on Customer Accounts
This category includes a rebate program implemented in the second quarter of 2018 that attracted additional funding for the Bank and account analysis fees that continue to grow with our2021, partially offset by customer base.growth.
Gain on Sale of Available for Sale Securities
The Company sold $63.5 million and $149.3 million of securities for the nine months ended 2019 and 2018, respectively. The sales were a strategic decision by management to capitalize on attractive market conditions, balance taxable and tax-free municipal securities, and redeploy the proceeds into higher yielding loans.
Impairment of Premises and Equipment Held for Sale
During the second quarter of 2019, the Company sold its remaining assets held-for-sale. The assets sold for approximately $2.9 million resulting in an additional impairment of $424.4 thousand.

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Table of Contents

58
Non-Interest Expense

For the Quarter Ended
For the Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
2022
2022
2022
2021
2021
2022
2021
(1)
(Dollars in thousands)
Total non-interest expense
$
28,451
$
29,203
$
27,666
$
26,715
$
24,036
$
85,319
$
72,667
Non-interest expense to average assets
(1)
1.96
%
2.11
%
2.02
%
1.93
%
1.76
%
2.03
%
1.73
%
(1)
Interim periods annualized.
The components of non-interest expense were as follows for the periods indicated:
Quarter Ended
Nine Months Ended
September 30,
 Three Months Ended Nine Months Ended
 September 30, September 30,
     Change     Change
 2019 2018 $ % 2019 2018 $ %
 (Dollars in thousands)
Salary and employee benefits$14,256
 $12,652
 $1,604
 12.7 % $43,296
 $43,689
 (393) (0.9)%
Occupancy2,080
 2,132
 (52) (2.4) 6,301
 6,199
 102
 1.6
Professional fees427
 766
 (339) (44.3) 1,923
 2,421
 (498) (20.6)
Deposit insurance premiums302
 823
 (521) (63.3) 2,020
 2,411
 (391) (16.2)
Data processing649
 528
 121
 22.9
 1,868
 1,470
 398
 27.1
Advertising580
 527
 53
 10.1
 1,770
 1,982
 (212) (10.7)
Software and communication900
 630
 270
 42.9
 2,407
 1,958
 449
 22.9
Depreciation and amortization413
 516
 (103) (20.0) 1,320
 1,306
 14
 1.1
Other non-interest expense1,565
 1,301
 264
 20.3
 4,858
 4,153
 705
 17.0
Total non-interest expense$21,172
 $19,875
 $1,297
 6.5 % $65,763
 $65,589
 $174
 0.3 %
September 30,

Change
Change
2022
2021
$
%
2022
2021
$
%
(Dollars in thousands)
Salary and employee benefits
$
18,252
$
15,399
$
2,853
19
%
$
53,288
$
44,612
$
8,676
19
%
Occupancy
2,736
2,416
320
13
7,851
7,307
544
7
Professional fees
580
618
(38)
(6)
2,453
2,538
(85)
(3)
Deposit insurance premiums
903
927
(24)
(3)
2,355
2,995
(640)
(21)
Data processing
877
700
177
25
2,849
2,136
713
33
Advertising
796
596
200
34
2,247
1,334
913
68
Software and communication
1,222
999
223
22
3,689
3,098
591
19
Foreclosed assets, net
9
(35)
44
NM
(30)
680
(710)
NM
Other non-interest expense
3,076
2,416
660
27
10,617
7,967
2,650
33
Total non-interest expense
$
28,451
$
24,036
$
4,415
18
%
$
85,319
$
72,667
$
12,652
17
%
The changes in non-interest incomeexpense were driven primarily by the following:
Salary and Employee Benefits
Quarterly salary
- Salary and employee benefit costs increased as a result of a rise in headcount in 2019 for the three-
and a $758.2 thousand increase nine-month periods ended September 30, 2022 compared to the
same periods
in equity-based compensation expense. Year-to-Date salary and employee benefit costs decline was driven by a $5.5 million management restructuring charge
2021 primarily due to the transitionimpact of our former CEOcontinued hiring for production
talent in 2018, partially offset by a netcompetitive environment, annual merit increases, and an increase of 15 employees betweenrelated
to a change in the maximum
401(k) plan match from 3.5% in 2021 to 5.0% in 2022. For the nine-month period
ended September 30, 2018 and 2019 to support our growth strategy.
Deposit Insurance Premiums
During 2018, the Deposit Insurance Fund Reserve Ratio exceeded the statutorily required minimum reserve ratio. As a result, the Company received a $664.1 thousand assessment credit. The credit resulted in lower costs on both a quarter-to-date and year-to-date basis from the prior year. Credits will be applied until the excess is exhausted. Excluding the credit, the deposit insurance premium increased approximately $143.0 thousand during the third quarter of 20192022 compared to the same period in 2018.2021, the increase also included
higher
incentive costs.
Occupancy
– The increase in occupancy costs was driven by the Company’s
expansion into Arizona in July 2021 and the addition of a second location in Dallas, Texas.
Deposit Insurance Premiums
- The FDIC uses a risk-based premium system to calculate the quarterly fee. Between 2018Our premium costs decreased
for the three- and 2019 our rate was impacted by our strongnine-month periods
ended September 30, 2022 compared to the same periods in 2021 as a result of
changes in asset quality. We currently anticipate deposit insurance premiums will increase over
the
next quarter because of expected loan growth and changes to our loan mix.the common stock
repurchase program.
Professional FeesData Processing
– The professional fees decreaseincrease in data processing costs was driven primarily by increased costs associated with
the Company's digital client interface conversion.
59
Advertising
- The increase in advertising costs was driven by a reductionincreased in-person events for the
three- and nine-month periods ended September 30, 2022 compared to
the same
periods in recruitment costs from the prior year as a result2021 because of management’s strategic initiative to reduce the use of consultants. In addition, the Company saw a reduction in external consulting fees as we finalized our IPO plans.COVID-19 pandemic restrictions being lifted.
Software and Communication
Software and communication costs increased during 2019 as a result of
- The increase was driven by our continued strategy to invest in technologies that are expectedallow us to
operate more efficiently, provide customers with a suite
of online tools,
and effectively analyze data to monitor operational trends. In addition, a portion of the increase
in costs was due to our growth. We currently anticipate our software
and communication costs to continue to increase operating efficiency in the short2022 as we continue
adding and long-term.implementing new software products that improve our customers’ experience and our operating
Data Processingefficiency.
Data processing includes our core system provided by a third-party and other operational support systems. Our customer base, transaction volume and asset size increased, resulting in higher data processing costs.


Foreclosed Assets, net
– The decrease for the nine-month period ended September 30, 2022 compared to the same
period in 2021 was due to a $630 thousand write-down in value of
a commercial use facility foreclosed upon in 2020 during the three-month
period ended June 30, 2021.
49
Table of Contents
Other Non-interest Expense

- Other non-interest expense increased for the three-
and nine-month periods ended September 30, 2022 compared to the same period
s
in 2021 due to
Advertising
Quarterly advertisinghigher commercial card costs increased from the previous year as the Company continued its rebranding process. Year-to-date advertising costs declined as a result of management’s strategic initiative to improve the efficiencyincreased use by current
customers and effectiveness of the Company’s targeted advertising.
Other non-interest expense
Other non-interest expense includedcustomer growth, an increase in commercial card costs that continue to increase as we grow our customer base. In addition, the Company had an increase in operational loaninsured cash sweep (“ICS”) deposits which drove
related fees
higher,
and increased travel and meeting costs due to increased loan volume, types of loans originated or renewed and events related to foreclosed assets. Other non-interest expense also saw an increaseCOVID-19 pandemic restrictions
being lifted. Additionally,
the nine-month period ended September 30, 2022 included $1.1
million in insurance costs due to our transition from a private to public company.employee separation costs.
Income Taxes

For the Quarter Ended
For the Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
2022
2022
2022
2021
2021
2022
2021
(Dollars in thousands)
Income tax expense (benefit) was as follows:
$
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2019 2018 $ Change % Change 2019 2018 $ Change % Change
 (Dollars in thousands)
Income tax expense (benefit)$2,592
 $924
 $1,668
 180.5% $5,308
 $(904) $6,212
 NA
Effective tax rate20.0% 12.7%     15.4% (10.8)%    
4,410

$
4,027
$
4,188
$
5,725
$
5,660
$
12,625
$
11,831
Income before income taxes
21,690
19,572
21,016
26,526
26,660
62,278
60,443
Effective tax rate
20
%
21
%
20
%
22
%
21
%
20
%
20
%
Our income tax expense (benefit) differs from the amount that would be calculated
using the federal statutory tax rate, primarily from investments in tax advantaged
assets, such as bank-owned life insuranceincluding
BOLI and tax-exempt municipal securities, securities;
state tax credits, credits;
and permanent tax differences from equity-based compensation. Refer to
“Note 10: Income Tax” within the Notes to
The $6.2 million increase between year-to-dateCondensed Consolidated Financial Statements (unaudited) for a reconciliation
of the statutory rate to the Company’s
actual income tax expense.
During the three- and nine-month periods ended September 30, 2018
2022, the Company’s effective tax rate benefited from permanent tax differences
related to tax-exempt interest.
During the three- and 2019 primarily relatesnine-month periods ended September 30,
2021, the Company benefited from permanent tax differences related to our $26.1tax-exempt
interest and $1.8 million increase in income beforeBOLI
settlement benefits that reduced income taxes by $0.4 million and a $334.0 thousand decline in permanent benefits associated with equity-based compensation that was partially offsetreduced
the effective tax rate by a $1.4 million stateapproximately 2%.
We currently anticipate the Company’s effective tax credit recordedrate to remain within
the 20% to 22% range in the first quarternear term.
60
Analysis of Financial Condition

Balance Sheet Summary

The following table summarizes select components of the Company’s Balance Sheet:
 As of Change
 September 30, 2019 December 31, 2018 $ %
 (Dollars in thousands)
Total assets$4,651,313
 $4,107,215
 $544,098
 13.2 %
Cash and cash equivalents128,126
 216,541
 (88,415) (40.8)
Available-for-sale securities733,093
 663,678
 69,415
 10.5
Gross loans, net of unearned income3,629,792
 3,060,747
 569,045
 18.6
Total deposits3,658,108
 3,208,097
 450,011
 14.0
Federal funds purchased and repurchase agreements49,810
 75,406
 (25,596) (33.9)
Federal Home Loan Bank advances307,804
 312,985
 (5,181) (1.7)
Total stockholders’ equity$602,435
 $490,336
 $112,099
 22.9 %

Assets grew primarily from loan growth, as well as, an increase in available-for-sale securities. Loan growth was driven by increases in commercial, commercial real estate, and residential real estate loans. During 2019, the Company

50
Table of Contents

purchased $157.5 million of securities, primarily made up of mortgage backed securities and tax-exempt municipal securities, which was offset by $112.2 million of sales, maturities, and pay downs. Purchases of available-for-sale securities during the third quarter were hampered by the current interest rate environment. The Company remains committed to identifying and purchasing high-quality securities with an appropriate yield. Increases in assets were offset by a reduction in cash and cash equivalents, which was part of a strategic decision to move assets to higher yielding areas.
Our increase in assets was funded primarily from an increase in total deposits that raised the loan to deposit ratio to 99.2% as of September 30, 2019. The increase in total deposits included a $212.1 million increase in time deposits and a $144.1 million increase in money market and savings deposits. The time deposit increase was driven by short-term, competitive rates that are expected to mature over the next two quarters. In addition to our increase in deposits, the Company successfully completed an initial public offering during the third quarter of 2019 and was the primary reason for the increase in total stockholders’ equity.
SecuritySecurities Portfolio

The Company’s investment portfolio is governed by the investment policy that sets objectives, limits, and liquidity requirements among other items. The investment strategy is generally updated annually in coordination with an investment advisor. The portfolio is maintained to serve as a contingent, on-balance sheet source of liquidity. The objective of the Company’s investment portfolio is to optimize earnings, manage
credit and interest rate risk, ensure adequate liquidity, manage interest rate risk,
and meet pledging requirements, and meet regulatory capital requirements. The investmentsecurities portfolio is generally comprisedalso maintained
to serve as a contingent, on-balance
sheet source of government sponsored entityliquidity. As of September 30, 2022, available-for-sale investments totaled $657 million, a decrease
of $89 million from
December 31, 2021.
The decline in the securities portfolio was driven by a $137 million decline
in the unrealized gain (loss) on available-for-sale
securities. The decline was partially offset by the purchase of $45 million in tax-exempt
municipal securities and U.S. state$35 million in
mortgage-backed securities.
The Company currently anticipates continuing to grow the securities
portfolio in proportion to the growth
of the balance sheet. The Company anticipates additional unrealized losses as interest rates continue
to increase. For additional
information, see “Note 3: Securities” in the Notes to Condensed Consolidated
Financial Statements (unaudited).
61
Loan Portfolio
Refer to “Note 4: Loans and political subdivision securities; limits are set on all typesAllowance for Credit Losses” within the Notes to Condensed Consolidated Financial Statements (unaudited)
for additional information
regarding the Company’s loan portfolio. As of securities.September 30, 2022, gross loans, net of unearned fees increased
$421 million or 10% from December 31, 2021
and was driven by the

following:
Commercial and Industrial Lines of Credit
- The $214 million or 35% increase in commercial lines of credit was driven by new
originations of $204 million.
Energy
- Our energy portfolio decreased $100 million or 36% from December
31, 2021 primarily due to $72 million in loans paid off and $79 million in net paydowns,
offset by
new originations of $64 million.
Commercial Real Estate
- The $122 million or 10% increase was driven by originations of $384 million of new
originations, offset by $268 million in loans paid off.
Construction and Land Development
- The $99 million or 17% increase was driven by new originations of $110 million.
Residential Real Estate
- The $34 million or 9% increase was driven by new originations of $62 million, offset by
$42 million loans paid off.
Multifamily Real Estate
- The $36 million or 15% increase was driven by new originations of $30 million.
The following table shows the contractual maturities of our gross loans and
sensitivity to interest rate changes:
As of September 30, 2019, available-for-sale investments totaled $733.1 million, a $69.4 million increase from December 31, 20182022
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 a $28.3 million or 4.0% increase from June 30, 2019. The increase in investment securities was partindustrial
$
25,889
$
44,014
$
268,276
$
381,009
$
53,496
$
65,483
$
19,669
$
-
$
857,836
Commercial and industrial
lines of management’s strategy to manage liquidity and optimize income. For additional information, see ‘‘Note 3 - Securities’’ in the notes to unaudited consolidated financial statements.credit
48,030
Loan Portfolio307,620

16,237
Loans consisted of the following as of the dates indicated:443,233
10,414
 September 30, 2019 December 31, 2018 September 30, 2019 vs. December 31, 2018
 Amount % of Gross Loans Amount % of Gross Loans 
$
increase (decrease)
 
%
increase
(decrease)
 (Dollars in thousands)
Commercial$1,312,647
 36.1% 1,134,414
 36.9% $178,233
 15.7 %
Energy396,132
 10.9
 358,283
 11.7
 37,849
 10.6
Commercial real estate993,153
 27.3
 846,561
 27.6
 146,592
 17.3
Construction and land development527,582
 14.5
 440,032
 14.3
 87,550
 19.9
Residential real estate365,435
 10.0
 246,275
 8.0
 119,160
 48.4
Equity lines of credit22,192
 0.6
 20,286
 0.7
 1,906
 9.4
Consumer installment21,552
 0.6
 23,528
 0.8
 (1,976) (8.4)
Gross loans3,638,693
 100.0% 3,069,379
 100.0% 569,314
 18.5
Less: Allowance for loan losses42,995
   37,826
   5,169
 13.7
Less: Net deferred loan fees and costs8,901
   8,632
   269
 3.1
Net loans$3,586,797
   $3,022,921
   $563,876
 18.7 %
5,653

-
As of September 30, 2019, gross loans increased $569.3 million or 18.5% from December 31, 2018 and increased $162.4 million or 4.7% on a linked quarter basis. The increase from December 31,2018 included $178.2 million in commercial loans. Our commercial portfolio remains well diversified with health care remaining our largest industry category at 12%.-

831,187
Energy
51
Table of Contents
8

40,172
9,448
129,227
-
-
-
-
178,855
Commercial real estate was
34,313
193,897
427,932
348,355
181,577
199,339
-
14,925
1,400,338
Construction and land
development
22,434
54,461
73,783
442,656
24,426
16,448
1,637
38,196
674,041
Residential real estate
2,673
270
11,764
3,008
86,286
2,401
882
286,583
393,867
Multifamily real estate
21,416
70,755
44,286
127,202
4,967
7,169
-
-
275,795
Consumer
4,779
14,971
13,719
7,612
-
23,115
-
1,531
65,727
Total
$
159,542
$
726,160
$
865,445
$
1,882,302
$
361,166
$
319,608
$
22,188
$
341,235
$
4,677,646
62
Provision and Allowance for
Credit Losses
The Company implemented the second largest segmentCECL model as of January 1, 2022. Refer to “Note 1: Nature of Operations and
Summary of Significant Accounting Policies” and “Note 4:
Loans and Allowance for growth during the first nine-months of 2019. Approximately 73% of the commercial real estate portfolio is locatedCredit Losses” within the states of Kansas, Missouri, Oklahoma, and Texas, with Texas, our largest state concentration, representing 40% ofNotes to Condensed Consolidated Financial Statements (unaudited)
for details regarding the portfolio as of September 30, 2019.transition, including the impact to
the financial statements. The commercial real estate portfolio remains well diversified. Retail isCECL model compared to the largest segment in our real estateincurred loss model may accelerate the provision for
credit losses if the Company’s loan portfolio representing 15% ofcontinues to grow. In
addition, positive (negative) forward-looking indicators may decrease
(increase) the portfolio.required provision for credit losses.
Our energy portfolio increased from year-end 2018 but declined as a percentage of our total portfolio from 11.7% at December 31, 2018 to 10.9%The ACL at September 30, 2019. The Company continues to identify and attract strong energy credits, but currently expects to see less activity in the fourth quarter of 2019.
Residential real estate growth was driven by developing relationships within our markets.
Allowance for Loan Losses (‘‘ALLL’’)

The ALLL is an amount required to cover net loan charge-offs plus the amount considered necessary by the Bank’s management to maintain the balance in the allowance at a level adequate to absorb expected loan losses in the existing loan portfolio. The ALLL is evaluated on at least a quarterly basis. We use a loan grading system and portfolio segmentation to group the portfolio. Each group is evaluated and adjusted for changes in historical trends that may impact the segment. The ALLL at September 30, 2019,2022 represents our best estimate of the incurredexpected credit losses inherent in the Company’s loan portfolio at that date.and off-balance sheet
commitments, measured over
the contractual life of the underlying instrument.
For the Quarter Ended
For the Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
2022
2022
2022
2021
2021
2022
2021
(Dollars in thousands)
Provision for credit losses
(1)
- loans
$
1,923
$
1,690
$
(316)
$
(5,000)
$
(10,000)
$
3,297
$
1,000
Provision for credit losses
(1)
- off-balance sheet
1,411
445
(309)
N/A
N/A
1,547
N/A
Allowance for credit losses
(2)
- loans
55,864
55,817
55,231
58,375
64,152
55,864
64,152
Allowance for credit losses
(2)
- off-balance sheet
6,731
5,320
4,875
N/A
N/A
6,731
N/A
Net charge-offs
$
1,876
$
1,104
$
1,081
$
777
$
1,341
$
4,061
$
12,143
(1)
Prior to March 31, 2022, this line represents the provision for loan losses
(2)
Prior to March 31, 2022, this line represents the allowance for loan
and lease losses
January 1, 2022, the adoption date, is presented below instead of December
31, 2021 for comparability purposes. The allocation in one portfolio segment does
not preclude its
availability to absorb losses in other segments. The table below presents the allocation of
the allowance for loan losses:credit losses as of the dates indicated:
 September 30, 2019 December 31, 2018
 Amount Percent of Allowance to Total Allowance Amount Percent of Allowance to Total Allowance
 (Dollars in thousands)
Commercial$24,811
 57.7% 16,584
 43.9%
Energy5,377
 12.5% 10,262
 27.1%
Commercial real estate7,284
 16.9% 6,755
 17.9%
Construction and land development3,016
 7.0% 2,475
 6.5%
Residential real estate2,220
 5.2% 1,464
 3.9%
Equity lines of credit160
 0.4% 159
 0.4%
Consumer installment$127
 0.3% 127
 0.3%
Gross loans$42,995
 100.0% 37,826
 100.0%

Activity
63
September 30, 2022
January 1, 2022
ACL
Amount
Percent of
ACL to
Total ACL
Percent of
Loans to
Total Loans
ACL
Amount
Percent of
ACL to
Total ACL
Percent of
Loans to
Total Loans
Loans
Off-
Balance
Sheet
Total
Loans
Off-
Balance
Sheet
Total
(Dollars in thousands)
Commercial and industrial
$
11,337
$
97
$
11,434
18
%
18
%
$
10,139
$
107
$
10,246
17
%
20
%
Commercial and industrial
lines of credit
12,057
-
12,057
19
18
8,866
44
8,910
14
14
Energy
4,828
548
5,376
9
4
9,190
265
9,455
15
7
Commercial real estate
16,455
676
17,131
28
31
18,933
711
19,644
32
30
Construction and land
development
4,587
5,320
9,907
16
14
3,666
3,914
7,580
12
14
Residential real estate
3,237
2
3,239
5
8
3,046
5
3,051
5
8
Multifamily real estate
2,673
84
2,757
4
6
2,465
137
2,602
4
6
Consumer
690
4
694
1
1
323
1
324
1
1
Total
$
55,864
$
6,731
$
62,595
100
%
100
%
$
56,628
$
5,184
$
61,812
100
%
100
%
Refer to “Note 4: Loans and Allowance for Credit Losses” within the Notes to Condensed Consolidated Financial Statements (una
udited) for a summary of the changes in the allowance for loan losses
ACL. Provided below is presented in additional information regarding changes to
the following table:ACL:
 Three Months Ended Nine Months Ended
 September 30, September 30, 2019
 2019 2018 2019 2018
 (Dollars in thousands)
Allowance for loan losses:       
Balance at beginning of period$42,852
 $30,197
 $37,826
 $26,091
Provision for loan losses4,850
 3,000
 10,550
 9,000
Charge-offs:       
Commercial(1,700) (97) (2,954) (681)
Energy(3,000) —
 (3,000) (1,256)
Commercial real estate—
 —
 —
 —
Construction and land development—
 —
 —
 —
Residential real estate—
 —
 —
 —
Equity lines of credit—
 —
 —
 (25)
Consumer installment(8) —
 (19) (45)
Total charge-offs(4,708) (97) (5,973) (2,007)
Recoveries:       
Commercial1
 439
 15
 455
Energy—
 —
 576
 —
Commercial real estate—
 —
 —
 —
Construction and land development—
 —
 —
 —
Residential real estate—
 —
 —
 —
Equity lines of credit—
 —
 —
 —
Consumer installment—
 1
 1
 1
Total recoveries1
 440
 592
 456
Net (charge-offs) recoveries(4,707) 343
 (5,381) (1,551)
Balance at end of period$42,995
 $33,540
 $42,995
 $33,540
Allowance for loan losses to total loans1.18% 1.22 % 1.18% 1.22%
Allowance for loan losses to nonperforming loans97.1
 256.7
 97.1
 256.7
Net charge-offs (recoveries) to average loans(1)
0.53% (0.05)% 0.21% 0.09%
(1) Interim periods annualized

Impaired Loans:
For the quarter three-
and nine-month periods
ended September 30, 2019,2022, the Companyimpaired loan reserve decreased $0.1 million and
$5.6 million, respectively.
The decrease was primarily
due to a restructured commercial loan relationship in which addition
al collateral was obtained. For the nine-month period ended September
30, 2022, the change included a
commercial real estate loan with an improved collateral valuation that resulted
in a $2 million reduction in the required reserve, a $0.6 million decline related to a
commercial real
estate loan charged down and subsequently paid off, and two energy
loans that paid down their outstanding balance, resulting in a $1 million decrease to the required
reserve and one
energy loan that was charged down,
resulting in a $1 million decrease in the required reserve.
Charge-offs and Recoveries:
Net charge-offs were $2 million and $4 million for the three- and nine-month periods
ended September 30, 2022, respectively. For the three-month period
ended September
30, 2022 charge-offs included $0.6 million related to two collateral-dependent
energy loans and $2.0 million related to a collateral-dependent commercial and industrial
line of credit
loan. Recoveries
primarily included $0.8 million related to a commercial real estate loan charged-off
earlier in 2022.
For the nine-month period ended September 30, 2022, charge-offs
also included $2.0 million related to a collateral-dependent commercial
and industrial line of credit that
originated in 2018 and started to deteriorate at the end of 2021; a $1 million
charge-off related to an energy loan originated in 2016 that was significantly impacted by
lower oil
prices over the past few years;
a $0.8 million charge-off on a commercial real estate project that originated
in 2017 and started to deteriorate in 2020; $2.9 million related to two
collateral-dependent energy loans; $0.6 million related to a commercial and
industrial SBA loan originated in 2018; and $0.2 million related to a junior lien on a residential real estate
64
loan. Charge-offs were partially offset primarily by a $1.8 million recovery
on an energy loan that was charged-off in 2020, $1.6 million related to a commercial real estate loan
charged-off in 2020 and $1.7 million related to a previously disclosed non-performing commercial loan. In addition,and industrial line
of credit charged-off in 2020.
During the Company charged off $3.0 millionthree months ended September 30, 2021, charge
-offs primarily related to one oil explorationcommercial loan and production credit.one energy loan. The energy charge-off related to
the sale of
Our ALLLcollateral from a borrower that filed for bankruptcy in a previous year. Approximately $2 million remained on the energy
loan at September 30, 2021. Recoveries totaled $0.2 million
for the three months ended September 30, 2021 primarily from a commercial loan
that was previously charged-off in 2020.
During the three months ended June 30, 2021, charge-offs primarily related
to a commercial and industrial borrower. The $3 million charged-off was greater than the reserved
balance in the Allowance for Loan and Lease Loss at December 31, 2020 resulting in a $2 million increase in the provision during
the three- and six-month periods ended June 30,
2021.
During the three-months ended March 31, 2021, charge-offs primarily
related to two commercial and industrial borrowers that were unable to support their debt obligations.
The $8 million charged-off was greater than the reserved balance in the allowance
for loan losses at December 31, 2020 resulting in a $5 million increase in the provision
during the
quarter ended March 31, 2021.
The below table provides the ratio of net charge-offs (recoveries) to average
loans outstanding based on our loan categories for the periods indicated:
For the Quarter Ended
For the Nine Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
September 30,
September 30,
2022
2022
2022
2021
2021
2022
2021
Commercial and industrial
-
%
0.28
%
(0.27)
%
0.27
%
0.04
%
0.01
%
0.02
%
Commercial and industrial lines of credit
1.10
(0.56)
0.76
0.04
0.62
0.36
3.12
Energy
1.19
4.77
(1.02)
0.68
0.64
1.64
0.22
Commercial real estate
(0.21)
(0.45)
0.34
-
-
(0.12)
-
Construction and land development
-
-
-
-
-
-
-
Residential real estate
-
0.21
-
(0.32)
-
0.07
-
Multifamily real estate
-
-
-
(0.06)
(0.01)
-
-
Consumer
(0.05)
-
0.05
(0.01)
(0.03)
-
0.06
Total net charge-offs to average loans
0.16
%
0.10
%
0.10
%
0.07
%
0.13
%
0.12
%
0.37
%
Non-performing Assets and
Other Asset Quality Metrics
Non-performing assets include: (i) non-performing loans - includes
non-accrual loans, loans past due 90 days or more and still accruing interest, and loans modified
under
TDRs that are not performing in accordance with their modified terms; (ii) foreclosed
assets held for sale; (iii) repossessed assets; and (iv) impaired debt securities.
Non-performing assets decreased to $18 million as of September
30, 20192022 due to an $11 million decrease
in non-accrual loans and a $2 million decrease in loans past due 90
days or more and still accruing interest. The decline in non-accrual loans was driven by $4 million
in loans returned to accruing status, $3 million in charge-offs on non-accrual
loans,
and $3 million in non-accrual loans that paid off. Improvements in
credit metrics continue to be driven by upgrades in COVID-19 impacted segments and
the energy portfolio.
Non-performing assets decreased to $31 million as of June 30, 2022
due to a $5 million decrease in non-accrual loans. The decline was driven by $4 million in charge-offs on
non-accrual loans. Improvements in credit metrics were driven by upgrades
in COVID-19 impacted segments and the energy portfolio.
65
Non-performing assets increased $9.5slightly to $36 million or 28.2% from September 30, 20180.64% of total
assets as of March 31, 2022
primarily due to an $11 million, previously identified substandard
commercial and increased $142.5 thousand or less than 1% from June 30, 2019. Year-over-year, the ALLL has increased primarily from the growthindustrial line of our loan portfolio and ancredit. The increase in our impaired loans,was partially offset by a reduction $7 million
decline in non-accrual energy loans due to $1 million in charge-offs, $3 million
in payoffs
and $3 million in loans placed back on accrual status. As of March 31, 2022, 25% of non-performing assets remained
in the energy portfolio’s qualitative factors. On a linked quarter basis, our ALLL was impacted by $4.7 millionsector.
During 2021, non-performing assets continued to decrease due primarily
to upgrades and pay offs in net charge-offs, a decline in our reserve required for our impaired loans,the commercial and a reduction in qualitative factors impacting our commercialindustrial and energy portfolios. As a result, the Company took a $4.9 million provisionof December 31,
2021, 49% of non-performing assets related to energy credits that were
significantly impacted by lower oil prices over previous few years.
Credit quality metrics were generally improved during the third quarter of 2019. Our ALLL to total loans declined 6 basis points to 1.18% as our loan portfolio continued to grow.2022,
reflecting overall improvement from the prior quarter and significant improvement
over the

prior year.

52
Table of Contents

Nonperforming Assets and Other Asset Quality Metrics

Nonperforming assets include:

i.Nonperforming loans - includes non-accrual loans, loans past due 90 days or more and still accruing interest, and loans modified under troubled debt restructurings (‘‘TDRs’’) that are not performing in accordance with their modified terms;
ii.Foreclosed assets held for sale;
iii.Repossessed assets
iv.Impaired securities
The table below summarizes our nonperformingnon-performing assets and related ratios as of
the dates indicated:
 September 30,
2019		 June 30,
2019		 March 31,
2019		 December 31,
2018		 September 30,
2018
 (Dollars in thousands)
Non-accrual loans$43,626
 $50,044
 $13,018
 $17,818
 $12,625
Loans past due 90 days or more and still accruing642
 238
 —
 —
 443
Total nonperforming loans44,268
 50,282
 13,018
 17,818
 13,068
Foreclosed assets held for sale2,471
 2,471
 2,471
 —
 —
Impaired securities—
 —
 —
 —
 —
Total nonperforming assets$46,739
 $52,753
 $15,489
 $17,818
 $13,068
Nonperforming assets to total assets1.00% 1.18% 0.36% 0.43% 0.35%
Nonperforming loans to total loans1.22% 1.45% 0.40% 0.58% 0.48%
For the Quarter Ended
September 30, 2019 nonperforming
June 30,
March 31,
December 31,
September 30,
2022
2022
2022
2021
2021
(Dollars in thousands)
Non-accrual loans
$
16,923
$
27,698
$
33,071
$
31,432
$
48,147
Loans past due 90 days or more and still accruing
303
2,163
1,534
90
342
Total non-performing loans
17,226
29,861
34,605
31,522
48,489
Foreclosed assets held for sale
973
973
973
1,148
1,148
Total non-performing assets
$
18,199
$
30,834
$
35,578
$
32,670
$
49,637
ACL to total loans
1.19
%
1.23
%
1.27
%
1.37
%
1.51
%
ACL + ACL
on off-balance sheet to total loans
(1)
1.34
1.35
1.38
N/A
N/A
ACL to non-accrual loans
330
202
167
186
133
ACL to non-performing loans
324
187
160
185
132
Non-accrual loans to total loans
0.36
0.61
0.76
0.74
1.13
Non-performing loans to total loans
0.37
0.66
0.79
0.74
1.15
Non-performing assets to total assets increased 65 basis points
0.31
%
0.54
%
0.64
%
0.58
%
0.92
%
(1)
Includes the ACL on off-balance sheet credit exposure that resulted from the prior year driven by one commercial loan restructured in the second quarter of 2019 and subsequently placedCECL adoption on non-accrual. On a linked quarter basis, our September 30, 2019 nonperforming assets to total assets declined from 1.18% at June 30, 2019 to 1.00%.January 1, 2022.
Other asset quality metrics management reviews include loans past due
30 - 89 days and classified, gross loans. The Company defines classified loans as loans categorized
as
substandard - performing, substandard – non-performing,
doubtful, or loss. The definitions of substandard, doubtful and loss see ‘‘Note 4 -are provided in “Note 4: Loans and Allowance for Loan Losses’’
Credit Losses” in the notesNotes to unaudited consolidated financial statements. Condensed Consolidated Financial Statements (unaudited).
The following table summarizes our loans past due 30 - 89 days, classified assets,
and
related ratios:
ratios as of the dates indicated:
 September 30,
2019		 June 30,
2019		 March 31,
2019		 December 31,
2018		 September 30,
2018
 (Dollars in thousands)
Loan Past Due Detail         
30 - 59 days past due$61,941
 $15,967
 $30,450
 $3,062
 $19,838
60 - 89 days past due2,785
 7,640
 616
 619
 6,505
Total 30 - 89 days past due$64,726
 $23,607
 $31,066
 $3,681
 $26,343
Loans 30 - 89 days past due to loans1.78% 0.68% 0.95% 0.12% 0.96%
Classified Loans         
Substandard$79,536
 $79,190
 $92,450
 $96,247
 $48,845
Doubtful5,637
 9,115
 5,083
 5,197
 5,502
Loss—
 —
 —
 —
 —
Total classified loans$85,173

$88,305

$97,533

$101,444

$54,347
Classified Loans / (Total Capital + ALLL)13.2% 16.3% 18.7% 19.2% 12.3%

53

66
During the quarter ended, September 30, 2019
June 30,
March 31,
December 31,
September 30,
2022
2022
2022
2021
2021
(Dollars in thousands)
Loans Past Due Detail
30 - 59 days past due
$
15,785
$
15,700
$
14,815
$
1,671
$
3,072
60 - 89 days past due
5,598
935
1,135
1,858
34,528
Total gross loans 30 - 89 days past due
$
21,383
$
16,635
$
15,950
$
3,529
$
37,600
Loans 30 - 89 days past due / gross loans
0.46
%
0.37
%
0.37
%
0.08
%
0.89
%
Classified Loans
Substandard - performing
$
55,038
$
52,759
$
40,257
$
47,275
$
75,999
Substandard - non-performing
15,135
25,530
30,619
28,879
45,063
Doubtful
1,788
2,144
2,451
2,554
3,084
Loss
-
-
-
-
-
Total classified, gross loans
71,961
80,433
73,327
78,708
124,146
Foreclosed assets held for sale
973
973
973
1,148
1,148
Total classified assets
$
72,934
$
81,406
$
74,300
$
79,856
$
125,294
Classified loans / (total capital + ACL)
11.3
%
12.1
%
10.8
%
10.8
%
17.3
%
Classified loans / (total capital + ACL +
ACL on off-
balance sheet)
(1)
11.2
12.0
10.7
N/A
N/A
Classified assets / (total capital + ACL)
11.5
%
12.3
%
11.0
%
11.0
%
17.5
%
(1)
Includes the Company experienced a $45.9 millionACL on off-balance sheet credit exposure that resulted from CECL adoption on January 1, 2022.
The increase in loans past due between 30 and 89 days as of September 30,
2022 was primarily driven by net increases in commercial real estate loans .
Loans past due
between 30 and 89 days to 59 days from $16.0 milliongross loans increased to $61.9 million. 0.46% compared to the prior
quarter. Classified loans decreased 11% during the third quarter primarily due
to lower non-accrual
loans in the commercial and industrial and commercial real estate portfolios.
The increase in loans past due between 30 and 89 days as of June 30, 2022
was primarily driven by one commercialthe 4% loan restructuredgrowth from the previous quarter. Loans past due between
30
and 89 days to gross loans remained at 0.37% compared to the prior quarter.
Classified loans increased slightly during the second quarter of 2019 and subsequently placed on non-accrual, as well as, one construction and land development loan that wasprimarily
due to downgrades in the process
commercial and industrial portfolio but remained in an acceptable range
at 12.1% of being renewed.total capital plus the allowance for credit losses.
The Company's classified assets has trended down $16.3increase in loans past due between 30 and 89 days as of March 31, 2022
was primarily driven by an $11 million or 16.0% since December 31, 2018. The decline in classified assets is a combination of charge-offs, primarily from commercial and industrial line of credit. In
the first
quarter of 2022, we experienced improvement in our classified loan totals as classified
loans decreased 7% during the quarter to $73 million. Classified totals in
the energy loans,portfolio
decreased 24% to $16 million compared to the prior quarter and changes to loan risk ratings due to borrower improvements.represent
ed 22% of total classified loans.
67
Deposits and Other Borrowings

The following table sets forth the maturity of time deposits as of September
30, 2022:
Deposits and other borrowings are usedAs of September 30, 2022
Three Months
or Less
Three to support our asset growth. Our strong asset growth requires usSix Months
Six to place a greater emphasis on both interest and non-interest-bearing deposits. We attract and retainTwelve
Months
After Twelve Months
Total
(Dollars in thousands)
Time deposits by aggressively setting our deposit rates within our markets. Other borrowings supplement our core deposit strategy.in excess of FDIC insurance limit
$
35,188
$
22,271
$
27,877
$
159,675
$
245,011
Time deposits below FDIC insurance limit
176,316
100,125
125,601
103,118
505,160
Total
$
211,504
$
122,396
$
153,478
$
262,793
$
750,171
At September 30, 2019,2022, our deposits totaled $3.7approximately $5 billion, an
increase of $450.0$304 million or 14.0%6% from December 31, 20182021. The increase
included $126 million in time
deposits and an$227 million in money market, NOW and savings deposits
,
partially offset by a decrease of $49 million in non-interest-bearing deposits
.
The increase in time deposits was
the result of $74.0a $179 million or 2.1% since June 30, 2019. Depositnet increase in wholesale funding to support
current and expected loan growth through the end of 2022, partially offset by
a decrease in customer deposits.
The increase in money market, NOW,
and savings deposits was driven primarily by competitive interest rates within our markets.increases in ICS deposits and both
business and personal money market deposits.
Other borrowings include repurchase agreements, fed funds purchased, FHLB borrowings,Federal Home Loan Bank (“FHLB”) advances and our
trust preferred security. At September
30, 2019,2022, other borrowings totaled $358.5$206 million, a $30.7 $31
million or 7.9% decline13% decrease from December 31, 20182021. During the nine-month
period ended September 30, 2022, $21.5 million of FHLB advances matured, $12.5
million of net FHLB
advances were paid off and $65 million of advances converted
into a $6.6drawdown on the FHLB line of credit. The Company utilized the
conversion of $65 million decrease from June 30, 2019. The decline in other borrowings was driven by strong depositof FHLB advances to
the FHLB line of credit and an additional $2.7 million of net withdrawals to support
loan growth and changes in deposits,
resulting in $67.7 million on the successfully completed initial public offering.FHLB line of credit at
September 30, 2022.
As of September 30, 2022, 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.
The Company believes that its current capital ratios and liquidity are sufficient
to mitigate the risks of uninsured deposits.
Liquidity

68
Liquidity and Capital Resources
Contractual Obligations and Off-Balance Sheet
Arrangements
The objectiveCompany is subject to contractual obligations made in the ordinary
course of business. The obligations include deposit
liabilities, other borrowed funds, and operating leases. Refer to “Note 6: Time
Deposits and Other Borrowings” within the Notes to
Condensed Consolidated Financial Statements (unaudited) for
a listing of the Company’s significant contractual
cash obligations. Refer
to “Note 14: Leases” within the Notes to Condensed Consolidated Financial Statements
(unaudited) for the Company’s contractual
obligations to third parties on lease obligations.
As a financial services provider, the Company
is a party to various financial instruments with off-balance sheet risks, such
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 12: Commitments and Credit Risk” within the Notes to
Condensed Consolidated Financial Statements (unaudited) for
a listing of the Company’s off
-balance sheet arrangements.
The Company’s short-term and long
-term contractual obligations, including off-balance
sheet obligations, may be satisfied
through the Company’s on-balance
sheet and off-balance sheet liquidity policydiscussed below.
Liquidity
The Company’s liquidity strategy is to maintain adequate, but not excessive,
liquidity to meet the daily cash flow needs of its clients
while attempting to achieve adequate earnings for its stockholders. The liquidity
position is monitored continuously by the Company’s finance department.management. The
Company's short-term and long-term liquidity requirements are primarily
met through cash flow from operations, redeployment of
prepaying and maturing balances in our loan portfolio and security portfolio,
increases in client deposits and wholesale deposits.
Liquidity resources can be derived from two sources: (i) on-balance
sheet liquidity resources, which represent funds currently on the
balance sheet and (ii) off-balance sheet liquidity resources, which represent
funds available from third partythird-party sources. Our The Company’s
on-balance sheet and off-balance sheet liquidity resources consisted of
the following:following as of the dates indicated:
September 30, 2022
 September 30, 2019 December 31, 2018
 (Dollars in thousands)
On-balance sheet   
Cash and cash equivalents$109,961
 $216,541
Unpledged securities available-for-sale696,519
 552,950
Total on-balance sheet liquidity806,480
 769,491
Off-balance sheet   
FHLB available funds157,302
 68,704
Federal Reserve available funds285,187
 286,397
Other available funds105,000
 95,000
Total off-balance sheet liquidity547,489
 450,101
Total liquidity$1,353,969
 $1,219,592
On-balance sheet liquidity as a percent of assets17.3% 18.8%
Total liquidity as a percent of assets29.1% 29.7%
December 31, 2021

(Dollars in thousands)

Total on-balance sheet liquidity
$
54
964,952
$
Table of Contents
Notes to Unaudited Consolidated Financial Statements
1,224,253

Total off-balance sheet liquidity
Contractual Obligations779,990

732,748
Total liquidity
$
1,744,942
$
1,957,001
On-balance sheet liquidity as a percent of assets
17
%
22
%
Total liquidity as a percent of assets
30
%
35
%
For the nine-months ended September 30, 2022, the Company’s cash
and cash equivalents declined $174 million from December
31, 2021 to $309 million, representing 5% of total assets. During the nine-month
period ended September 30, 2022, the Company
increased the AFS securities portfolio on an amortized cost basis by $48 million, net of paydowns,
maturities, and amortization, to
improve the yield on interest-earning assets. In addition, the Company
increased loan funding by $425 million, net of payoffs and
charge-offs during the nine-month period ended September 30, 2022
that reduced cash and cash equivalents.
The following table presents our significant contractual cash obligations to third parties, debtCompany’s time deposits increased by $126 million primarily from
wholesale funding. Non-interest-bearing deposits,
savings, and lease agreementsmoney market deposits increased $178 million driven primarily
by increases in ICS deposits and service obligations both business and
personal money market deposits. Other borrowings decreased $31
million during the nine-month period ended September 30, 2022,
as
net amounts of $34 million of FHLB advances matured or were paid
off and a net $3 million was drawn down on the FHLB line of
credit.
The Company continued its repurchase program, purchasing $31
million of common stock during the first nine months of 2022.
As of September 30, 20192022, $21 million remains available for repurchase
under our share repurchase program. We expect to continue to
repurchase shares under our share repurchase program, but the amount and December 31, 2018:timing
of such repurchases will be dependent on a number of
 September 30, 2019
 Payments Due by Period  
 Less than
1 Year		 1 to 2
Years		 2 to 5
Years		 More than
5 Years		 Total
 (Dollars in thousands)
Time deposits$822,439
 $216,486
 $182,832
 $—
 $1,221,757
Fed funds purchased & repurchase agreements49,810
 —
 —
 —
 49,810
FHLB borrowings and line of credit24,000
 76,500
 56,204
 151,100
 307,804
Trust preferred security—
 —
 —
 2,500
 2,500
Operating leases1,718
 1,564
 4,607
 6,479
 14,368
Total$897,967
 $294,550
 $243,643
 $160,079
 $1,596,239
69
factors, including the price of our common stock and other cash flow needs. There is no assurance
that we will repurchase up to the full
amount remaining under our program.
 December 31, 2018
 Payments Due by Period  
 Less than
1 Year		 1 to 2
Years		 2 to 5
Years		 More than
5 Years		 Total
 (Dollars in thousands)
Time deposits$444,824
 $287,451
 $267,856
 $9,546
 $1,009,677
Fed funds purchased & repurchase agreements75,406
 —
 —
 —
 75,406
FHLB borrowings and line of credit44,000
 45,000
 72,885
 151,100
 312,985
Trust preferred security—
 —
 —
 2,500
 2,500
Operating leases1,876
 1,633
 4,812
 7,450
 15,771
Total$566,106
 $334,084
 $345,553
 $170,596
 $1,416,339
The Company believes that its current liquidity will be sufficient to meet anticipated
cash requirements for the next 12 months

and thereafter. The Company believes that is has several on and off-balance sheet options
to address any resulting reductions in cash and
cash equivalents in order to maintain appropriate liquidity.
Capital Resources and Off-Balance Sheet Arrangements

Requirements
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies.
The regulatory capital requirements involve quantitative measures of
the Company’s assets, liabilities, select off-balance sheet items and
equity. Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Company’s consolidated financial statements. Refer to “Note 8:
Regulatory Matters” in the Notes to Condensed Consolidated Financial Statements
(unaudited) for additional information. Management
believes that as of September 30, 2019,2022, the Company and the Bank meetmet all capital adequacy
requirements to which they are subject. For additional information, see ‘‘Note 8 - Regulatory Matters’’ in the notes to unaudited consolidated financial statements.
The Company is subject to off-balance sheet risk in the normal course of business to meet the needs of its clients that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. These off-balance sheet arrangements include commitments to fund loans, standby letters of credit, and a previously disclosed future lease obligation in Kansas City, Missouri.

55
Table of Contents

The following is a summary of our off-balance sheet commitments as of the dates presented:
  September 30, 2019 December 31, 2018
  (Dollars in thousands)
Commitments to fund C&I loans $507,195
 $597,534
Other loan commitments 925,167
 767,629
Standby letters of credit 35,699
 32,439
Lease agreements 19,054
 19,054
Total $1,487,115
 $1,416,656

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 identified several accounting policies that are critical to an understanding of our financial condition bases estimates on historical experience
and results of operations. In addition, these policies require difficult, subjective or complex judgments andon various other assumptions that create potential sensitivityit believes
to be reasonable under current circumstances. These assumptions form the basis for
management judgments about the carrying values of our financial statements to those judgments and assumptions. These policies relate to the allowance for loan and lease losses, investment securities impairment, deferred tax assets and the fair valueliabilities that
are not readily available from independent, objective
sources. The Company evaluates estimates on an ongoing basis. Use of financial instruments. 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“Critical Accounting Policies’’Policies and Estimates” in
Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the IPO Prospectus. There2021 Form
10-K.
On January 1, 2022, the Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326):
Measurement of
Credit Losses on Financial Instruments. Refer to “Note 1: Nature of
Operations and Summary of Significant Accounting Policies” and
“Note 4: Loans and Allowance for Credit Losses” within the Notes to Condensed Consolidated Financial Statements (unaudited)
for
information regarding the Company’s ACL implementation and the ACL process. Determining the appropriateness of the ACL
is
complex and requires judgment by management about the effect of matters that
are inherently uncertain. These critical estimates include
significant use of the Company’s historical data and complex methods to interpret
them.
It is difficult to estimate how potential changes in any one input might affect the
overall ACL because inputs may change at
different rates and may not be consistent across the loan segments. In addition,
changes in inputs may be directionally
inconsistent such
that one factor may offset deterioration in others. The Company identified the following
estimates and assumptions as the main drivers
in the required ACL for loans and the reserve for off-balance sheet commitments:
◾
Fully exhausted loan pool
– The historical loss factor is calculated by identifying a group of loans at a point in time (a
“cohort”) and tracking the cohort’s charge-offs, net of recoveries, over
a 10-year period (known as the estimated
economic life). A charge-off rate for each cohort is calculated based on charge-offs, net of recoveries over the initial loan
balance. The charge-off rate for a specific cohort is not included in the weighted
average historical loss rate until “fully
exhausted.”
A cohort balance declines due to modifications, renewals, and paydowns. The Company requires the remaining cohort
balance to be less than 15% of its original cohort balance before being included
in the historical loss factor. The 15%
70
represents the exhaustion rate. Changes to the assumed exhaustion rate could
increase or decrease the historical loss rates
based on the timing of charge-offs, net of recoveries.
◾
Forward looking factors
– The Company uses the Federal Reserve Bank’s unemployment rate forecast to adjust
expected losses based on an economic outlook. The Company’s current methodology
increases the ACL one basis point
for each 1% increase in the average unemployment rate forecast.
◾
Changes in the assumed utilization rate of off-balance sheet commitments
– The Company uses a 12-month
historical utilization rate for all loan segments, excluding construction and
development loans that use a higher
utilization rate. An ACL
on off-balance sheet commitments is required if the end of period utilization
rate is less than the
12-month historical utilization rate.
Besides the ACL methodology mentioned above, there have been no additional changes in the Company’s application of critical
accounting policies and estimates since June 30, 2019.December 31, 2021.
Recent Accounting Pronouncements
The Company had the following updatesRefer to recent accounting pronouncements during the quarter. For additional information on accounting pronouncements, see Note 1 -“Note 1: Nature of Operations and Summary of Significant Accounting Policies. A complete list of recent, applicable accounting pronouncements was providedPolicies” included in the Company’s IPO Prospectus.Notes to Condensed
ASU 2016-13,Consolidated Financial Instruments - Credit Losses - The Company established a committee of individuals from applicable departments to oversee the implementation process. The committee chose a third-party software solution. By the third quarter of 2019, the Company completed the software implementation phase of the transition. The software implementation phaseStatements (unaudited) included data capture and portfolio segmentation amongst other items. The Company completed a parallel run using 2019 data and expects to complete a second parallel run using third quarter data during the fourth quarter of 2019. Atelsewhere in this time an estimate of the impact to the Company’s financial statements is not known, but the impact could be significantly affected by the composition, characteristics and quality of the underlying loan portfolio at the time of adoption.Form
10-Q.
ASU 2016-02, Leases (Topic 842) - The Company plans to apply the update as of the beginning of the period of adoption and is not planning to restate comparative periods. The Company expects to elect certain optional practical expedients. The Company gathered all potential lease and embedded lease agreements and is evaluating the applicability and impact to the financial statements. Current operating leases relate primarily to three branch locations. Based on these current leases, the Company anticipates recognizing a lease liability and related right-to-use asset on our balance sheet, with an immaterial impact on the income statement compared to the current lease accounting model. However, the ultimate impact of the standard will depend on the Company’s lease portfolio as of the adoption date.
71
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

Interest Rate Risk
A primary component of market risk is interest rate volatility. Managing interestInterest rate risk management is a key element of the Company’s
balance sheet management. Interest rate risk is the risk that net interest margin margins
will erode over time due to changing market conditions.
Many factors can cause margins to erode: (i) lower loan demand; (ii) increased
competition for funds; (iii) weak pricing policies; (iv)
balance sheet mismatchesmismatches; 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 Bank’s Funds ManagementAsset/Liability Committee (‘‘FMC’’(“ALCO”) in accordance with policies approved by the Bank’s board of directors.. The FMCALCO uses a combination of
three systems to measure the

56
Table of Contents

balance sheet’s interest rate risk position. Because each system serves a different purpose and provides a different perspective, theThe three systems in
combination are expected to provide a better
overall result than a single system alone. The three systems include: (i) gap reports; (ii)
earnings simulation; and (iii) economic value of
equity. The FMC’sALCO’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 FMCALCO evaluates interest rate risk using a rate shock method and rate ramp method. In a rate shock analysis, rates change
immediately,
and the change is sustained over the time horizon. In a rate ramp analysis, rate changes
occur gradually over time. The
following tables summarize the simulated changes in net interest income and fair
value of equity over a 12-month horizon using a rate
shock and rate ramp method as of the dates indicated:
Hypothetical Change in Interest Rate - Rate Shock
Hypothetical Change in Interest Rate - Rate Shock
 September 30, 2019 September 30, 2018
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
+30012.0 % (2.6)% 10.3 % (8.3)%
+2008.6
 (0.4) 7.1
 (4.6)
+1004.7
 0.5
 3.8
 (0.8)
Base—
 —
 —
 —
-100(5.0) 0.1
 (4.2) (1.1)
-200(11.3)% 1.2 % (6.2)% 0.3 %
September 30, 2022
September 30, 2021
Hypothetical Change in Interest Rate - Rate Ramp
 September 30, 2019 September 30, 2018
Change in Interest Rate
(Basis Points)		Percent change in net interest income Percent change in net interest income
+3007.4 % 4.9 %
+2005.1
 3.4
+1002.6
 1.7
Base—
 —
-100(2.8) (1.8)
-200(6.2)% (3.6)%
Change in Interest

Rate (Basis Points)
Percent change in net
interest income
Percent change in fair
value of equity
Percent change in net
interest income
Percent change in fair
value of equity
+300
6.1
%
(11.1)
%
6.4
%
(8.9)
%
+200
4.1
(7.3)
3.6
(5.7)
+100
2.0
(3.2)
1.1
(3.0)
Base
-
%
-
%
-
%
-
%
-100
(1.9)
3.2
NA
(1)
NA
(1)
-200
(5.7)
5.7
NA
(1)
NA
(1)
-300
(10.1)
7.1
NA
(1)
NA
(1)
(1)
The hypotheticalCompany decided to exclude the down rate environment from its analysis due to the already low interest rate environment.
Hypothetical Change in Interest Rate - Rate Ramp
September 30, 2022
September 30, 2021
Change in Interest Rate
(Basis Points)
Percent change in net interest
income
Percent change in net interest
income
+300
2.9
%
2.5
%
+200
1.9
1.2
+100
1.0
0.2
Base
-
%
-
%
-100
(0.9)
NA
(1)
-200
(2.1)
NA
(1)
-300
(4.1)
NA
(1)
(1)
The Company decided to exclude the down rate environment from its analysis due to the already low interest rate environment.
72
The Company’s position is slightly asset sensitive as of September 30, 2022. The hypothetical positive
change in net interest
income as of September 30, 20192022 in a down oran up 100 basis point shock is mainly due
to approximately 67%$3.6
billion of the Company’s earning
assets repricing or maturing overwithin the next 12 months. Loans remainfirst year, with $2.8 billion of that being
in the largest portionfirst month. In addition, $624 million of our adjustable earning assets, asthe
Company’s time deposits and other borrowings mature or reprice
within that same 12-month period. Assuming the same balance sheet
mix, of adjustable loans to total loans was 71.5%. The amount of adjustable loans causes the Company to seecurrently anticipates an increase into net interest income
in a risingall upward rate environmentramp and a decline in net shock scenarios. In down rate
scenarios, income is predicted to decrease. The Company is monitoring longer term
interest income in a declining rate environment.expectations and is evaluating options

to reduce the impact of any downward rate adjustments, including
the use of hedges.
The models the Company uses include assumptions regarding interest rates and balance changes.
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.

57
Table of Contents
Notes to Unaudited Consolidated Financial Statements

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
(as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934 (‘‘(“Exchange Act’’Act”)) as of September 30, 2019.2022. Based on that evaluation, the Company’s Chief Executive Officer
and Chief Financial
Officer concluded that the Company’s disclosure controls and procedures were effective
as of September 30, 2019.2022.
Changes in Internal Control over Financial Reporting
The Company implemented internal controls to ensure the Company adequately
calculated changes due to, and properly assessed
the impact of, the accounting standard updates related to the adoption of ASC 326 on January 1, 2022. There waswere no significant
changes to our internal control over financial reporting due to the adoption of
the new standard.
No change in the Company’s internal control over financial reporting (as such term
is defined in Rule 13a-15(f) under the
Exchange Act) that occurred during the third quarter of 2019 that2022 has materially affected, or is reasonably likely to materially
affect, the
Company’s internal control over financial reporting.
PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the normal course of business, we are named or threatened to be named
as a defendant in various lawsuits. Management,
following consultation with legal counsel, does not expect the ultimate disposition
of any or a combination of these matters to have a
material adverse effect on our business, financial condition, results of operations,
cash flows or growth prospects. However, given the
nature, scope, and complexity of the extensive legal and regulatory landscape
applicable to our business (including laws and regulations
governing consumer protection, fair lending, fair labor, privacy, information
security and anti-money laundering and anti-terrorism
laws), we, like all banking organizations, are subject to heightened legal
and regulatory compliance and litigation risk.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully
consider the factors discussed in Part I, "Item 1A.
Risk Factors" in our 2021 Form 10-K, which could materially affect
our business, financial condition,
or results of operations in future
periods.
There were no material changes from the risksrisk factors disclosed in the Risk Factors section2021 Form 10-K.

73
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS

(a)
Unregistered SalesNone.
(b)
Not applicable.
(c)
Share Repurchase Program
The following table summarizes our repurchases of Equity Securitiesour common shares

Duringfor the quarterthree-months ended September 30, 2019 and prior2022:
Calendar Month
Total Number of
Shares
Repurchased
Average Price
Paid per
Share
Total Number of Shares
Purchased as Part of
Publicly Announced Plans
or Programs
(1)
Approximate Dollar Value of Shares that
may yet be Purchased as Part of
Publicly Announced Plans or
Programs
(1)
July 1 - 31
243,254
$
13.26
243,254
$
28,273,238
August 1 - 31
304,668
$
14.16
304,668
$
23,950,841
September 1 - 30
246,535
$
13.28
246,535
$
20,672,141
Total
794,457
$
13.61
794,457
(1)
On October 18, 2021, the Company announced that its Board of Directors approved
a share repurchase program under which the
Company could repurchase up to September 13, 2019 (the date$30 million of its common stock. This program was completed
during the filingthird quarter of our registration statement on Form S-8), we issued and sold an aggregate2022.
On May 10, 2022, the Company announced that its Board of 5,883 sharesDirectors approved
a second share repurchase program under which
the Company may repurchase up to $30 million of ourits common stock to current employees at a weighted average exercise pricestock. As of $17.00 per share pursuant to our partner share purchase program for aggregate cash consideration of $100.0 thousand. The shares were issued pursuant to an exemption under Rule 701 promulgated under the Securities Act. Each of the recipients of securities in these transactions had adequate access, through employment, to information about us.

During the quarter ended September 30, 2019 2022, $21 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 priorother
relevant factors. The program does not obligate the Company to September 13, 2019 (the date of the filing of our registration statement on Form S-8), we issued 31,575 stock settled appreciation rights (‘‘SSARs’’) under our 2018 Equity Incentive Plan at a weighted average exercise price of $14.41 per unit. The SSARs vest in seven equal annual installments commencing in August 2020 and expire in August 2029.acquire any amount

In addition, during the quarter ended September 30, 2019 and prior to the filing of our Form S-8, we issued and sold to our employees an aggregate of 1,317 shares of common stock uponand may be suspended at any
time at the exercise of SSARs issued under our 2018 Equity Incentive Plan at a weighted-average exercise price of $8.25 and a $17.00 priceCompany's discretion. No time limit has been set for completion of the underlying security. The Companyprogram.

58

74
withheld an aggregateITEM 6. EXHIBITS
Exhibit
Number
Exhibit Description

The SSARs and the common stock issuable upon the exercise of such SSARs were issued under the 2018 Equity Incentive Plan in reliance on the exemption provided by Rule 701 promulgated under the Securities Act. Each of the recipients of securities in these transactions had adequate access, through employment, to information about us.

Use of Proceeds from our Initial Public Offering of Common Stock

On August 19, 2019, we completed our IPO, in which we sold 6,594,362 shares of common stock, including 844,362 shares pursuantExhibit 3.1 to the underwriters' overallotment option, at price to the public of $14.50 per share. We received aggregate net proceeds of $87.0 million, net of underwriting discounts and commissions of $6.2 million and offering expenses paid by us of approximately $2.4 million subject to certain cost reimbursements. The offering has terminated. We distributed $50 million of the proceeds to our wholly-owned subsidiary, CrossFirst Bank, to support its growth. The balance of the proceeds for the offering was held at the Company and used for general corporate purposes. We made no payments to our directors, officers or persons owning ten percent or more of our common stock or to their associates, or to our affiliates in connection with the issuance and sale of the securities registered. We did not receive any proceeds from the sale of shares by the selling stockholders.Company's

All the shares issued and sold in the initial public offering were registered under the Securities Act pursuant to a Registration Statement on Form S-1 (File No. 333-232704), which was declared effective byas filed with the SEC on August 14, 2019. PursuantJuly 18, 2019, File No. 333-232704).
There has been no material change in the planned use of the proceeds of the initial public offering as described in our IPO Prospectus (FileSEC on July 18, 2019, File No. 333-232704).
**
101.INS*
XBRL Instance Document - the instance document does not appear in the Dallas MSA,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 addition to consistently evaluating other strategic opportunities.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

The Board of Directors of the Company has established May 12, 2020 as the date of the Company’s 2020 Annual Meeting of Stockholders (the “2020 Annual Meeting”). The timeInline XBRL and location of the 2020 Annual Meeting will be specifiedcontained in the Company’s 2020 proxy statement.



59
Table of Contents

ITEM 6. EXHIBITS

    Incorporated by Reference
Exhibit Number Exhibit Description Form Exhibit Filing Date/Period End Date
10.1
 
Amended Employment Agreement with George F. Jones, Jr. dated May 1, 2018†
 S-1 10.1 July 18, 2019
10.2
 
Second Amendment to Employment Agreement with George F. Jones, Jr. dated March 20, 2019†
 S-1 10.2 July 18, 2019
10.3
 
Third Amendment to Employment Agreement with George F. Jones, Jr. dated May 1, 2019†
 S-1 10.3 July 18, 2019
10.4
 
Employment Agreement with David O’Toole dated May 1, 2015†
 S-1 10.4 July 18, 2019
10.5
 
First Amendment to Employment Agreement with David O’Toole dated March 19, 2019†
 S-1 10.5 July 18, 2019
10.6
 
Employment Agreement with Mike Maddox dated May 1, 2015†
 S-1 10.6 July 18, 2019
10.7
 
First Amendment to Employment Agreement with Mike Maddox dated March 19, 2019†
 S-1 10.7 July 18, 2019
10.8
 
Employment Agreement with Amy Fauss dated June 29, 2016†
 S-1 10.8 July 18, 2019
10.9
 
First Amendment to Employment Agreement with Amy Fauss dated March 15, 2019†
 S-1 10.9 July 18, 2019
10.10
 
Employment Agreement with Tom Robinson dated May 1, 2015†
 S-1 10.10 July 18, 2019
10.11
 
First Amendment to Employment Agreement with Tom Robinson dated March 18, 2019†
 S-1 10.11 July 18, 2019
10.12
 
Chairman Emeritus Agreement with Ron Baldwin dated April 26, 2018†
 S-1 10.12 July 18, 2019
10.13
 
RSU Award Agreement with George F. Jones, Jr. dated February 28, 2019†
 S-1 10.13 July 18, 2019
10.14
 
Performance Share Award Agreement with George F. Jones, Jr. dated February 28, 2019†
 S-1 10.14 July 18, 2019
10.15
 
2018 Omnibus Equity Incentive Plan†
 S-1 10.15 July 18, 2019
10.16
 
Form of Legacy RSU - New Market Founders Award†
 S-1 10.16 July 18, 2019
10.17
 
Form of Legacy EIP 2018 RSU Award Agreement†
 S-1 10.17 July 18, 2019
10.18
 
Form of Legacy SAR Award Agreement†
 S-1 10.18 July 18, 2019
10.19
 
Form of EEIP Legacy RSU Award Agreement†
 S-1 10.19 July 18, 2019
10.20
 
Form of RSU Award Agreement†
 S-1 10.20 July 18, 2019
10.21
 
Form of 2019 RSU Award Agreement†
 S-1 10.21 July 18, 2019
10.22
 
Form of 2019 Performance Share Award Agreement†
 S-1 10.22 July 18, 2019
10.23
 
Form of Director Restricted Stock Award†
 S-1 10.23 July 18, 2019
10.24
 
Form of Indemnification Agreement†
 S-1 10.24 July 18, 2019
10.25
 
Director Deferred Fee Program†
 S-1 10.25 July 18, 2019

60
Table of Contents

    Incorporated by Reference
Exhibit Number Exhibit Description Form Exhibit Filing Date/Period End Date
10.26
 
Stock Appreciation Rights Plan†
 S-1 10.26 July 18, 2019
10.27
 
Form of SAR Award Agreement†
 S-1 10.27 July 18, 2019
10.28
 
Annual Incentive Plan†
 S-1 10.28 July 18, 2019
12.01
 
Subsidiaries of CrossFirst Bankshares, Inc.
 S-1 21.1 July 18, 2019
31.1*
 
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
      
31.2*
 
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
      
32.1**
 
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
      
101.INS* XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document      
101.SCH* XBRL Taxonomy Extension Schema Document      
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document      
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document      
101.LAB* XBRL Taxonomy Extension Label Linkbase Document      
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document      

Exhibit 101)
*
Filed Herewith
**
Furnished Herewith
†
Indicates a management contract or compensatory plan arrangement


61
Table of Contents


75
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.
November 8, 2022
/s/ Benjamin R. Clouse
CrossFirst Bankshares Inc.
November 12, 2019/s/ David O’Toole
David O’Toole
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)


Benjamin R. Clouse
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
62