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UNITED STATES
SECURITIES AND
 
EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-Q
 
☒
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended
March 31, 2023
 
or
☐
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to
 
______
Commission file number
001-39028
 
CROSSFIRST BANKSHARES, INC.
 
(Exact Name of Registrant as Specified in its Charter)
Kansas
26-3212879
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
11440 Tomahawk Creek Parkway
Leawood
,
KS
66211
(Address of principal executive offices)
(Zip Code)
(
913
)
901-4516
 
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since
 
last report)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, par value $0.01 per share
CFB
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required
 
to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
 
reports), and
(2) has been subject to such filing requirements for the past 90 days.
 
Yes
 
☒
 
No
 
☐
Indicate by check mark whether the registrant has submitted electronically
 
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or
 
for such shorter period that the registrant
was required to submit such files).
 
Yes
 
☒
 
No
 
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
 
filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
 
“large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☒
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☒
If an emerging growth company, indicate by check mark if the registrant has elected not
 
to use the extended transition period for
complying with any new or revised financial accounting standards provided
 
pursuant to Section 13(a) of the Exchange Act.
 
☐
 
Indicate by check mark whether the registrant is a shell company (as defined
 
in Rule 12b-2 of the Exchange Act). Yes
 
☐
 
No
 
☒
As of April 28, 2023, the registrant had
48,600,618
 
shares of common stock, par value $0.01, outstanding.
 
 
3
Forward-Looking Information
All statements contained in this quarterly report on Form 10-Q that do not directly
 
and exclusively relate to historical facts
constitute forward-looking statements. These statements are often, but not always, made
 
through the use of words or phrases such as
“may,” “might,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,”
 
“will,” “anticipate,” “seek,” “estimate,” “intend,”
“plan,” “projection,” “goal,” “target,” “outlook,” “aim,” “would,”
 
“annualized,” “position” and “outlook,” or the negative of these words
or other comparable words or phrases of a future or forward-looking nature.
 
For example, our forward-looking statements include
statements regarding our expectations, opportunities or plans for growth;
 
the proposed acquisition of Canyon Bancorporation, Inc. and
Canyon Community Bank, N.A. (collectively “Canyon”); 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, the 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 the
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 due to a number of factors,
including, without limitation: impacts on us and our clients of a decline in general
 
business and economic conditions and any regulatory
responses thereto, including uncertainty and volatility in the financial markets; interest
 
rate fluctuations; our ability to effectively
execute our growth strategy and manage our growth, including identifying
 
and consummating suitable mergers and acquisitions,
entering new lines of business or offering new or enhanced services or
 
products; the transition away from the London Interbank Offered
Rate (“LIBOR”); fluctuations in fair value of our investments due to factors outside
 
of our control; our ability to successfully manage
credit risk and the sufficiency of our allowance; geographic concentration
 
of our markets; economic impact on our commercial real
estate and commercial-based loan portfolios, including declines in
 
commercial and residential real estate values; an increase in non-
performing assets; our ability to attract, hire and retain key personnel; maintaining
 
and increasing customer deposits, funding
availability, liquidity and our ability to raise and maintain sufficient
 
capital; competition from banks, credit unions and other financial
services providers; the effectiveness of our risk management framework;
 
accounting estimates; our ability to maintain effective internal
control over financial reporting; our ability to keep pace with technological changes;
 
cyber incidents or other failures, disruptions or
security breaches; employee error, fraud committed against the Company
 
or our clients, or incomplete or inaccurate information about
clients and counterparties; mortgage markets; our ability to maintain our reputation;
 
costs and effects of litigation; environmental
liability; risk exposure from transactions with financial counterparties; severe
 
weather, natural disasters, pandemics or other external
events; changes in laws, rules, regulations, interpretations or policies relating
 
to financial institutions, including capital requirements,
higher FDIC insurance premiums and assessments, consumer protection
 
laws and privacy laws; volatility in our stock price; issuance of
our preferred stock; risks inherent with proposed business acquisitions
 
and the failure to achieve projected synergies; or other external
events.
 
Additional discussion of these and other risk factors can be found in our Annual Report on Form 10-K for the fiscal year
 
ended
December 31, 2022 (“2022 Form 10-K),
 
filed with the Securities and Exchange Commission (“SEC”) on March 3, 2023, and
 
in our
other filings with the SEC.
 
Except as required by law, the Company undertakes no obligation to
 
update or revise forward-looking statements to reflect
changed assumptions, the occurrence of unanticipated events or changes
 
in our business, results of operations or financial condition over
time. Given these risks and uncertainties, readers are cautioned not to place undue
 
reliance on such forward-looking statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Consolidated Financial Statements – Unaudited
4
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CROSSFIRST BANKSHARES, INC.
Consolidated Statements of Financial Condition – Unaudited
March 31, 2023
December 31, 2022
(Dollars in thousands)
Assets
Cash and cash equivalents
$
262,971
$
300,138
Available-for-sale securities - taxable
280,408
198,808
Available-for-sale securities - tax-exempt
470,843
488,093
Loans, net of unearned fees
5,647,639
5,372,729
Allowance for credit losses on loans
65,130
61,775
Loans, net of the allowance for credit losses on loans
5,582,509
5,310,954
Premises and equipment, net
67,311
65,984
Restricted equity securities
16,700
12,536
Interest receivable
30,385
29,507
Foreclosed assets held for sale
855
1,130
Goodwill and other intangible assets, net
28,259
29,081
Bank-owned life insurance
69,511
69,101
Other
84,978
95,754
Total assets
$
6,894,730
$
6,601,086
Liabilities and stockholders’ equity
Deposits
Non-interest-bearing
$
969,701
$
1,400,260
Savings, NOW and money market
3,491,586
3,305,481
Time
1,376,027
945,567
Total deposits
5,837,314
5,651,308
Federal Home Loan Bank advances
314,031
218,111
Other borrowings
17,970
35,457
Interest payable and other liabilities
79,924
87,611
Total liabilities
6,249,239
5,992,487
Stockholders’ equity
Preferred stock, $
0.01
 
par value:
 
Authorized -
15,000
 
shares, issued -
7,750
 
and
no
shares at March 31, 2023 and December 31, 2022, respectively
-
-
Common stock, $
0.01
 
par value:
 
Authorized -
200,000,000
 
shares, issued -
53,189,016
 
and
53,036,613
 
shares at March 31, 2023 and December 31, 2022,
respectively
532
530
Treasury stock, at cost:
 
4,588,398
 
shares held at March 31, 2023 and December 31,
2022
(64,127)
(64,127)
Additional paid-in capital
539,023
530,658
Retained earnings
222,203
206,095
Accumulated other comprehensive loss
(52,140)
(64,557)
Total stockholders’ equity
645,491
608,599
Total liabilities and stockholders’ equity
$
6,894,730
$
6,601,086
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Consolidated Financial Statements – Unaudited
5
CROSSFIRST BANKSHARES, INC.
Consolidated Statements of Operations – Unaudited
Three Months Ended
March 31,
2023
2022
(Dollars in thousands except per share data)
Interest Income
Loans, including fees
$
89,618
$
42,728
Available-for-sale securities - taxable
1,849
1,044
Available-for-sale securities - tax-exempt
3,794
3,692
Deposits with financial institutions
2,014
152
Dividends on bank stocks
262
144
Total interest income
97,537
47,760
Interest Expense
Deposits
36,725
3,511
Fed funds purchased and repurchase agreements
46
-
Federal Home Loan Bank Advances
2,391
1,109
Other borrowings
154
25
Total interest expense
39,316
4,645
Net Interest Income
58,221
43,115
Provision for Credit Losses
4,421
(625)
Net Interest Income after Provision for Credit Losses
53,800
43,740
Non-Interest Income
 
 
Service charges and fees on customer accounts
1,829
1,408
ATM and credit card interchange income
1,264
2,664
Realized gains (losses) on available-for-sale securities
63
(26)
Gain on sale of loans
187
-
Gains (losses), net on equity securities
10
(103)
Income from bank-owned life insurance
411
388
Swap fees and credit valuation adjustments, net
90
118
Other non-interest income
567
493
Total non-interest income
4,421
4,942
Non-Interest Expense
Salaries and employee benefits
22,622
17,941
Occupancy
2,974
2,493
Professional fees
2,618
805
Deposit insurance premiums
1,531
737
Data processing
1,242
812
Advertising
752
692
Software and communication
1,651
1,270
Foreclosed assets, net
149
(53)
Other non-interest expense
3,731
2,950
Core deposit intangible amortization
822
19
Total non-interest expense
38,092
27,666
Net Income Before Taxes
20,129
21,016
Income tax expense
4,021
4,188
Net Income
$
16,108
16,828
Basic Earnings Per Common Share
$
0.33
$
0.33
Diluted Earnings Per Common Share
$
0.33
$
0.33
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Consolidated Financial Statements – Unaudited
6
CROSSFIRST BANKSHARES, INC.
Consolidated Statements of Comprehensive Income (Loss) – Unaudited
Three Months Ended
March 31,
2023
2022
(Dollars in thousands)
Net Income
$
16,108
$
16,828
Other Comprehensive Income (Loss)
Unrealized gain (loss) on available-for-sale securities
14,951
(58,956)
Less: income tax expense (benefit)
3,657
(14,433)
Unrealized gain (loss) on available-for-sale securities, net of income tax
11,294
(44,523)
Reclassification adjustment for realized gains (losses) included in income
63
(26)
Less: income tax expense (benefit)
15
(6)
Less: reclassification adjustment for realized gain (loss) included
 
in income, net of income tax
48
(20)
Unrealized gain on cash flow hedges
1,540
2,655
Less: income tax expense
369
653
Unrealized gain on cash flow hedges, net of income tax
1,171
2,002
Other comprehensive income (loss)
12,417
(42,501)
Comprehensive Income (Loss)
$
28,525
$
(25,673)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Consolidated Financial Statements – Unaudited
7
CROSSFIRST BANKSHARES, INC.
Consolidated Statements of Stockholders’ Equity – Unaudited
Preferred Stock
Common Stock
Treasury
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shares
Amount
Shares
Amount
(Dollars in thousands)
Balance at December 31, 2021
-
$
-
50,450,045
$
526
$
(28,347)
$
526,806
$
147,099
$
21,489
$
667,573
Adoption of ASU 2016-13
-
-
-
-
-
-
(2,610)
-
(2,610)
Net income
-
-
-
-
-
-
16,828
-
16,828
Other comprehensive loss
 
- available-for-
sale securities
-
-
-
-
-
-
-
(44,503)
(44,503)
Other comprehensive gain
 
- cash flow
hedges
-
-
-
-
-
-
-
2,002
2,002
Issuance of shares from equity-based
awards
-
-
336,540
3
-
(453)
-
-
(450)
Open market common share repurchases
-
-
(1,058,332)
-
(16,762)
-
-
-
(16,762)
Employee receivables from sale of stock
-
-
-
-
-
-
6
-
6
Stock-based compensation
-
-
-
-
-
1,115
-
-
1,115
Balance at March 31, 2022
-
$
-
49,728,253
$
529
$
(45,109)
$
527,468
$
161,323
$
(21,012)
$
623,199
Preferred Stock
Common Stock
Treasury
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shares
Amount
Shares
Amount
(Dollars in thousands)
Balance at December 31, 2022
-
$
-
48,448,215
$
530
$
(64,127)
$
530,658
$
206,095
$
(64,557)
$
608,599
Net income
-
-
-
-
-
-
16,108
-
16,108
Other comprehensive gain
 
- available-for-
sale securities
-
-
-
-
-
-
-
11,246
11,246
Other comprehensive gain
 
- cash flow
hedges
-
-
-
-
-
-
-
1,171
1,171
Issuance of preferred shares
7,750
-
-
-
-
7,750
-
-
7,750
Issuance of shares from equity-based awards
-
-
152,403
2
-
(623)
-
-
(621)
Stock-based compensation
-
-
-
-
-
1,238
-
-
1,238
Balance March 31, 2023
7,750
$
-
48,600,618
$
532
$
(64,127)
$
539,023
$
222,203
$
(52,140)
$
645,491
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Consolidated Financial Statements – Unaudited
8
CROSSFIRST BANKSHARES, INC.
Consolidated Statements of Cash Flows – Unaudited
Three Months Ended
March 31,
2023
2022
(Dollars in thousands)
Operating Activities
Net income
$
16,108
$
16,828
Adjustment to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
2,318
1,241
Provision for credit losses
4,421
(625)
Accretion of discounts on loans
(547)
-
Accretion of discounts and amortization of premiums on securities
926
1,116
Equity based compensation
1,238
1,115
(Gain) loss on disposal of fixed assets
(4)
13
Loss (gain) on sale of foreclosed assets and related impairments
102
(62)
Gain on sale of loans
(187)
-
Deferred income taxes
1,640
3,358
Net increase in bank owned life insurance
(411)
(388)
Net realized (gains) losses on available-for-sale securities
(63)
26
Dividends on FHLB stock
(261)
(142)
Changes in:
Interest receivable
(878)
(910)
Other assets
2,615
14,565
Other liabilities
(2,693)
(21,650)
Net cash provided by operating activities
24,324
14,485
Investing Activities
Net change in loans
(275,817)
(94,437)
Purchases of available-for-sale securities
(93,488)
(49,138)
Proceeds from maturities of available-for-sale securities
5,714
11,582
Proceeds from sale of available-for-sale securities
37,069
-
Proceeds from the sale of foreclosed assets
173
237
Purchase of premises and equipment
(2,662)
(962)
Proceeds from the sale of premises and equipment and related insurance claims
4
13
Purchase of restricted equity securities
(8,226)
-
Proceeds from sale of restricted equity securities
4,334
1,544
Net cash used in investing activities
(332,899)
(131,161)
Financing Activities
Net (decrease) increase in demand deposits, savings, NOW and money market accounts
(244,454)
50,403
Net increase (decrease) in time deposits
430,407
(112,320)
Net decrease in federal funds sold
(20,000)
-
Repayment of Federal Home Loan Bank advances
(12,643)
(10,000)
Net proceeds of Federal Home Loan Bank line of credit
110,969
-
Proceeds from issuance of preferred shares, net of issuance cost
7,750
-
Issuance of common shares, net of issuance cost
2
170
Proceeds from employee stock purchase plan
167
172
Repurchase of common stock
-
(16,762)
Acquisition of common stock for tax withholding obligations
(790)
(793)
Net decrease in employee receivables
-
6
Net cash provided by (used in) financing activities
271,408
(89,124)
Decrease in Cash and Cash Equivalents
(37,167)
(205,800)
Cash and Cash Equivalents, Beginning of Period
300,138
482,727
Cash and Cash Equivalents, End of Period
$
262,971
$
276,927
Supplemental Cash Flows Information
Interest paid
35,459
4,784
Income taxes paid
24
-
 
 
 
 
9
CROSSFIRST BANKSHARES, INC.
Notes to Consolidated Financial Statements – Unaudited
Note 1: Nature of Operations and Summary of Significant Accounting Policies
Organization and Nature of Operations
CrossFirst Bankshares, Inc. (the “Company”) is a bank holding company whose principal activities
 
are the ownership and
management of its wholly-owned subsidiary, CrossFirst Bank (the
 
“Bank”). In addition, the Bank has
three
 
subsidiaries including
CrossFirst Investments, Inc. (“CFI”), which holds investments in marketable
 
securities, CFBSA I, LLC and CFBSA II, LLC.
The Bank is primarily engaged in providing a full range of banking and financial
 
services to individual and corporate customers
through its branches in: (i) Leawood, Kansas; (ii) Wichita, Kansas; (iii) Kansas City, Missouri;
 
(iv) Oklahoma City, Oklahoma; (v)
Tulsa, Oklahoma; (vi) Dallas, Texas; (vii) Fort Worth, Texas; (viii) Frisco, Texas; (ix) Phoenix, Arizona; (x) Colorado Springs,
Colorado; (xi) Denver, Colorado; and (xii) Clayton, New Mexico.
Basis of Presentation
The accompanying interim unaudited consolidated financial statements serve
 
to update the CrossFirst Bankshares, Inc. Annual
Report on Form 10-K for the year ended December 31, 2022 and include the accounts of
 
the Company, the Bank, CFI, CFBSA I, LLC
and CFBSA II, LLC. The accompanying unaudited consolidated financial statements have been prepared in accordance with
 
U.S.
generally accepted accounting principles (“GAAP”) and where applicable,
 
with general practices in the banking industry or guidelines
prescribed by bank regulatory agencies. However, they may not include
 
all information and notes necessary to constitute a complete set
of financial statements under GAAP applicable to annual periods and accordingly should be read
 
in conjunction with the financial
information contained in the Company's most recent Annual Report on Form 10-K. The unaudited consolidated financial
 
statements
reflect all adjustments which are, in the opinion of management, necessary for a fair
 
statement of the results presented. All such
adjustments are of a normal recurring nature. All significant intercompany balances and transactions have
 
been eliminated in
consolidation. Certain reclassifications of prior years' amounts are made whenever
 
necessary to conform to current period presentation.
The results of operations for the interim period are not necessarily indicative of the
 
results that may be expected for the full year or any
other interim period. All amounts are in thousands, except share data, or as otherwise noted.
GAAP requires management to make estimates that affect the reported amounts of assets, liabilities, revenues and
 
expenses, and
disclosures of contingent assets and liabilities. By their nature, estimates are based on
 
judgment and available information. Management
has made significant estimates in certain areas, such as the fair values of financial
 
instruments, and the allowance for credit losses
(“ACL”). Because of the inherent uncertainties associated with any estimation
 
process and future changes in market and economic
conditions, it is possible that actual results could differ significantly from those estimates.
 
The Company's significant accounting policies followed in the preparation of
 
the unaudited consolidated financial statements are
disclosed in Note 1 of the audited financial statements and notes for the year ended
 
December 31, 2022 and are contained in the
Company's Annual Report on Form 10-K for that period. There have been no significant changes to the application of
 
significant
accounting policies since December 31, 2022 other than those noted below
:
Related Party Transactions
The Bank extends credit and receives deposits from related parties. In management’s
 
opinion, the loans and deposits were made
in the ordinary course of business and made on similar terms as those prevailing
 
at the time with other persons. Related party loans
totaled $
11
 
million and $
13
 
million at March 31, 2023 and December 31, 2022, respectively. Related party deposits
 
totaled $
129
 
million
and $
92
 
million at March 31, 2023 and December 31, 2022, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10
Accounting Pronouncements Implemented
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. 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.
Impact of adoption
 
– The Company adopted the provisions of this guidance as of January 1, 2023 on a prospective
 
basis. The
adoption of this ASU did not impact our consolidated financial statements.
 
The incremental vintage disclosures for gross write-
offs are included within “Note 3: Loans and Allowance for Credit Losses.”
 
Note 2: Securities
The amortized cost and approximate fair values, together with gross unrealized
 
gains and losses, of period end available-for-sale
securities consisted of the following:
 
March 31, 2023
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Approximate
Fair Value
(Dollars in thousands)
Available-for-sale securities
Mortgage-backed - GSE residential
$
274,895
$
2,110
$
22,356
$
254,649
Collateralized mortgage obligations - GSE residential
10,989
-
604
10,385
State and political subdivisions
523,464
1,449
47,771
477,142
Corporate bonds
9,754
-
679
9,075
Total available-for-sale securities
$
819,102
$
3,559
$
71,410
$
751,251
December 31, 2022
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Approximate
Fair Value
(Dollars in thousands)
Available-for-sale securities
Mortgage-backed - GSE residential
$
197,243
$
232
$
25,166
$
172,309
Collateralized mortgage obligations - GSE residential
11,629
-
743
10,886
State and political subdivisions
551,007
929
57,440
494,496
Corporate bonds
9,762
-
552
9,210
Total available-for-sale securities
$
769,641
$
1,161
$
83,901
$
686,901
The carrying value of securities pledged as collateral was $
17
 
million and $
22
 
million at March 31, 2023 and December 31, 2022,
respectively.
As of March 31, 2023 and December 31, 2022, the available-for-sale securities
 
had $
6
 
million of accrued interest, excluded from
the amortized cost basis, and presented in “interest receivable” on the
 
consolidated statements of financial condition.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
11
The following tables summarize the gross realized gains and losses from sales or
 
maturities of AFS securities:
 
For the Three Months Ended
March 31, 2023
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Gain
(Dollars in thousands)
Available-for-sale securities
$
193
$
(130)
$
63
For the Three Months Ended
March 31, 2022
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Loss
(Dollars in thousands)
Available-for-sale securities
$
1
$
(27)
$
(26)
The following table shows available-for-sale securities gross unrealized losses, the
 
number of securities that are in an unrealized
loss position, and fair value of the Company’s investments with unrealized
 
losses, aggregated by investment class and length of time that
individual securities have been in a continuous unrealized loss position at
 
March 31, 2023 and December 31, 2022:
 
March 31, 2023
Less than 12 Months
12 Months or More
Total
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
Number of
Securities
(Dollars in thousands)
Available-for-sale
securities
Mortgage-backed -
GSE residential
$
13,935
$
562
20
$
133,560
$
21,794
36
$
147,495
$
22,356
56
Collateralized
mortgage obligations
- GSE residential
2,235
88
1
8,150
516
18
10,385
604
19
State and political
subdivisions
142,418
2,633
105
210,220
45,138
151
352,638
47,771
256
Corporate bonds
4,861
251
2
4,213
428
3
9,074
679
5
Total temporarily
impaired securities
$
163,449
$
3,534
128
$
356,143
$
67,876
208
$
519,592
$
71,410
336
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
12
December 31, 2022
Less than 12 Months
12 Months or More
Total
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
Number of
Securities
(Dollars in thousands)
Available-for-sale
securities
Mortgage-backed -
GSE residential
$
91,929
$
10,410
41
$
66,036
$
14,756
16
$
157,965
$
25,166
57
Collateralized
mortgage obligations
- GSE residential
10,636
733
18
251
10
1
10,887
743
19
State and political
subdivisions
350,884
36,697
266
52,519
20,743
40
403,403
57,440
306
Corporate bonds
9,210
552
5
-
-
-
9,210
552
5
Total temporarily
impaired securities
$
462,659
$
48,392
330
$
118,806
$
35,509
57
$
581,465
$
83,901
387
Based on the Company’s evaluation at each respective period end,
 
we recorded
no
 
credit loss impairment during the first quarter
of 2023 or fourth quarter of 2022.
 
The unrealized losses in the Company’s investment portfolio were caused by
 
interest rate changes.
 
As of March 31, 2023 the Company does not intend to sell the investments in loss positions, and
 
it is not more likely than not the
Company will be required to sell the investments before recovery of their amortized
 
cost basis.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13
The amortized cost, fair value, and weighted average yield of available-for-sale
 
securities at March 31, 2023, by contractual
maturity, are shown below:
 
March 31, 2023
Within
After One to
After Five to
After
One Year
Five Years
Ten Years
Ten Years
Total
(Dollars in thousands)
Available-for-sale securities
Mortgage-backed - GSE residential
(1)
Amortized cost
$
-
$
17
$
91
$
274,787
$
274,895
Estimated fair value
$
-
$
17
$
88
$
254,544
$
254,649
Weighted average yield
(2)
-
%
4.82
%
4.02
%
3.14
%
3.14
%
Collateralized mortgage obligations -
GSE residential
(1)
Amortized cost
$
-
$
-
$
2,322
$
8,667
$
10,989
Estimated fair value
$
-
$
-
$
2,235
$
8,150
$
10,385
Weighted average yield
(2)
-
%
-
%
2.75
%
2.25
%
2.36
%
State and political subdivisions
Amortized cost
$
1,075
$
7,962
$
90,970
$
423,457
$
523,464
Estimated fair value
$
1,078
$
8,158
$
90,981
$
376,925
$
477,142
Weighted average yield
(2)
3.71
%
4.32
%
2.96
%
2.68
%
2.76
%
Corporate bonds
Amortized cost
$
-
$
149
$
9,605
$
-
$
9,754
Estimated fair value
$
-
$
146
$
8,929
$
-
$
9,075
Weighted average yield
(2)
-
%
4.09
%
5.71
%
-
%
5.68
%
Total available-for-sale securities
Amortized cost
$
1,075
$
8,128
$
102,988
$
706,911
$
819,102
Estimated fair value
$
1,078
$
8,321
$
102,233
$
639,619
$
751,251
Weighted average yield
(2)
3.71
%
4.32
%
3.21
%
2.85
%
2.92
%
(1)
Actual maturities may differ from contractual maturities because issuers may have
 
the rights to call or prepay obligations with or
without prepayment penalties.
(2)
Yields are calculated based on amortized cost using 30/360 day basis.
 
Tax-exempt securities are not tax effected.
Equity Securities
Equity securities consist of $
3.2
 
million of private equity investments. Equity securities are included in “other assets” on
 
the
consolidated statements of financial condition.
The Company elected a measurement alternative for three private equity
 
investments that did not have a readily determinable fair
value and did not qualify for the practical expedient to estimate fair value using the
 
net asset value per share.
 
A cost basis was
calculated for the equity investments.
 
The recorded balance will adjust for any impairment or any observable
 
price changes for an
identical or similar investment of the same issuer. No such events occurred
 
during the three-month period ended March 31, 2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
14
The following is a summary of the unrealized and realized gains and losses on equity
 
securities recognized in net income:
 
Three Months Ended
March 31,
 
2023
2022
(Dollars in thousands)
Net gains (losses) recognized during the reporting period on equity
 
securities
$
10
$
(103)
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
$
10
$
(103)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15
Note 3:
 
Loans and Allowance for Credit Losses
The table below shows the loan portfolio composition including carrying value
 
by segment as of the dates shown. The carrying value of loans is net of discounts, fees, costs,
and fair value marks of $
24
 
million as of March 31, 2023 and December 31, 2022.
March 31, 2023
December 31, 2022
Amount
% of Loans
Amount
% of Loans
(Dollars in thousands)
Commercial and industrial
$
986,636
17
%
$
1,017,678
19
%
Commercial and industrial lines of credit
1,047,280
19
957,254
18
Energy
193,859
3
173,218
3
Commercial real estate
1,808,888
33
1,718,947
32
Construction and land development
845,085
15
794,788
15
Residential real estate
412,334
7
409,124
8
Multifamily real estate
295,469
5
237,984
4
Consumer
58,088
1
63,736
1
Loans, net of unearned
 
fees
5,647,639
100
%
5,372,729
100
%
Less: allowance for credit losses on loans
65,130
61,775
Loans, net of the allowance for credit losses on loans
$
5,582,509
$
5,310,954
 
Accrued interest of $
24
 
million and $
23
 
million at March 31, 2023 and December 31, 2022, respectively,
 
presented in “interest receivable” on the consolidated statements of
financial condition is excluded from the carrying value disclosed in
 
the above table.
 
The Company aggregates the loan portfolio by similar credit risk characteristics. 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 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.
The category 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
terms 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 draw down
and repay the line of credit based on the customer’s cash flow needs. Repayment
 
is primarily 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.
 
 
16
●
Energy
 
- The category includes loans to oil and natural gas customers for use in financing working
 
capital needs, exploration and production activities, and
acquisitions. The loans are repaid primarily from the conversion of crude oil and natural gas to cash. Credit
 
risk is driven by creditworthiness of a borrower and the
economic conditions that impact the cash flow stability from business operations.
 
Energy loans are typically collateralized with the underlying oil and gas reserves.
●
Commercial Real Estate
 
- 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 borrower, property values and the local economies in the
borrower’s market areas.
●
Construction and Land Development
 
- The category includes loans that 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 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 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’s CECL committee meets at least quarterly to oversee the ACL methodology. The committee estimates the ACL using relevant available information, from
internal and external sources, relating to past events, current conditions,
 
and reasonable and supportable forecasts. The ACL represents the Company’s current estimate of lifetime
credit losses inherent in the loan portfolio at the statement of financial condition
 
date. The ACL is
 
adjusted for expected prepayments when appropriate and excludes expected
extensions, renewals, and modifications.
 
The ACL is the sum of three components: (i) asset specific / individual loan reserves; (ii) quantitative (formulaic or pooled) reserves; and (iii)
 
qualitative (judgmental)
reserves.
 
Asset Specific -
 
When unique qualities cause a loan’s exposure to loss to be inconsistent with the
 
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.
 
 
 
17
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 poo
 
l
 
is exhausted. The Company used a lookback period of approximately six-years to establish the
cohort population. By using the historical data timeframe, the Company can establish
 
a historical loss factor for each of its loan segments and adjust the losses with qualitative and
forecast factors.
Qualitative
 
– The Company uses qualitative factors to adjust the historical loss factors for current conditions. The
 
Company primarily uses the following qualitative factors:
◾
The nature and volume of changes in risk ratings;
◾
The volume and severity of past due loans;
◾
The volume of non-accrual loans;
◾
The nature and volume of the loan portfolio, including the existence, growth, and
 
effect of any concentrations of credit;
◾
Changes in the Institute of Supply Management’s Purchasing Manager Indices
 
(“PMI”) for services and manufacturing;
◾
Changes in collateral values;
 
◾
Changes in lending policies, procedures, and quality of loan reviews;
◾
Changes in lending staff; and
◾
Changes in competition, legal and regulatory environments
In addition to the current condition qualitative adjustments, the Company uses the
 
Federal Reserve’s unemployment forecast to adjust the ACL based on forward looking
guidance. The Federal Reserve’s unemployment forecast extends three-years
 
and is eventually reverted to the mean of six percent by year 10.
 
Internal Credit Risk Ratings
The Company uses a weighted average risk rating factor to adjust the historical
 
loss factors for current events. Risk ratings incorporate the criteria utilized by regulatory
authorities to describe criticized assets, but separate various levels of risk
 
concentrated within the regulatory “Pass” category. Risk ratings are established
 
for loans at origination and
are monitored on an ongoing basis. The rating assigned to a loan reflects the risks
 
posed by the borrower’s expected performance and the transaction’s structure.
 
Performance metrics
used to determine a risk rating include, but are not limited to, cash flow adequacy,
 
liquidity, and collateral. A description of the loan risk ratings follows:
Loan Grades
●
Pass (risk rating 1-4)
 
- The category includes loans that are considered satisfactory. The category includes borrowers that generally
 
maintain good liquidity and
financial condition, or the credit is currently protected with sales trends remaining
 
flat or declining. Most ratios compare favorably with industry norms and Company
policies. Debt is programmed and timely repayment is expected.
●
Special Mention (risk rating 5)
 
- The category includes borrowers that generally exhibit adverse trends in operations or an
 
imbalanced position in their balance
sheet that has not reached a point where repayment is jeopardized. Credits are currently
 
protected but, if left uncorrected, the potential weaknesses may result in
deterioration of the repayment prospects for the credit or in the Company’s
 
credit or lien position at a future date. These credits are not adversely classified and do not
expose the Company to enough risk to warrant adverse classification.
●
Substandard (risk rating 6)
 
- The category includes borrowers that generally exhibit well-defined weakness(es) that jeopardize
 
repayment. Credits are inadequately
protected by the current worth and paying capacity of the obligor or of the collateral
 
pledged. A
 
distinct possibility exists that the Company will sustain some loss if
 
18
deficiencies are not corrected. Loss potential, while existing in the aggregate
 
amount of substandard assets, does not have to exist in individual assets classified
substandard. Substandard loans include both performing and non-performing loans
 
and are broken out in the table below.
●
Doubtful (risk rating 7)
- The category includes borrowers that exhibit weaknesses inherent in a substandard credit and
 
characteristics that these weaknesses make
collection or liquidation in full highly questionable or improbable based
 
on existing facts, conditions, and values. Because of reasonably specific
 
pending factors,
which may work to the advantage and strengthening of the assets, classification as a loss is
 
deferred until its more exact status may be determined.
●
Loss (risk rating 8)
- Credits which are considered uncollectible or of such little value that their continuance
 
as a bankable asset is not warranted.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
19
The following tables present the credit risk profile of the Company’s loan portfolio
 
based on internal rating categories and loan segments as of March 31, 2023
 
and December
31, 2022:
 
As of March 31, 2023
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2023
2022
2021
2020
2019
2018 and
Prior
Revolving
Loans
Revolving
Loans
converted to
Term Loans
Total
(Dollars in thousands)
Commercial and industrial
Pass
$
111,407
$
379,176
$
224,316
$
54,865
$
48,014
$
64,730
$
-
$
27,044
$
909,552
Special mention
12,388
5,826
19,996
13,802
795
318
-
33
53,158
Substandard - accrual
-
69
125
1,566
1,152
1,019
-
19,786
23,717
Substandard - non-
accrual
-
-
-
-
-
11
-
198
209
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
123,795
$
385,071
$
244,437
$
70,233
$
49,961
$
66,078
$
-
$
47,061
$
986,636
Commercial and industrial
 
lines of credit
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
973,052
$
-
$
973,052
Special mention
-
-
-
-
-
-
49,569
-
49,569
Substandard - accrual
-
-
-
-
-
-
18,594
-
18,594
Substandard - non-
accrual
-
-
-
-
-
-
6,065
-
6,065
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
-
$
-
$
-
$
-
$
-
$
-
$
1,047,280
$
-
$
1,047,280
Energy
Pass
$
-
$
7,481
$
206
$
192
$
-
$
-
$
185,262
$
160
$
193,301
Special mention
-
-
-
-
-
-
-
-
-
Substandard - accrual
-
-
-
-
-
-
-
-
-
Substandard - non-
accrual
-
-
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
558
-
558
Loss
-
-
-
-
-
-
-
-
-
Total
$
-
$
7,481
$
206
$
192
$
-
$
-
$
185,820
$
160
$
193,859
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
20
As of March 31, 2023
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2023
2022
2021
2020
2019
2018 and
Prior
Revolving
Loans
Revolving
Loans
converted to
Term Loans
Total
(Dollars in thousands)
Commercial real estate
Pass
$
65,310
$
437,240
$
287,175
$
153,430
$
128,097
$
135,622
$
411,771
$
101,002
$
1,719,647
Special mention
9,833
12,446
5,945
555
1,204
13,815
4,243
27,476
75,517
Substandard - accrual
-
10,238
-
550
81
385
-
-
11,254
Substandard - non-
accrual
-
-
2,470
-
-
-
-
-
2,470
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
75,143
$
459,924
$
295,590
$
154,535
$
129,382
$
149,822
$
416,014
$
128,478
$
1,808,888
Construction and land development
Pass
$
96,933
$
395,906
$
212,418
$
70,749
$
9,960
$
1,603
$
49,228
$
-
$
836,797
Special mention
-
-
7,624
-
-
-
-
-
7,624
Substandard - accrual
-
226
-
-
-
-
438
-
664
Substandard - non-
accrual
-
-
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
96,933
$
396,132
$
220,042
$
70,749
$
9,960
$
1,603
$
49,666
$
-
$
845,085
Residential real estate
Pass
$
6,195
$
77,458
$
86,022
$
118,328
$
44,628
$
68,535
$
3,950
$
-
$
405,116
Special mention
253
-
3,253
182
212
-
-
-
3,900
Substandard - accrual
-
-
-
3,130
-
-
-
-
3,130
Substandard - non-
accrual
-
-
-
-
-
-
-
188
188
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
6,448
$
77,458
$
89,275
$
121,640
$
44,840
$
68,535
$
3,950
$
188
$
412,334
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
21
As of March 31, 2023
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2023
2022
2021
2020
2019
2018 and
Prior
Revolving
Loans
Revolving
Loans
converted to
Term Loans
Total
(Dollars in thousands)
Multifamily real estate
Pass
$
22,508
$
112,051
$
39,983
$
7,490
$
11,869
$
3,178
$
98,355
$
-
$
295,434
Special mention
-
-
-
-
-
-
-
35
35
Substandard - accrual
-
-
-
-
-
-
-
-
-
Substandard - non-
accrual
-
-
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
22,508
$
112,051
$
39,983
$
7,490
$
11,869
$
3,178
$
98,355
$
35
$
295,469
Consumer
Pass
$
397
$
7,016
$
707
$
133
$
255
$
130
$
49,407
$
-
$
58,045
Special mention
-
-
-
-
-
8
-
-
8
Substandard - accrual
-
-
-
30
-
5
-
-
35
Substandard - non-
accrual
-
-
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
397
$
7,016
$
707
$
163
$
255
$
143
$
49,407
$
-
$
58,088
Total
Pass
$
302,750
$
1,416,328
$
850,827
$
405,187
$
242,823
$
273,798
$
1,771,025
$
128,206
$
5,390,944
Special mention
22,474
18,272
36,818
14,539
2,211
14,141
53,812
27,544
189,811
Substandard - accrual
-
10,533
125
5,276
1,233
1,409
19,032
19,786
57,394
Substandard - non-
accrual
-
-
2,470
-
-
11
6,065
386
8,932
Doubtful
-
-
-
-
-
-
558
-
558
Loss
-
-
-
-
-
-
-
-
-
Total
$
325,224
$
1,445,133
$
890,240
$
425,002
$
246,267
$
289,359
$
1,850,492
$
175,922
$
5,647,639
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
22
As of December 31, 2022
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
Loans
Revolving
Loans
converted to
Term Loans
Total
(Dollars in thousands)
Commercial and industrial
Pass
$
465,963
$
281,166
$
55,934
$
50,445
$
48,595
$
20,648
$
-
$
19,089
$
941,840
Special mention
2,531
23,055
14,573
2,951
4,947
86
-
41
48,184
Substandard - accrual
290
677
1,647
1,330
740
299
-
21,166
26,149
Substandard - non-
accrual
-
104
-
6
1,383
-
-
-
1,493
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
12
-
-
12
Total
$
468,784
$
305,002
$
72,154
$
54,732
$
55,665
$
21,045
$
-
$
40,296
$
1,017,678
Commercial and industrial lines of credit
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
890,109
$
-
$
890,109
Special mention
-
-
-
-
-
-
49,861
-
49,861
Substandard - accrual
-
-
-
-
-
-
10,805
-
10,805
Substandard - non-
accrual
-
-
-
-
-
-
6,479
-
6,479
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
-
$
-
$
-
$
-
$
-
$
-
$
957,254
$
-
$
957,254
Energy
Pass
$
7,585
$
306
$
228
$
-
$
-
$
-
$
162,834
$
171
$
171,124
Special mention
-
-
-
-
-
-
-
-
-
Substandard - accrual
-
-
-
-
-
-
1,476
-
1,476
Substandard - non-
accrual
-
-
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
618
-
618
Loss
-
-
-
-
-
-
-
-
-
Total
$
7,585
$
306
$
228
$
-
$
-
$
-
$
164,928
$
171
$
173,218
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
23
As of December 31, 2022
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
Loans
Revolving
Loans
converted to
Term Loans
Total
(Dollars in thousands)
Commercial real estate
Pass
$
474,901
$
276,403
$
156,553
$
119,643
$
73,989
$
84,460
$
350,732
$
108,837
$
1,645,518
Special mention
23,223
6,603
566
1,330
6,558
4,339
2,429
12,285
57,333
Substandard - accrual
10,388
-
547
82
60
1,548
-
992
13,617
Substandard - non-
accrual
-
2,479
-
-
-
-
-
-
2,479
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
508,512
$
285,485
$
157,666
$
121,055
$
80,607
$
90,347
$
353,161
$
122,114
$
1,718,947
Construction and land development
Pass
$
346,429
$
266,557
$
93,229
$
19,866
$
1,497
$
9,053
$
49,500
$
-
$
786,131
Special mention
-
7,727
-
-
-
-
-
-
7,727
Substandard - accrual
157
310
463
-
-
-
-
-
930
Substandard - non-
accrual
-
-
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
346,586
$
274,594
$
93,692
$
19,866
$
1,497
$
9,053
$
49,500
$
-
$
794,788
Residential real estate
Pass
$
77,416
$
84,158
$
121,078
$
45,265
$
37,395
$
34,852
$
1,649
$
-
$
401,813
Special mention
253
3,272
187
226
-
-
-
-
-
3,938
Substandard - accrual
34
-
3,148
-
-
-
-
-
3,182
Substandard - non-
accrual
-
-
-
-
-
-
-
191
191
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
77,703
$
87,430
$
124,413
$
45,491
$
37,395
$
34,852
$
1,649
$
191
$
409,124
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
24
As of December 31, 2022
Amortized Cost Basis by Origination Year and Internal Risk Rating
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
Loans
Revolving
Loans
converted to
Term Loans
Total
(Dollars in thousands)
Multifamily real estate
Pass
$
85,785
$
26,705
$
6,915
$
11,938
$
2,491
$
726
$
86,879
$
16,509
$
237,948
Special mention
-
-
-
-
-
-
-
36
36
Substandard - accrual
-
-
-
-
-
-
-
-
-
Substandard - non-
accrual
-
-
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
85,785
$
26,705
$
6,915
$
11,938
$
2,491
$
726
$
86,879
$
16,545
$
237,984
Consumer
Pass
$
7,917
$
1,347
$
2,611
$
265
$
129
$
6
$
51,416
$
-
$
63,691
Special mention
-
-
-
-
8
-
-
-
8
Substandard - accrual
-
-
32
-
5
-
-
-
37
Substandard - non-
accrual
-
-
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
7,917
$
1,347
$
2,643
$
265
$
142
$
6
$
51,416
$
-
$
63,736
Total
Pass
$
1,465,996
$
936,642
$
436,548
$
247,422
$
164,096
$
149,745
$
1,593,119
$
144,606
$
5,138,174
Special mention
26,007
40,657
15,326
4,507
11,513
4,425
52,290
12,362
167,087
Substandard - accrual
10,869
987
5,837
1,412
805
1,847
12,281
22,158
56,196
Substandard - non-
accrual
-
2,583
-
6
1,383
-
6,479
191
10,642
Doubtful
-
-
-
-
-
-
618
-
618
Loss
-
-
-
-
-
12
-
-
12
Total
$
1,502,872
$
980,869
$
457,711
$
253,347
$
177,797
$
156,029
$
1,664,787
$
179,317
$
5,372,729
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
25
Loan Portfolio Aging Analysis
The following tables present the Company’s loan portfolio aging analysis as of
 
March 31, 2023 and December 31, 2022:
 
As of March 31, 2023
Amortized Cost Basis by Origination Year and Past Due Status
Amortized Cost Basis
2023
2022
2021
2020
2019
2018 and
Prior
Revolving
loans
Revolving
loans
converted to
term loans
Total
(Dollars in thousands)
Commercial and industrial
30-59 days
$
-
$
70
$
142
$
-
$
-
$
-
$
-
$
1,915
$
2,127
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
-
2
148
-
11
-
-
161
Total past due
-
70
144
148
-
11
-
1,915
2,288
Current
123,795
385,001
244,293
70,085
49,961
66,067
-
45,146
984,348
Total
$
123,795
$
385,071
$
244,437
$
70,233
$
49,961
$
66,078
$
-
$
47,061
$
986,636
Greater than 90 days
and accruing
$
-
$
-
$
2
$
148
$
-
$
-
$
-
$
-
$
150
Commercial and industrial lines of credit
30-59 days
$
-
$
-
$
-
$
-
$
-
$
-
$
2,510
$
-
$
2,510
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
-
-
-
-
-
6,679
-
6,679
Total past due
-
-
-
-
-
-
9,189
-
9,189
Current
-
-
-
-
-
-
1,038,091
-
1,038,091
Total
$
-
$
-
$
-
$
-
$
-
$
-
$
1,047,280
$
-
$
1,047,280
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
613
$
-
$
613
Energy
30-59 days
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
-
-
-
-
-
558
-
558
Total past due
-
-
-
-
-
-
558
-
558
Current
-
7,481
206
192
-
-
185,262
160
193,301
Total
$
-
$
7,481
$
206
$
192
$
-
$
-
$
185,820
$
160
$
193,859
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
26
As of March 31, 2023
Amortized Cost Basis by Origination Year and Past Due Status
Amortized Cost Basis
2023
2022
2021
2020
2019
2018 and
Prior
Revolving
loans
Revolving
loans
converted to
term loans
Total
(Dollars in thousands)
Commercial real estate
30-59 days
$
-
$
190
$
-
$
-
$
-
$
214
$
-
$
-
$
404
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
-
-
-
-
-
100
-
100
Total past due
-
190
-
-
-
214
100
-
504
Current
75,143
459,734
295,590
154,535
129,382
149,608
415,914
128,478
1,808,384
Total
$
75,143
$
459,924
$
295,590
$
154,535
$
129,382
$
149,822
$
416,014
$
128,478
$
1,808,888
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
100
$
-
$
100
Construction and land development
30-59 days
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
-
-
-
-
-
-
-
-
Total past due
-
-
-
-
-
-
-
-
-
Current
96,933
396,132
220,042
70,749
9,960
1,603
49,666
-
845,085
Total
$
96,933
$
396,132
$
220,042
$
70,749
$
9,960
$
1,603
$
49,666
$
-
$
845,085
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Residential real estate
30-59 days
$
-
$
8
$
-
$
-
$
-
$
-
$
-
$
-
$
8
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
-
-
-
-
-
-
-
-
Total past due
-
8
-
-
-
-
-
-
8
Current
6,448
77,450
89,275
121,640
44,840
68,535
3,950
188
412,326
Total
$
6,448
$
77,458
$
89,275
$
121,640
$
44,840
$
68,535
$
3,950
$
188
$
412,334
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
27
As of March 31, 2023
Amortized Cost Basis by Origination Year and Past Due Status
Amortized Cost Basis
2023
2022
2021
2020
2019
2018 and
Prior
Revolving
loans
Revolving
loans
converted to
term loans
Total
(Dollars in thousands)
Multifamily real estate
30-59 days
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
-
-
-
-
-
-
-
-
Total past due
-
-
-
-
-
-
-
-
-
Current
22,508
112,051
39,983
7,490
11,869
3,178
98,355
35
295,469
Total
$
22,508
$
112,051
$
39,983
$
7,490
$
11,869
$
3,178
$
98,355
$
35
$
295,469
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Consumer
30-59 days
$
-
$
-
$
5
$
-
$
-
$
-
$
-
$
-
$
5
60-89 days
-
1
-
1
-
-
-
-
2
Greater than 90 days
-
-
-
-
-
5
-
-
5
Total past due
-
1
5
1
-
5
-
-
12
Current
397
7,015
702
162
255
138
49,407
-
58,076
Total
$
397
$
7,016
$
707
$
163
$
255
$
143
$
49,407
$
-
$
58,088
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
5
$
-
$
-
$
5
Total
30-59 days
$
-
$
268
$
147
$
-
$
-
$
214
$
2,510
$
1,915
$
5,054
60-89 days
-
1
-
1
-
-
-
-
2
Greater than 90 days
-
-
2
148
-
16
7,337
-
7,503
Total past due
-
269
149
149
-
230
9,847
1,915
12,559
Current
325,224
1,444,864
890,091
424,853
246,267
289,129
1,840,645
174,007
5,635,080
Total
$
325,224
$
1,445,133
$
890,240
$
425,002
$
246,267
$
289,359
$
1,850,492
$
175,922
$
5,647,639
Greater than 90 days
and accruing
$
-
$
-
$
2
$
148
$
-
$
5
$
713
$
-
$
868
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
28
As of December 31, 2022
Amortized Cost Basis by Origination Year and Past Due Status
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
loans
Revolving
loans
converted to
term loans
Total
(Dollars in thousands)
Commercial and industrial
30-59 days
$
20
$
4,784
$
-
$
-
$
-
$
1,049
$
-
$
-
$
5,853
60-89 days
-
55
-
-
-
-
-
430
485
Greater than 90 days
-
143
7
6
1,383
12
-
-
1,551
Total past due
20
4,982
7
6
1,383
1,061
-
430
7,889
Current
468,764
300,020
72,147
54,726
54,282
19,984
-
39,866
1,009,789
Total
$
468,784
$
305,002
$
72,154
$
54,732
$
55,665
$
21,045
$
-
$
40,296
$
1,017,678
Greater than 90 days
and accruing
$
-
$
39
$
7
$
-
$
-
$
-
$
-
$
-
$
46
Commercial and industrial lines of credit
30-59 days
$
-
$
-
$
-
$
-
$
-
$
-
$
2,814
$
-
$
2,814
60-89 days
-
-
-
-
-
-
980
-
980
Greater than 90 days
-
-
-
-
-
-
7,063
-
7,063
Total past due
-
-
-
-
-
-
10,857
-
10,857
Current
-
-
-
-
-
-
946,397
-
946,397
Total
$
-
$
-
$
-
$
-
$
-
$
-
$
957,254
$
-
$
957,254
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
584
$
-
$
584
Energy
30-59 days
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
-
-
-
-
-
618
-
618
Total past due
-
-
-
-
-
-
618
-
618
Current
7,585
306
228
-
-
-
164,310
171
172,600
Total
$
7,585
$
306
$
228
$
-
$
-
$
-
$
164,928
$
171
$
173,218
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
29
As of December 31, 2022
Amortized Cost Basis by Origination Year and Past Due Status
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
loans
Revolving
loans
converted to
term loans
Total
(Dollars in thousands)
Commercial real estate
30-59 days
$
-
$
-
$
-
$
1,180
$
-
$
-
$
-
$
-
$
1,180
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
-
-
-
-
-
-
-
-
Total past due
-
-
-
1,180
-
-
-
-
1,180
Current
508,512
285,485
157,666
119,875
80,607
90,347
353,161
122,114
1,717,767
Total
$
508,512
$
285,485
$
157,666
$
121,055
$
80,607
$
90,347
$
353,161
$
122,114
$
1,718,947
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Construction and land development
30-59 days
$
4,293
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
4,293
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
-
-
-
-
-
-
-
-
Total past due
4,293
-
-
-
-
-
-
-
4,293
Current
342,293
274,594
93,692
19,866
1,497
9,053
49,500
-
790,495
Total
$
346,586
$
274,594
$
93,692
$
19,866
$
1,497
$
9,053
$
49,500
$
-
$
794,788
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Residential real estate
30-59 days
$
-
$
3,867
$
-
$
10
$
-
$
-
$
-
$
-
$
3,877
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
120
-
-
-
-
-
-
120
Total past due
-
3,987
-
10
-
-
-
-
3,997
Current
77,703
83,443
124,413
45,481
37,395
34,852
1,649
191
405,127
Total
$
77,703
$
87,430
$
124,413
$
45,491
$
37,395
$
34,852
$
1,649
$
191
$
409,124
Greater than 90 days
and accruing
$
-
$
120
$
-
$
-
$
-
$
-
$
-
$
-
$
120
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
30
As of December 31, 2022
Amortized Cost Basis by Origination Year and Past Due Status
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
loans
Revolving
loans
converted to
term loans
Total
(Dollars in thousands)
Multifamily real estate
30-59 days
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
60-89 days
-
-
-
-
-
-
-
-
-
Greater than 90 days
-
-
-
-
-
-
-
-
-
Total past due
-
-
-
-
-
-
-
-
-
Current
85,785
26,705
6,915
11,938
2,491
726
86,879
16,545
237,984
Total
$
85,785
$
26,705
$
6,915
$
11,938
$
2,491
$
726
$
86,879
$
16,545
$
237,984
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Consumer
30-59 days
$
-
$
-
$
-
$
-
$
-
$
-
$
30
$
-
$
30
60-89 days
-
-
2
-
5
-
-
-
7
Greater than 90 days
-
-
-
-
-
-
-
-
-
Total past due
-
-
2
-
5
-
30
-
37
Current
7,917
1,347
2,641
265
137
6
51,386
-
63,699
Total
$
7,917
$
1,347
$
2,643
$
265
$
142
$
6
$
51,416
$
-
$
63,736
Greater than 90 days
and accruing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Total
30-59 days
$
4,313
$
8,651
$
-
$
1,190
$
-
$
1,049
$
2,844
$
-
$
18,047
60-89 days
-
55
2
-
5
-
980
430
1,472
Greater than 90 days
-
263
7
6
1,383
12
7,681
-
9,352
Total past due
4,313
8,969
9
1,196
1,388
1,061
11,505
430
28,871
Current
1,498,559
971,900
457,702
252,151
176,409
154,968
1,653,282
178,887
5,343,858
Total
$
1,502,872
$
980,869
$
457,711
$
253,347
$
177,797
$
156,029
$
1,664,787
$
179,317
$
5,372,729
Greater than 90 days
and accruing
$
-
$
159
$
7
$
-
$
-
$
-
$
584
$
-
$
750
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31
Non-accrual Loan Analysis
Non-accrual loans are loans for which the Company does not record interest
 
income. The accrual of interest on loans is discontinued at the time the loan is 90 days past due
unless the credit is well secured and in process of collection. Past due status is based on
 
contractual terms of the loan. In all cases, loans are placed on non-accrual or
 
charged off at
an earlier date, if collection of principal or interest is considered doubtful. Loans
 
are returned to accrual status when all the principal and interest amounts contractually due
 
are
brought current and future payments are reasonably assured. The following
 
tables present the Company’s non
 
-accrual loans by loan segments at March 31, 2023 and December 31,
2022:
As of March 31, 2023
Amortized Cost Basis by Origination Year and On Non-accrual
Amortized Cost Basis
2023
2022
2021
2020
2019
2018 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
$
-
$
-
$
-
$
-
$
-
$
11
$
-
$
198
$
209
$
209
Commercial and industrial
lines of credit
-
-
-
-
-
-
6,065
-
6,065
6,065
Energy
-
-
-
-
-
-
558
-
558
558
Commercial real estate
-
-
2,470
-
-
-
-
-
2,470
2,470
Construction and land
development
-
-
-
-
-
-
-
-
-
-
Residential real estate
-
-
-
-
-
-
-
188
188
188
Multifamily real estate
-
-
-
-
-
-
-
-
-
-
Consumer
-
-
-
-
-
-
-
-
-
-
Total
$
-
$
-
$
2,470
$
-
$
-
$
11
$
6,623
$
386
$
9,490
$
9,490
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
32
As of December 31, 2022
Amortized Cost Basis by Origination Year and On Non-accrual
Amortized Cost Basis
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
loans
Revolving
loans
converted
to term
loans
Total Non-
accrual
Loans
Non-accrual
Loans with no
related
Allowance
(Dollars in thousands)
Commercial and industrial
$
-
$
104
$
-
$
6
$
1,383
$
12
$
-
$
-
$
1,505
$
1,505
Commercial and industrial
lines of credit
-
-
-
-
-
-
6,479
-
6,479
6,479
Energy
-
-
-
-
-
-
618
-
618
618
Commercial real estate
-
2,479
-
-
-
-
-
-
2,479
2,479
Construction and land
development
-
-
-
-
-
-
-
-
-
-
Residential real estate
-
-
-
-
-
-
-
191
191
191
Multifamily real estate
-
-
-
-
-
-
-
-
-
-
Consumer
-
-
-
-
-
-
-
-
-
-
Total
$
-
$
2,583
$
-
$
6
$
1,383
$
12
$
7,097
$
191
$
11,272
$
11,272
Interest income recognized on non-accrual loans was $
0.5
 
million and $
0.2
 
million for the three months ended March 31, 2023 and 2022, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
33
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 months ended March 31, 2023:
For the Three Months Ended March 31, 2023
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
$
12,272
$
14,531
$
4,396
$
19,504
$
5,337
$
3,110
$
2,253
$
372
$
61,775
Charge-offs
(1,642)
-
-
-
-
-
-
-
(1,642)
Recoveries
-
-
-
-
-
-
-
1
1
Provision (release)
1,392
676
283
1,259
437
(49)
627
371
4,996
Ending balance
$
12,022
$
15,207
$
4,679
$
20,763
$
5,774
$
3,061
$
2,880
$
744
$
65,130
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures:
Beginning balance
$
245
$
74
$
787
$
700
$
6,830
$
35
$
14
$
3
$
8,688
Provision (release)
(71)
213
(246)
12
(506)
16
(5)
12
(575)
Ending balance
$
174
$
287
$
541
$
712
$
6,324
$
51
$
9
$
15
$
8,113
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
34
The ACL increased $
2.8
 
million during the quarter.
 
Provision expense of $
4.4
 
million was driven by loan growth partially offset by improvement in qualitative
 
factors, in part
due to continued improvement in credit quality.
 
In addition, $
1.6
 
million in charge-offs on two commercial and industrial loans offset the provision expense for
 
the quarter.
 
The
reserve on unfunded commitments decreased $
0.6
 
million due to higher line utilization in the quarter.
The following table presents the Company’s charge-offs by year of origination
 
for the three months ended March 31, 2023:
For the Quarter Ended March 31, 2023
Gross Charge-offs by Origination Year
Gross Charge-offs
2023
2022
2021
2020
2019
2018 and
Prior
Revolving
loans
Revolving
loans
converted
to term
loans
Gross
Charge-
offs
(Dollars in thousands)
Commercial and industrial
$
-
$
-
$
70
$
-
$
-
$
1,347
$
-
$
225
$
1,642
Commercial and industrial lines of credit
-
-
-
-
-
-
-
-
-
Energy
-
-
-
-
-
-
-
-
-
Commercial real estate
-
-
-
-
-
-
-
-
-
Construction and land development
-
-
-
-
-
-
-
-
-
Residential real estate
-
-
-
-
-
-
-
-
-
Multifamily real estate
-
-
-
-
-
-
-
-
-
Consumer
-
-
-
-
-
-
-
-
-
Total
$
-
$
-
$
70
$
-
$
-
$
1,347
$
-
$
225
$
1,642
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
35
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 March 31, 2023 and December 31, 2022:
As of March 31, 2023
Loan Segment and Collateral Description
Amortized Cost of
Collateral Dependent
Loans
Related Allowance for
Credit Losses
Amortized Cost of
Collateral Dependent
Loans with no related
Allowance
(Dollars in thousands)
Commercial and Industrial Lines of Credit
All business assets
6,065
-
6,065
Energy
Oil and natural gas properties
558
-
558
Consumer
Vehicles & other personal assets
5
5
-
$
6,628
$
5
$
6,623
As of December 31, 2022
Loan Segment and Collateral Description
Amortized Cost of
Collateral Dependent
Loans
Related Allowance for
Credit Losses
Amortized Cost of
Collateral Dependent
Loans with no related
Allowance
(Dollars in thousands)
Commercial and Industrial
All business assets
$
1,489
$
-
$
1,489
Commercial and Industrial Lines of Credit
All business assets
6,492
-
6,492
Energy
Oil and natural gas properties
618
-
618
Commercial Real Estate
Commercial real estate properties
92
-
92
Consumer
Vehicles & other personal assets
39
22
-
$
8,728
$
22
$
8,689
Troubled Debt Restructurings
TDRs are those extended to borrowers who are experiencing financial
 
difficulty and who have been granted a 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. Effective January 1, 2023, the Company
adopted ASU 2022-02, which eliminates the accounting guidance for TDRs.
 
The Company adopted this accounting standard on a
prospective basis.
The outstanding balance of TDRs recognized prior to the adoption of ASU 2022-02 was $
28.7
 
million and $
30.5
 
million as of
March 31, 2023 and December 31, 2022, respectively. Under the new
 
guidance, there were
no
 
loans restructured that qualified as
modifications for the three months ended March 31, 2023.
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
36
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 $
8
 
million and $
9
 
million allowance for
credit losses on off-balance sheet credit exposures at March 31, 2023
 
and December 31, 2022, respectively, are included in “interest
payable and other liabilities” on the statements of financial condition.
 
The following categories of off-balance sheet credit exposures have been
 
identified:
Loan commitments – include revolving lines of credit, non-revolving lines
 
of credit, and loans approved that are not yet funded. Risks
inherent to revolving lines of credit often are related to the susceptibility of an
 
individual or business experiencing unpredictable cash
flow or financial troubles, thus leading to payment default. The primary risk associated
 
with non-revolving lines of credit is the
diversion of funds for other expenditures.
Letters of credit – are primarily established to provide assurance to the beneficiary
 
that the applicant will perform certain obligations
arising out of a separate transaction between the beneficiary and applicant.
 
If the obligation is not met, it gives the beneficiary the right
to draw on the letter of credit.
Note 4:
 
Leases
The Company’s leases primarily include bank branches located in
 
Kansas City, Missouri; Tulsa, Oklahoma; Dallas, Texas; Frisco,
Texas; Phoenix, Arizona;
 
Denver, Colorado and Colorado Springs, Colorado. The remaining lease terms on these branch
 
leases range
from less than
one year
 
to
nineteen 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 March 31, 2023, the Company recognized one finance lease and the
 
remaining Company leases are classified as
operating leases.
The ROU asset is included in “other assets” on the consolidated statements of
 
financial condition, and was $
29.6
 
million and
$
30.5
 
million at March 31, 2023 and December 31, 2022, respectively. Certain adjustments
 
to the ROU asset may be required for items
such as initial direct costs paid or incentives received. The lease liability is located in “Interest payable
 
and other liabilities” on the
consolidated statements of financial condition and was $
33
 
million and $
34
 
million at March 31, 2023 and December 31, 2022,
respectively.
 
As of March 31, 2023, the remaining weighted-average lease term is
11.4
 
years, and the weighted-average discount rate was
2.54
% utilizing the Company’s incremental Federal Home Loan Bank (“FHLB”)
 
borrowing rate for borrowings of a similar term at the
date of lease commencement.
The following table presents components of operating lease expense in
 
the accompanying consolidated statements of operations
for the three-month period ended March 31, 2023:
For the Three Months Ended March 31,
2023
2022
(Dollars in thousands)
Finance lease amortization of right-of-use asset
$
70
$
-
Finance lease interest on lease liability
69
-
Operating lease expense
732
726
Variable lease expense
393
213
Short-term lease expense
5
5
Total lease expense
$
1,269
$
944
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
37
Future minimum commitments due under these lease agreements as of
 
March 31, 2023 are as follows:
Operating Leases
Finance Lease
(Dollars in thousands)
Remainder of 2023
$
2,821
$
367
2024
3,289
490
2025
3,309
490
2026
3,350
490
2027
3,340
528
Thereafter
12,619
8,296
Total lease payments
$
28,728
$
10,661
Less imputed interest
3,350
3,095
Total
$
25,378
$
7,566
Supplemental cash flow information –
Operating cash flows paid for operating lease amounts included in the measurement
 
of
lease liabilities were $
0.9
 
million and $
0.7
 
million for the three months ended March 31, 2023 and 2022, respectively. Operating
 
cash
flows paid for finance lease amounts included in the measurement of
 
lease liabilities was $
0.1
 
million for the three-month period ended
March 31, 2023. During the three months ended March 31, 2023, the Company
 
did
no
t record any ROU assets that were exchanged for
operating lease liabilities.
Note 5:
 
Goodwill and Core Deposit Intangible
Goodwill is measured as the excess of the fair value of consideration paid over the
 
fair value of net assets acquired. In accordance
with GAAP, the Company performs annual tests to identify impairment
 
of goodwill and more frequently if events or circumstances
indicate a potential impairment may exist.
No
 
goodwill impairment was recorded during the three months ended March 31, 2023.
As a result of economic conditions resulting from bank failures during
 
the first quarter of 2023, the Company conducted a
goodwill impairment test as of March 31, 2023. A qualitative analysis was performed,
 
and the Company does not believe it is more
likely than not that a goodwill impairment exists.
The Company is amortizing the core deposit intangible (“CDI”) from the
 
Farmers & Stockmens (“Central”) acquisition over its
estimated useful life of approximately
10
 
years using the sum of the years’ digits accelerated method. The Company recognized core
deposit intangible amortization expense of $
0.8
 
million for the three months ended March 31, 2023.
The gross carrying amount of goodwill and the gross carrying amount and
 
accumulated amortization of the CDI at March 31,
2023 and December 31, 2022 were:
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
(Dollars in thousands)
March 31, 2023
Goodwill
$
12,836
$
-
$
12,836
Core deposit intangible
17,479
2,056
15,423
Total goodwill and intangible assets
$
30,315
$
2,056
$
28,259
December 31, 2022
Goodwill
$
12,836
$
-
$
12,836
Core deposit intangible
17,479
1,234
16,245
Total goodwill and intangible assets
$
30,315
$
1,234
$
29,081
 
 
 
 
 
 
 
 
 
 
 
 
38
The following table shows the estimated future amortization expense for
 
the CDI as of March 31, 2023:
 
Amount
Years ending December 31,
(Dollars in thousands)
For the nine months ending December 31, 2023
$
2,286
For the year ending December 31, 2024
2,762
For the year ending December 31, 2025
2,436
For the year ending December 31, 2026
2,109
For the year ending December 31, 2027
1,783
Note 6:
 
Derivatives and Hedging
The Company is exposed to certain risks arising from both its business operations and
 
economic conditions, including interest
rate, liquidity, and
 
credit risk. The Company uses derivative financial instruments as part of its risk management
 
activities to manage
exposures that arise from business activities that result in the receipt or payment
 
of future known and uncertain cash amounts, the value
of which are determined by interest rates.
 
Cash Flow Hedges of Interest Rate Risk
The Company uses interest rate derivatives to add stability to interest income
 
and expense and to manage its exposure to interest
rate movements. To
 
accomplish this objective, the Company uses interest rate swaps and collars as part of its interest
 
rate risk
management strategy.
 
Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts
 
from a counterparty in
exchange for the Company making fixed-rate payments over the life
 
of the agreements without exchange of the underlying notional
amount. Interest rate collars designated as cash flow hedges involve
 
payments of variable-rate amounts if interest rates rise above the
cap strike rate on the contract and the receipt of variable-rate amounts
 
if interest rates fall below the floor strike rate on the contract.
During 2023, such derivatives were used to hedge the variable cash flows associated
 
with existing variable-rate 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. Derivatives designated and that qualify as cash flow
hedges include
one
 
instrument with a notional amount of $
250
 
million at March 31, 2023 and December 31, 2022.
For derivatives designated and that qualify as cash flow hedges of interest rate
 
risk, the gain or loss on the derivative is recorded
in Accumulated Other Comprehensive Income (Loss) (“AOCI”) and subsequently reclassified into interest
 
income or expense in the
same period(s) during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be
reclassified to interest income and expense as interest payments are received
 
and made on the Company’s variable-rate assets and
liabilities. The derivative financial instruments did not impact the statements of operations
 
for the three months ended March 31, 2023.
The Company estimates that $
0.2
 
million will be reclassified as a decrease to net interest income during the next twelve months.
 
The Company is hedging its exposure to the variability in future cash flows for forecasted
 
transactions over a maximum period of
6.1
 
years.
 
Non-designated Hedges
Derivatives not designated as hedges are not speculative and result from
 
a service provided to clients. The Company executes
interest rate swaps with customers to facilitate their respective risk management
 
strategies. Those interest rate swaps are simultaneously
hedged by offsetting derivatives that the Company executes with a third-party,
 
such that the Company minimizes its net risk exposure
resulting from such transactions. Interest rate derivatives associated
 
with this program do not meet the strict hedge accounting
requirements and changes in the fair value of both the customer derivatives
 
and the offsetting derivatives are recognized directly in
earnings.
 
Swap fees earned upon origination and credit valuation adjustments that represent
 
the risk of a counterparty’s default are reported
on the statements of operations as swap fee income, net. The effect of the Company’s derivative financial
 
instruments gain (loss) is
reported on the statements of cash flows within “other assets” and “other liabilities”.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
39
These
50
 
and
49
 
swaps had an aggregate notional amount of $
417
 
million and $
421
 
million at March 31, 2023 and December 31,
2022, respectively.
Fair Values
 
of Derivative Instruments on the Statements of Financial Condition
The table below presents the fair value of the Company’s derivative financial
 
instruments and their classification on the
Statements of Financial Condition as of March 31, 2023 and December
 
31, 2022:
Asset Derivatives
Liability Derivatives
Statement of
Financial
Condition
March 31,
 
December 31,
 
Statement of
Financial
Condition
March 31,
 
December 31,
 
Location
2023
2022
Location
2023
2022
(Dollars in thousands)
Interest rate products:
Derivatives
designated as hedging
instruments
Other assets
$
-
$
-
Interest payable
and other
liabilities
$
3,883
$
5,403
Derivatives not
designated as hedging
instruments
Other assets
7,907
11,038
Interest payable
and other
liabilities
7,908
11,039
Total
$
7,907
$
11,038
$
11,791
$
16,442
The table below presents the effect of cash flow hedge accounting on Accumulated Other Comprehensive Income
 
(Loss) for the
three months ended March 31, 2023 and 2022.
For the Three Months Ended
For the Three Months Ended
March 31, 2023
March 31, 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 Expense
1,540
1,540
-
2,655
2,655
-
Total
$
1,540
$
1,540
$
-
$
2,655
$
2,655
$
-
As of March 31, 2023 and December 31, 2022, the Company had minimum
 
collateral thresholds with certain of its derivative
counterparties and has received collateral of $
3.6
 
million and $
4.9
 
million, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40
Note 7:
 
Time Deposits and Borrowings
The scheduled maturities, excluding interest, of the Company’s borrowings at
 
March 31, 2023 were as follows:
March 31, 2023
Within One
Year
One to Two
Years
Two to
Three Years
Three to
Four Years
Four to Five
Years
After Five
Years
Total
(Dollars in thousands)
Time deposits
$
1,153,933
$
215,690
$
2,084
$
1,356
$
2,964
$
-
$
1,376,027
FHLB borrowings
37,573
1,598
11,423
-
60,000
20,000
130,594
FHLB line of credit
183,437
-
-
-
-
-
183,437
Line of credit
7,500
-
-
-
-
-
7,500
SBA secured borrowing
-
-
-
-
-
9,396
9,396
Trust preferred securities
(1)
-
-
-
-
-
1,074
1,074
$
1,382,443
$
217,288
$
13,507
$
1,356
$
62,964
$
30,470
$
1,708,028
(1)
The contract value of the trust preferred securities is $
2.6
 
million and is currently being accreted to the maturity date of 2035.
 
Note 8:
 
Income Tax
An income tax expense reconciliation at the statutory rate to the Company’s
 
actual income tax expense is shown below:
Three Months Ended
March 31,
2023
2022
(Dollars in thousands)
Computed at the statutory rate (21%)
$
4,227
$
4,413
Increase (decrease) resulting from
Tax-exempt income
(880)
(854)
Non-deductible expenses
93
82
State income taxes
632
696
Equity based compensation
(45)
(169)
Other adjustments
(6)
20
Actual tax expense
$
4,021
$
4,188
The tax effects of temporary differences related to deferred taxes located
 
in “other assets” on the consolidated statements of
financial condition are presented below:
March 31, 2023
December 31, 2022
(Dollars in thousands)
Deferred tax assets
Net unrealized loss on securities available-for-sale
$
16,285
$
20,295
Allowance for credit losses
17,372
16,710
Lease incentive
438
451
Loan fees
4,070
4,048
Accrued expenses
1,303
3,379
Deferred compensation
1,735
2,166
Other
1,433
1,469
Total deferred tax asset
42,636
48,518
Deferred tax liability
FHLB stock basis
(394)
(436)
Premises and equipment
(1,934)
(2,042)
Other
(938)
(1,018)
Total deferred tax liability
(3,266)
(3,496)
Net deferred tax asset
$
39,370
$
45,022
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
41
Note 9:
 
Change in Accumulated Other Comprehensive Income (Loss)
 
Amounts reclassified from AOCI and the affected line items in the consolidated statements of operations during the
 
three months
ended March 31, 2023 and 2022, were as follows:
Three Months Ended
March 31,
 
Affected Line Item in the
2023
2022
Statements of Operations
(Dollars in thousands)
Unrealized gains (losses) on available-for-sale securities
$
63
$
(26)
Gain (loss) on sale of available-
for-sale securities
Less: tax expense (benefit) effect
15
(6)
Income tax expense (benefit)
Net reclassified amount
$
48
$
(20)
Note 10:
 
Regulatory Matters
The Company and the Bank are subject to various regulatory capital requirements
 
administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory
 
and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on the Company’s
 
consolidated financial statements. Management believes that,
as of March 31, 2023, the Company and the Bank met all capital adequacy requirements
 
to which they are subject.
The capital rules require the Company to maintain a
2.5
% capital conservation buffer with respect to Common Equity Tier I
capital, Tier I capital to risk-weighted assets, and total capital to risk-weighted assets, which
 
is included in the column “Required to be
Considered Adequately Capitalized” within the table below. A financial institution with a conservation buffer of less than the required
amount is subject to limitations on capital distributions, including dividend
 
payments and stock repurchases, as well as certain
discretionary bonus payments to executive officers.
 
The Company and the Bank opted to exclude AOCI from the regulatory capital calculations. As a result, changes in AOCI, net of
tax, do not impact the Company’s or Bank’s regulatory capital ratios.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
42
The Company’s and the Bank’s actual capital amounts and ratios as of March
 
31, 2023 and December 31, 2022 are presented in
the following table:
Actual
Required to be Considered
 
Well Capitalized
Required to be Considered
Adequately Capitalized
(1)
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
March 31, 2023
Total Capital to Risk-Weighted Assets
Consolidated
$
743,690
10.5
%
 
N/A
 
 
N/A
 
$
741,502
10.5
%
Bank
745,374
10.6
$
705,775
10.0
%
741,064
10.5
Tier I Capital to Risk-Weighted Assets
Consolidated
670,447
9.5
N/A
N/A
600,264
8.5
Bank
672,131
9.5
564,620
8.0
599,909
8.5
Common Equity Tier 1 to Risk-Weighted Assets
Consolidated
661,622
9.4
 
N/A
 
 
N/A
 
494,335
7.0
Bank
672,131
9.5
458,754
6.5
494,043
7.0
Tier I Capital to Average Assets
Consolidated
670,447
9.9
N/A
N/A
270,441
4.0
Bank
$
672,131
9.9
%
$
338,128
5.0
%
$
270,502
4.0
%
December 31, 2022
Total Capital to Risk-Weighted Assets
Consolidated
$
715,416
10.5
%
 
N/A
 
 
N/A
 
$
714,162
10.5
%
Bank
714,300
10.5
$
679,793
10.0
%
713,783
10.5
Tier I Capital to Risk-Weighted Assets
Consolidated
644,953
9.5
N/A
N/A
578,131
8.5
Bank
643,837
9.5
543,835
8.0
577,824
8.5
Common Equity Tier 1 to Risk-Weighted Assets
Consolidated
643,892
9.5
 
N/A
 
 
N/A
 
476,108
7.0
Bank
643,837
9.5
441,866
6.5
475,855
7.0
Tier I Capital to Average Assets
Consolidated
644,953
10.3
N/A
N/A
249,270
4.0
Bank
$
643,837
10.3
%
$
311,623
5.0
%
$
249,299
4.0
%
(1)
Includes capital conservation buffer of
2.5
%
Note 11:
 
Stock-Based Compensation
The Company issues stock-based compensation in the form of non-vested
 
restricted stock, restricted stock units and stock
appreciation rights under the 2018 Omnibus Equity Incentive Plan (as amended,
 
the “Omnibus Plan”). The Omnibus Plan will expire on
the tenth anniversary of its effective date. In addition, the Company
 
has an Employee Stock Purchase Plan that was reinstated during the
third quarter of 2020. The aggregate number of shares authorized for future issuance under the
 
Omnibus Plan is
1,218,970
 
shares as of
March 31, 2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
43
The table below summarizes the stock-based compensation for the
 
three months ended March 31, 2023 and 2022:
Three Months Ended
March 31,
 
2023
2022
(Dollars in thousands)
Stock appreciation rights
$
99
$
99
Performance-based stock awards
236
211
Restricted stock units and awards
879
778
Employee stock purchase plan
24
27
Total stock-based compensation
$
1,238
$
1,115
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 three-month period ended March 31, 2023, the Company
 
granted
128,005
 
PBRSUs. The performance metrics include
three-year
 
cumulative earnings per share and relative total shareholder return.
The following table summarizes the status of and changes in the PBRSUs:
Performance-Based Restricted
 
Stock Unit Awards
Number of Shares
Weighted-Average
Grant Date Fair Value
Unvested, January 1, 2023
134,286
$
14.52
Granted
128,005
14.13
Vested
(20,736)
13.55
Forfeited
(5,335)
14.49
Unvested, March 31, 2023
236,220
$
14.40
Unrecognized stock-based compensation related to the performance
 
awards issued through March 31, 2023 was $
2.7
 
million and
is expected to be recognized over
2.5
 
years.
Restricted Stock Units and Restricted Stock Awards
The Company issues time-based restricted stock units (“RSUs”) and restricted
 
stock awards (“RSAs”) to provide incentives to
key officers, employees, and non-employee directors. Awards are typically granted annually as determined by
 
the Compensation
Committee. The service-based RSUs typically vest in equal amounts over three years. The service-based
 
RSAs typically cliff-vest after
one year
.
The following table summarizes the status of and changes in the RSUs and RSAs:
Restricted Stock Units and Awards
Number of Shares
Weighted-Average
Grant Date Fair Value
Unvested, January 1, 2023
416,980
$
14.13
Granted
264,197
13.96
Vested
(141,857)
14.05
Forfeited
(11,650)
14.28
Unvested, March 31, 2023
527,670
$
14.06
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
44
Unrecognized stock-based compensation related to the RSUs and RSAs issued through
 
March 31, 2023 was $
6.3
 
million and is
expected to be recognized over
2.4
 
years.
 
Note 12:
 
Stock Warrants
The Company had
80,000
 
outstanding, fully vested warrants to purchase common stock at a strike price
 
of $
5.00
 
per share as of
March 31, 2023 and December 31, 2022. The
80,000
 
warrants expire on April 26, 2023. During the three-month period ended
 
March 31,
2023,
no
 
warrants were exercised or issued.
Note 13: Earnings Per Common Share
The following table presents the computation of basic and diluted earnings per
 
common share:
Three Months Ended
March 31,
2023
2022
(Dollars in thousands except per share data)
Earnings per Common Share
Net income available to common stockholders
$
16,108
$
16,828
Weighted average common shares
48,635,910
50,251,297
Earnings per common share
$
0.33
$
0.33
Diluted Earnings per Common Share
Net income available to common stockholders
$
16,108
$
16,828
Weighted average common shares
48,635,910
50,251,297
Effect of dilutive common shares
407,711
659,193
Weighted average dilutive common shares
49,043,621
50,910,490
Diluted earnings per common share
$
0.33
$
0.33
Stock-based awards not included because to do so would be antidilutive
916,080
285,672
During March 2023, the Company offered and sold shares of its Series A Non-Cumulative Perpetual Preferred Stock, par value
$
0.01
 
per share, for an aggregate purchase price of $
7.8
 
million.
No
 
dividends related to the preferred stock were declared or paid during
the three months ended March 31, 2023.
Note 14:
 
Disclosures about Fair Value of Financial Instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability
 
in an orderly transaction between
market participants at the measurement date. Fair value measurements must maximize
 
the use of observable inputs and minimize the use
of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair
 
value:
Level 1
 
Quoted prices in active markets for identical assets or liabilities.
Level 2
 
Observable inputs other than Level 1 prices, such as quoted prices for similar
 
assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be corroborated
 
by observable market data for
substantially the full term of the assets or liabilities.
Level 3
 
Unobservable inputs supported by little or no market activity and significant to
 
the fair value of the assets or liabilities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
45
Recurring Measurements
The following list presents the assets and liabilities recognized in the accompanying
 
consolidated statements of financial
condition measured at fair value on a recurring basis and the level within the fair
 
value hierarchy in which the fair value measurements
fall at March 31, 2023 and December 31, 2022:
 
Fair Value Description
Valuation
Hierarchy
Level
Where Fair
Value Balance
Can Be Found
Available-for-
Sale Securities and
CRA 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.
 
Level 2
Note 2:
Securities
 
Derivatives
Fair value of the interest rate swaps is obtained from independent pricing
services based on quoted market prices for similar derivative contracts.
Level 2
Note 6:
Derivatives and
Hedging
Non-recurring Measurements
The following tables present assets measured at fair value on a non-recurring
 
basis and the level within the fair value hierarchy in
which the fair value measurements fall at March 31, 2023 and December
 
31, 2022:
March 31, 2023
Fair Value Measurements Using
Fair Value
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
(Dollars in thousands)
Collateral-dependent loans
$
6,628
$
-
$
-
$
6,628
Foreclosed assets held-for-sale
$
880
$
-
$
-
$
880
December 31, 2022
Fair Value Measurements Using
Fair Value
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
(Dollars in thousands)
Collateral-dependent impaired loans
$
8,728
$
-
$
-
$
8,728
Foreclosed assets held-for-sale
$
1,745
$
-
$
-
$
1,745
Following is a description of the valuation methodologies and inputs used for
 
assets measured at fair value on a non-recurring
basis and recognized in the accompanying consolidated statements of
 
financial condition.
Collateral-Dependent Loans, Net of ACL
The estimated fair value of collateral-dependent loans is based on the appraised
 
fair value of the collateral, less estimated cost to
sell. If the fair value of the collateral is below the loan’s amortized cost, the ACL is netted against the loan balance. Collateral-dependent
loans are classified within Level 3 of the fair value hierarchy.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
46
The Company considers the appraisal or evaluation as the starting point for determining
 
fair value and then considers other
factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral dependent
 
loans are
obtained when the loan is determined to be collateral dependent and subsequently
 
as deemed necessary by the Office of the Chief Credit
Officer.
Appraisals are reviewed for accuracy and consistency by management. Appraisers are selected from the list of approved
appraisers maintained by management. The appraised values are reduced by discounts to
 
consider lack of marketability and estimated
cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts
 
and estimates are developed
by the Office of the Chief Credit Officer by comparison to historical results.
Foreclosed Assets Held-for-Sale
The fair value of foreclosed assets-held-for-sale is based on the appraised fair value of
 
the collateral, less estimated cost to sell.
Unobservable (Level 3) Inputs
The following tables present quantitative information about unobservable
 
inputs used in non-recurring Level 3 fair value
measurements at March 31, 2023 and December 31, 2022:
March 31, 2023
Fair Value
Valuation Techniques
Unobservable
Inputs
Range
(Weighted Average)
(Dollars in thousands)
$
Market comparable
properties
Marketability
discount
4
%
-
6
%
Collateral dependent loans
6,628
(
6
)%
$
Market comparable
properties
Marketability
discount
10
%
Foreclosed assets held-for-sale
880
(
10
)%
December 31, 2022
Fair Value
Valuation Techniques
Unobservable
Inputs
Range
(Weighted Average)
(Dollars in thousands)
$
Market comparable
properties
Marketability
discount
-
%
-
100
%
Collateral-dependent impaired loans
8,728
(
13
)%
$
Market comparable
properties
Marketability
discount
10%
Foreclosed assets held-for-sale
1,745
(
10
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
47
The following tables present the estimated fair values of the Company’s financial
 
instruments at March 31, 2023 and
December 31, 2022:
March 31, 2023
Carrying
Fair Value Measurements
Amount
Level 1
Level 2
Level 3
(Dollars in thousands)
Financial Assets
Cash and cash equivalents
$
262,971
$
262,971
$
-
$
-
Available-for-sale securities
751,251
-
751,251
-
Loans, net of allowance for credit losses
5,582,509
-
-
5,587,995
Restricted equity securities
16,700
-
-
16,700
Interest receivable
30,385
-
30,385
-
Equity securities
3,242
-
-
3,242
Derivative assets
7,907
-
7,907
-
Financial Liabilities
Deposits
$
5,837,314
$
969,701
$
-
$
4,879,677
Federal Home Loan Bank line of credit
183,437
-
183,437
-
Federal Home Loan Bank advances
130,594
-
125,909
-
Other borrowings
17,970
-
18,382
-
Interest payable
9,571
-
9,571
-
Derivative liabilities
11,791
-
11,791
-
December 31, 2022
Carrying
Fair Value Measurements
Amount
Level 1
Level 2
Level 3
(Dollars in thousands)
Financial Assets
Cash and cash equivalents
$
300,138
$
300,138
$
-
$
-
Available-for-sale securities
769,641
-
686,901
-
Loans, net of allowance for loan losses
5,310,954
-
-
5,307,607
Restricted equity securities
12,536
-
-
12,536
Interest receivable
29,507
-
29,507
-
Equity securities
2,870
-
-
2,870
Derivative assets
11,038
-
11,038
-
Financial Liabilities
Deposits
$
5,651,308
$
1,400,260
$
-
$
4,142,673
Federal funds purchased and repurchase agreements
74,968
-
74,968
-
Federal Home Loan Bank advances
143,143
-
135,086
-
Other borrowings
35,457
-
36,529
-
Interest payable
5,713
-
5,713
-
Derivative liabilities
16,442
-
16,442
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
48
Note 15:
 
Commitments and Credit Risk
Commitments
The Company had the following commitments at March 31, 2023
 
and December 31, 2022:
March 31, 2023
December 31, 2022
(Dollars in thousands)
Commitments to originate loans
$
202,975
$
134,961
Standby letters of credit
65,124
66,889
Lines of credit
2,528,595
2,705,730
Future lease commitments
1,888
1,888
Commitments related to investment fund
3,032
3,403
$
2,801,614
$
2,912,871
Note 16:
 
Subsequent Events
On April 21, 2023, the Company announced its entry into a definitive agreement under which the Company will acquire
 
Canyon
Bancorporation, Inc. and its wholly owned subsidiary, Canyon Community
 
Bank, N.A. (collectively, “Canyon”) in a stock and cash
transaction.
 
The business combination transaction is expected to result in the mergers of
 
Canyon Bancorporation, Inc. with and into
CrossFirst Bankshares, Inc. and Canyon Community Bank, N.A. with and
 
into CrossFirst Bank. Canyon has a branch in Tucson,
Arizona. The transaction is currently expected to close in the second half of 2023,
 
subject to approval by bank regulatory authorities, as
well as the satisfaction or waiver of customary closing conditions.
On April 21, 2023, the Company’s remaining
80,000
 
outstanding, fully vested warrants were exercised. See “Note 12: Stock
Warrants” for additional information about these warrants.
 
49
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
 
AND RESULTS OF
OPERATIONS
The following management's discussion and analysis of our financial condition
 
and results of operations should be read in
conjunction with our consolidated financial statements and related notes
 
as of and for the three months ended March 31, 2023, and with
our 2022 Form 10-K, which includes our audited consolidated financial statements
 
and related notes as of and for the years ended
December 31, 2022, 2021
 
and 2020. This discussion and analysis contains forward-looking statements that involve risks, uncertainties
and assumptions that may cause actual results to differ materially from management's
 
expectations. Factors that could cause such
differences are discussed in the section entitled “Cautionary Note Regarding
 
Forward-Looking Statements” located elsewhere in this
quarterly report and in Item 1A “Risk Factors” in our 2022 Form 10-K and should be read herewith.
First Quarter 2023 Highlights
During the first quarter ended March 31, 2023, we accomplished the following:
●
Completed the core systems conversion for Central
●
Loans grew $275 million for the quarter with our newer markets and verticals contributing
 
meaningfully as we realize scale
in those areas
●
Credit quality improved with non-performing assets decreasing
 
$2.0 million and the non-performing assets to total assets
ratio decreasing to 0.16% at quarter end
●
Recorded $4.4 million of provision expense during the quarter driven by loan growth
 
and net charge-offs of $1.6 million, or
0.12% of average loans
●
Deposits increased $186 million due to a $405 million increase in wholesale
 
deposits.
 
Non-interest-bearing accounts were
lower as elevated deposits at year-end were deployed early in the quarter
 
in addition to clients migrating into savings and
money market accounts
●
Net interest margin – fully tax equivalent (“FTE”) of 3.65% widened
 
four basis points for the quarter entirely due to the
benefit of non-interest-bearing deposits
 
●
Book value per common share increased to $13.28 at March 31, 2023 compared
 
to $12.56 at December 31, 2022. Tangible
book value per common share
(1)
as of March 31, 2023 increased to $12.54 compared to $11.96
 
at December 31, 2022
●
Issued $7.8 million of Series A Non-Cumulative Perpetual Preferred Stock, par value $0.01 per share (the Series A Preferred
Stock”), further bolstering our capital position
●
Received regulatory approval to expand into the Fort Worth, Texas market
(1)
Represents a non-GAAP financial measure.
 
See “Non-GAAP Financial Measures” below in Management’s Discussion and Analysis
of Financial Condition and Results of Operations for a reconciliation of these measures.
Banking Industry Events
The banking industry has faced significant upheaval since the collapse of
 
several banks in March 2023 related to their liquidity
and their significant concentration in certain industries, including exposure
 
to the technology sector and cryptocurrency.
 
We do not have
significant industry concentration or any significant exposure to the
 
technology or crypto sectors. Competition for deposits was
exacerbated by renewed focus on deposits in excess of FDIC insurance limits following
 
the failures, in addition to increased focus on
liquidity and interest rate management risks at all banks.
 
These challenges, combined with uncertainties around continued cost pressures
from inflation, potential FDIC special assessments and potential for higher
 
loan loss provisioning all led to a highly volatile market for
banks.
 
During the quarter, we focused on the following strategies and data:
●
Mobilized our business continuity team and aspects of our contingency funding
 
plan in response to the headline and publicity
risk created by the bank failures
●
Conducted frequent executive team meetings (including
 
daily during certain periods) during March to monitor our response
which was focused on client outreach and increasing liquidity
●
Expanded liquidity available by $220 million at the Federal Reserve Bank
 
by pledging additional loans
 
50
●
Conducted proactive client outreach by bankers to communicate the strength,
 
stability and trust clients have come to expect
from CrossFirst Bank
●
Improved liquidity in our securities portfolio - as of March 31, 2023, $244
 
million of securities can be pledged and $222
million of securities could be sold with a net gain, based on current market
 
conditions
●
Our total on-balance sheet and off-balance sheet liquidity was $2.3 billion as of
 
March 31, 2023, or 33% of total assets
 
●
Expanded our partnership with IntraFi as we served clients who were interested
 
in the program; our IntraFi Cash Service
(“ICS”) partnership dates back to 2013
●
Estimated uninsured deposits after excluding pass-thru insured accounts
 
was 35% of total deposits
Mergers and Acquisitions
 
Update
On April 21, 2023, the Company announced its entry into a definitive agreement under which the Company
 
will acquire Canyon
Bancorporation, Inc. and its wholly owned subsidiary, Canyon Community
 
Bank, N.A. (collectively, “Canyon”) in a stock and cash
transaction.
 
The business combination transaction is expected to result in the mergers
 
of Canyon Bancorporation, Inc. with and into
CrossFirst Bankshares, Inc. and Canyon Community Bank, N.A. with and
 
into CrossFirst Bank.
 
Canyon has a branch in Tucson,
Arizona. In accordance with the agreement, the Company has agreed to pay
 
up to 50% of the merger consideration in the form of
Company common stock based on the election of the target stockholders and
 
subject to certain conditions. The Company's common
stock will be valued at a per share price of $14.11 for purposes of calculating the
 
merger consideration. The Company expects to issue
up to approximately 621,000 shares of its common stock at closing assuming:
 
(i) aggregate merger consideration of $17.5 million; and
(ii) that the Company issues 50% of such merger consideration in the form
 
of the Company's common stock.
 
The aggregate transaction
value was estimated at approximately $15.1 million based on the Company’s
 
stock price on April 20, 2023. The transaction is currently
expected to close in the second half of 2023, subject to approval by bank regulatory
 
authorities, as well as the satisfaction or waiver of
customary closing conditions.
Update to Customer Concentrations
As of March 31, 2023, the Company’s
 
top 25 customer relationships represented approximately 23% or $1.4 billion
 
of total
deposits,
 
$0.5 billion of which are ICS deposits.
 
The Company believes it has 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 the Company’s
 
financial position or operations. Deposits at March 31, 2023 are 70% commercial,
 
17%
consumer,
 
and 13% wholesale, which is consistent with our strategy.
 
We operate largely
 
in the Midwest and in strong markets, with a
diverse deposit composition by state which follows our branch footprint.
 
We also have diversity in depositors
 
by industry with no
industry concentrations above 5% outside of trusts and banking
 
institutions.
Our loan portfolio remains diversified with 45% of loans in commercial and
 
industrial and owner-occupied real estate and 44% of
loans in commercial real estate. We
 
have diversification within each portfolio
 
with the top 25 commercial and industrial clients
representing 27% of total commercial and industrial exposure or 10% of
 
total loan exposure and the top 25 commercial real estate
transactions representing 23% of commercial real estate exposure or
 
10% of total loan exposure.
 
There also remains diversity within
our loan portfolios with the highest commercial real estate property
 
type accounting for 17% of total commercial real estate exposure,
and the largest industry segment in commercial and
 
industrial being manufacturing at 10% of commercial and industrial exposure.
 
Our
commercial real estate loan portfolio also has geographic diversity with concentrations
 
in high-quality markets including Dallas, Kansas
City, Phoenix, and Denver
 
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
51
Performance Measures
As of or for the Quarter Ended
March 31,
December 31,
September 30,
June 30,
March 31,
2023
2022
2022
2022
2022
(Dollars in thousands, except per share data)
Return on average assets
(1)
0.97
%
0.77
%
1.19
%
1.12
%
1.23
%
Adjusted return on average assets
(1)(2)
1.04
%
1.15
%
1.19
%
1.20
%
1.23
%
Return on average equity
(1)
10.53
%
8.04
%
11.18
%
10.15
%
10.44
%
Adjusted return on average equity
(1)(2)
11.30
%
12.03
%
11.22
%
10.82
%
10.44
%
Earnings per common share – basic
$
0.33
$
0.25
$
0.35
$
0.31
$
0.33
Earnings per common share – diluted
$
0.33
$
0.24
$
0.35
$
0.31
$
0.33
Adjusted earnings per common share – diluted
(2)
$
0.35
$
0.36
$
0.35
$
0.33
$
0.33
Efficiency ratio
(3)
60.81
%
62.40
%
53.20
%
57.36
%
57.57
%
Adjusted efficiency ratio - FTE
(2)(3)(4)
56.42
%
55.01
%
52.25
%
53.95
%
56.66
%
Ratio of equity to assets
9.36
%
9.22
%
9.93
%
10.65
%
11.29
%
(1)
 
Interim periods annualized
(2)
 
Represents a non-GAAP financial measure.
 
See "Non-GAAP Financial Measures"
 
below in Management's Discussion and
 
Analysis of Financial Condition and
Results of Operations for a reconciliation of these measures.
(3)
 
We calculate efficiency ratio as non-interest expense
 
divided by the sum of net interest income and
 
non-interest income.
(4)
 
Tax exempt income (tax-free municipal securities)
 
is calculated on a tax equivalent basis.
 
The incremental tax rate used is 21.0%.
Results of Operations
Net Interest Income
Net interest income is presented on a fully tax equivalent basis.
 
We believe reporting on an FTE basis provides for improved
comparability between the various earning assets. Changes in interest
 
income and interest expense result from changes in average
balances (volume) of interest earning assets and interest-bearing
 
liabilities, as well as changes in average interest rates.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
52
The following tables present, for the periods indicated, average statement
 
of financial condition information, interest income,
interest expense and the corresponding average yield and rates paid:
 
Three Months Ended
March 31, 2023
March 31, 2022
Average
Balance
Interest
Income /
Expense
Average
Yield /
Rate
(4)
Average
Balance
Interest
Income /
Expense
Average
Yield /
Rate
(4)
(Dollars in thousands)
Interest-earning assets:
Securities - taxable
$
268,705
$
2,111
3.14
%
$
220,802
$
1,188
2.15
%
Securities - tax-exempt - FTE
(1)
542,268
4,591
3.39
533,674
4,467
3.35
Federal funds sold
1,757
5
1.15
-
-
-
Interest-bearing deposits in other banks
195,289
2,009
4.17
309,948
152
0.20
Gross loans, net of unearned income
(2)(3)
5,539,954
89,618
6.56
4,332,831
42,728
4.00
Total interest-earning assets - FTE
(1)
6,547,973
$
98,334
6.08
%
5,397,255
$
48,535
3.64
%
Allowance for credit losses
(63,235)
(57,922)
Other non-interest-earning assets
228,063
224,405
Total assets
$
6,712,801
$
5,563,738
Interest-bearing liabilities
Transaction deposits
$
542,366
$
3,500
2.62
%
$
585,990
$
222
0.15
%
Savings and money market deposits
2,881,726
23,569
3.32
2,302,552
1,847
0.33
Time deposits
1,100,444
9,656
3.56
587,452
1,442
1.00
Total interest-bearing deposits
4,524,536
36,725
3.29
3,475,994
3,511
0.41
FHLB and short-term borrowings
272,754
2,535
3.77
231,156
1,109
1.95
Trust preferred securities, net of fair value
adjustments
1,062
56
21.39
1,012
25
10.25
Non-interest-bearing deposits
1,194,788
-
-
1,157,387
-
-
Cost of funds
5,993,140
$
39,316
2.66
%
4,865,549
$
4,645
0.39
%
Other liabilities
99,451
44,442
Stockholders’ equity
620,210
653,747
Total liabilities and stockholders’ equity
$
6,712,801
$
5,563,738
Net interest income - FTE
(1)
$
59,018
$
43,890
Net interest spread - FTE
(1)
3.42
%
3.25
%
Net interest margin - FTE
(1)
3.65
%
3.29
%
(1)
Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal income taxes. The incremental
tax rate used is 21.0%.
(2)
Loans, net of unearned income include non-accrual loans of $10 million and $33 million as of March 31, 2023 and 2022, respectively.
(3)
Loan interest income includes loan fees of $4 million and $4 million for the three months ended March 31, 2023 and 2022, respectively.
(4)
Actual unrounded values are used to calculate the reported yield or rate. Accordingly, recalculations using the amounts in thousands as disclosed in
this report may not produce the same amounts.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
53
Net interest income -
 
Net interest income increased $15.1 million for the three-month
 
period ended March 31, 2023 compared to the
same period in 2022 driven by increases in average earning assets from strong
 
loan growth and an increase in loan yields, partially offset
by a higher cost of funds due to the rising rate environment.
 
Compared to the first quarter of 2022, FTE net interest income increased
$15.1 million and net interest margin - FTE increased 36 basis points.
 
The higher income and margin were primarily due to increases in
average earning assets from strong loan growth and an increase in loan yields, partially
 
offset by a higher cost of funds due to the rising
rate environment.
Average earning assets totaled $6.5 billion for the three-month period
 
ended March 31, 2023 resulting in an increase of $1.2 billion or
21% compared to the same period in 2022, inclusive of the impact of
 
the Central acquisition. The increase was driven by higher average
loan and investment portfolio balances, partially offset by lower average
 
cash balances for the three-month period ended March 31, 2023
compared to the corresponding period in 2022.
The FTE yield on earning assets increased 2.44% from the first quarter
 
of 2022 to the first quarter of 2023 due to new loan production as
well as repricing of variable rate loans. The cost of funds increased 2.27% over the same period
 
due to pricing pressure on deposits as
well as client migration into higher cost deposit products compared to the prior
 
year.
The Company currently anticipates net interest margin to narrow from
 
the current quarter to be in the range of 3.40% to 3.55% for the
full-year 2023 based on changes in our funding mix. This may be partially offset with a
 
benefit of one to three basis points from any
additional rate increases due to our largely variable loan portfolio.
Non-Interest Income
The components of non-interest income were as follows for the periods
 
shown:
Three Months Ended
March 31,
 
Change
2023
2022
$
%
(Dollars in thousands)
Service charges and fees on customer accounts
$
1,829
$
1,408
$
421
30
%
ATM and credit card interchange income
1,264
2,664
(1,400)
(53)
Realized gains (losses) on available-for-sale securities
63
(26)
89
 
N/M
 
Gain on sale of loans
187
-
187
-
Gains (losses), net on equity securities
10
(103)
113
(110)
Income from bank-owned life insurance
411
388
23
6
Swap fees and credit valuation adjustments, net
90
118
(28)
(24)
Other non-interest income
567
493
74
15
Total non-interest income
$
4,421
$
4,942
$
(521)
(11)
%
Non-interest income to average assets (annualized)
0.27%
0.36%
The changes in non-interest income were driven primarily by the following:
Service charges and fees on customer accounts
 
- The increase for the three-month period ended March 31, 2023 compared to the
corresponding period in 2022 was driven primarily by increases in account
 
analysis fees due to client fee increases enacted in 2022.
ATM and credit card interchange income
 
- The decrease in ATM and credit card interchange income was driven primarily by a
decrease in credit card fees due to one large customer with pandemic-related
 
activity that did not occur in the current year.
 
Gain on sale of loans
– The increase for the three months ended March 31, 2023 compared to the same period for 2022
 
was due to the
expansion of our mortgage business acquired through the 2022 acquisition
 
of Central.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
54
Non-Interest Expense
The components of non-interest expense were as follows for the periods indicated:
Three Months Ended
March 31,
 
Change
2023
2022
$
%
(Dollars in thousands)
Salary and employee benefits
$
22,622
$
17,941
$
4,681
26
%
Occupancy
2,974
2,493
481
19
Professional fees
2,618
805
1,813
225
Deposit insurance premiums
1,531
737
794
108
Data processing
1,242
812
430
53
Advertising
752
692
60
9
Software and communication
1,651
1,270
381
30
Foreclosed assets, net
149
(53)
202
N/M
Other non-interest expense
3,731
2,950
781
26
Core deposit intangible amortization
822
19
803
4,226
Total non-interest expense
$
38,092
$
27,666
$
10,426
38
%
Non-interest income to average assets (annualized)
2.30%
2.02%
Non-interest expense increased $10.4 million for the three-month
 
period ended March 31, 2023 compared to the same period in
2022 and included $1.5 million of transaction costs and $0.8 million of core deposit
 
intangible amortization related to the Central
acquisition.
 
The changes in non-interest expense were driven primarily by the following:
Salary and Employee Benefits
 
- Salary and employee benefit costs increased due to merit increases, hiring
 
in new markets and
verticals,
 
and the addition of employees as part of the Central acquisition.
Occupancy
 
– The increase in occupancy costs was driven by the addition of a second location in
 
Dallas, Texas during
 
2022 and new
properties in Colorado and New Mexico as part of the acquisition of Central.
 
Professional Fees
 
– The increase in professional fees was primarily due to increases in consulting
 
costs related to the acquisition of
Central and digital banking conversion, increased recruiting costs, and timing
 
of legal fees.
Deposit Insurance Premiums
 
– The increase in deposit insurance premiums was due to an increase in the assessment rate and
 
increases
in assets.
 
Data Processing
 
– The increase in data processing costs was driven primarily by increased costs associated with
 
the Company's digital
banking conversion.
Other Non-interest Expense
- Other non-interest expense increased primarily due to increased post-pandemic
 
travel expenses and
transaction fraud-related losses.
 
Core Deposit Intangible Amortization
– Core deposit intangible amortization increased due to a full quarter of expense
 
related to the
Central acquisition.
 
We currently anticipate non-interest expense to be in a range of $35-$36
 
million per quarter for the remainder of 2023. The
efficiency ratio was 60.81% and the adjusted efficiency ratio – FTE
(1)
 
was 56.42% for the three months ended March 31, 2023.
(1)
Represents a non-GAAP financial measure.
 
See "Non-GAAP Financial Measures"
 
below in Management’s Discussion and
 
Analysis of Financial Condition and
Results of Operations for a reconciliation of these measures.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
55
Income Taxes
For the Quarter Ended
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
2023
2022
2022
2022
2022
(Dollars in thousands)
Income tax expense
$
4,021
$
3,348
$
4,410
$
4,027
$
4,188
Income before income taxes
20,129
15,294
21,690
19,572
21,016
Effective tax rate
20
%
22
%
20
%
21
%
20
%
Our income tax expense differs from the amount that would be calculated
 
using the federal statutory tax rate, primarily from
investments in tax advantaged assets, including bank-owned
 
life insurance and tax-exempt municipal securities;
 
state tax credits;
 
and
permanent tax differences from equity-based compensation. Refer to “Note
 
8: Income Tax” within the notes to consolidated financial
statements – unaudited for a reconciliation of the statutory rate to the Company’s
 
actual income tax expense.
During the three-month periods
 
ended March 31, 2023 and 2022, the Company’s effective tax rate
 
benefited primarily from
permanent tax differences related to tax-exempt interest.
 
We currently anticipate the Company’s effective tax rate to remain within the
20% to 22% range in the near term.
 
Non-GAAP Financial Measures
In addition to disclosing financial measures determined in accordance
 
with U.S. generally accepted accounting principles
(GAAP), the Company discloses certain non-GAAP financial measures including “tangible common
 
stockholders’ equity,” “tangible
book value per common share,” “adjusted efficiency ratio – FTE,”
 
“adjusted net income,” “adjusted earnings per common share –
diluted,” “adjusted return on average assets,” and “adjusted return on average
 
equity.”
 
We consider the use of select non-GAAP
financial measures and ratios to be useful for financial and operational
 
decision making and useful in evaluating period-to-period
comparisons. We believe that these non-GAAP financial measures provide meaningful supplemental information
 
to investors regarding
our performance by excluding certain expenditures or gains that we believe
 
are not indicative of our primary business operating results.
We believe that management and investors benefit from referring to these non
 
-GAAP financial measures in assessing our performance
and when planning, forecasting, analyzing,
 
and comparing past, present and future periods.
These non-GAAP financial measures should not be considered a substitute for financial information presented
 
in accordance with
GAAP and you should not rely on non-GAAP financial measures alone as measures of our performance. The non-GAAP financial
measures we present may differ from non-GAAP financial measures used by our peers or other
 
companies. We compensate for these
limitations by providing the equivalent GAAP measures whenever we present the non-GAAP financial measures and by including
 
a
reconciliation of the impact of the components adjusted for in the non-GAAP financial measure so
 
that both measures and the individual
components may be considered when analyzing our performance.
A reconciliation of non-GAAP financial measures to the comparable GAAP financial measures follows.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
56
Quarter Ended
3/31/2023
12/31/2022
9/30/2022
6/30/2022
3/31/2022
(Dollars in thousands, except per share data)
Adjusted net income:
Net income (GAAP)
$
16,108
$
11,946
$
17,280
$
15,545
$
16,828
Add: Acquisition costs
1,477
3,570
81
239
-
Add: Acquisition - Day 1 CECL
 
provision
-
4,400
-
-
-
Add: Employee separation
-
-
-
1,063
-
Less: Tax effect
(1)
(310)
(2,045)
(17)
(273)
-
Adjusted net income
$
17,275
$
17,871
$
17,344
$
16,574
$
16,828
Diluted weighted average common shares
outstanding
49,043,621
49,165,578
49,725,207
50,203,725
50,910,490
Earnings per common share – diluted (GAAP)
$
0.33
$
0.24
$
0.35
$
0.31
$
0.33
Adjusted earnings per common share – diluted
$
0.35
$
0.36
$
0.35
$
0.33
$
0.33
(1)
Represents the tax impact of the adjustments at a tax rate
 
of 21.0%, plus permanent tax expense associated with
 
merger related
 
transactions
Quarter Ended
3/31/2023
12/31/2022
9/30/2022
6/30/2022
3/31/2022
(Dollars in thousands)
Adjusted return on average assets:
Net income (GAAP)
$
16,108
$
11,946
$
17,280
$
15,545
$
16,828
Adjusted net income
17,275
17,871
17,344
16,574
16,828
Average assets
$
6,712,801
$
6,159,783
$
5,764,347
$
5,545,657
$
5,563,738
Return on average assets (GAAP)
0.97
%
0.77
%
1.19
%
1.12
%
1.23
%
Adjusted return on average assets
1.04
%
1.15
%
1.19
%
1.20
%
1.23
%
Quarter Ended
3/31/2023
12/31/2022
9/30/2022
6/30/2022
3/31/2022
(Dollars in thousands)
Adjusted return on average equity:
Net income (GAAP)
$
16,108
$
11,946
$
17,280
$
15,545
$
16,828
Adjusted net income
17,275
17,871
17,344
16,574
16,828
Average equity
$
620,210
$
589,587
$
613,206
$
614,541
$
653,747
Return on average equity (GAAP)
10.53
%
8.04
%
11.18
%
10.15
%
10.44
%
Adjusted return on average equity
11.30
%
12.03
%
11.22
%
10.82
%
10.44
%
Quarter Ended
3/31/2023
12/31/2022
9/30/2022
6/30/2022
3/31/2022
(Dollars in thousands, except per share data)
Tangible common stockholders' equity:
Total stockholders' equity (GAAP)
$
645,491
$
608,599
$
580,547
$
608,016
$
623,199
Less: goodwill and other intangible assets
28,259
29,081
71
91
110
Less: preferred stock
7,750
-
-
-
-
Tangible common stockholders' equity
$
609,482
$
579,518
$
580,476
$
607,925
$
623,089
Tangible book value per common share:
Tangible common stockholders' equity
$
609,482
$
579,518
$
580,476
$
607,925
$
623,089
Common shares outstanding at end of period
48,600,618
48,448,215
48,787,696
49,535,949
49,728,253
Book value per common share (GAAP)
$
13.28
$
12.56
$
11.90
$
12.27
$
12.53
Tangible book value per common share
$
12.54
$
11.96
$
11.90
$
12.27
$
12.53
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
57
Quarter Ended
3/31/2023
12/31/2022
9/30/2022
6/30/2022
3/31/2022
(Dollars in thousands)
Adjusted Efficiency Ratio - FTE
(1)
Non-interest expense
$
38,092
$
36,423
$
28,451
$
29,203
$
27,666
Less: Acquisition costs
(1,477)
(3,570)
(81)
(239)
-
Less: Core deposit intangible amortization
(822)
(291)
-
-
-
Less: Employee separation
-
-
-
(1,063)
-
Adjusted Non-interest expense (numerator)
$
35,793
$
32,562
$
28,370
$
27,901
$
27,666
Net interest income
58,221
54,015
49,695
46,709
43,115
Tax equivalent interest income
(1)
797
818
820
808
775
Non-interest income
4,421
4,359
3,780
4,201
4,942
Total tax-equivalent income (denominator)
$
63,439
$
59,192
$
54,295
$
51,718
$
48,832
Efficiency Ratio (GAAP)
60.81
%
62.40
%
53.20
%
57.36
%
57.57
%
Adjusted Efficiency Ratio - FTE
(1)
56.42
%
55.01
%
52.25
%
53.95
%
56.66
%
(1)
Tax exempt income (tax-free municipal securities) is
 
calculated on a tax equivalent basis. The incremental
 
tax rate used is 21.0%.
Analysis of Financial Condition
Investment portfolio
The objective of the investment portfolio is to optimize earnings, manage
 
credit and interest rate risk, ensure adequate liquidity,
and meet pledging and regulatory capital requirements. The securities portfolio is also maintained
 
to serve as a contingent, on-balance
sheet source of liquidity. As of March 31, 2023, available-for-sale investments totaled $751 million, an increase
 
of $64 million from
December 31, 2022.
 
The increase in the securities portfolio was driven by the purchase of
 
$81 million in SBA securities and $12 million in tax-exempt
municipal securities and a $15 million reduction in the unrealized loss on available
 
-for-sale securities. The increase was partially offset
by the sale of $37 million in tax-exempt municipal securities at a modest gain
 
as we intentionally improved the liquidity of the portfolio
during the quarter. For additional information, see “Note 2: Securities” in
 
the notes to consolidated financial statements
 
– unaudited.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
58
Loan Portfolio
Refer to “Note 3: Loans and Allowance for Credit Losses” within the notes to consolidated financial statements –
 
unaudited for additional information regarding the
Company’s loan portfolio. As of March 31, 2023, gross loans, net of unearned fees increased $275 million or
 
5% from December 31, 2022.
 
The following table presents the balance
and associated percentage change of each segment within our portfolio
 
as of the dates indicated:
As of March 31,
2023
As of December 31,
2022
December 31, 2022
vs.
March 31, 2023
% Change
(Dollars in thousands)
Commercial and industrial
$
986,636
$
1,017,678
(3.1)
 
%
 
Commercial and industrial lines of credit
1,047,280
957,254
9.4
Energy
193,859
173,218
11.9
Commercial real estate
1,808,888
1,718,947
5.2
Construction and land development
845,085
794,788
6.3
Residential real estate
412,334
409,124
0.8
Multifamily real estate
295,469
237,984
24.2
Consumer
58,088
63,736
(8.9)
Total
$
5,647,639
$
5,372,729
5.1
 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
59
The following table shows the contractual maturities of our gross loans and
 
sensitivity to interest rate changes:
As of March 31, 2023
Due in One Year or Less
Due in One Year through
Five Years
Due in Five Year through
Fifteen Years
Due after Fifteen Years
Fixed Rate
Adjustable
Rate
Fixed Rate
Adjustable
Rate
Fixed Rate
Adjustable
Rate
Fixed Rate
Adjustable
Rate
Total
(Dollars in thousands)
Commercial and industrial
$
50,578
$
113,038
$
327,978
$
358,192
$
52,576
$
64,189
$
19,589
$
496
$
986,636
Commercial and industrial
lines of credit
74,724
395,100
29,926
512,736
17,668
17,126
-
-
1,047,280
Energy
-
30,660
775
162,424
-
-
-
-
193,859
Commercial real estate
78,596
218,319
502,179
480,495
185,242
276,256
6,462
61,339
1,808,888
Construction and land
development
27,932
105,116
72,762
541,254
28,483
15,881
4,747
48,910
845,085
Residential real estate
7,510
2,999
21,965
5,301
65,518
5,530
371
303,140
412,334
Multifamily real estate
4,340
43,640
108,450
123,038
4,808
10,410
-
783
295,469
Consumer
5,783
10,210
5,171
13,749
343
20,944
-
1,888
58,088
Total
$
249,463
$
919,082
$
1,069,206
$
2,197,189
$
354,638
$
410,336
$
31,169
$
416,556
$
5,647,639
Provision and Allowance for Credit Losses
The ACL at March 31, 2023 represents our best estimate of the expected credit losses in the Company’s loan portfolio and off-balance
 
sheet commitments, measured over the
contractual life of the underlying instrument.
For the Quarter Ended
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
2023
2022
2022
2022
2022
(Dollars in thousands)
Provision for credit losses - loans
$
4,996
$
4,700
$
1,923
$
1,690
$
(316)
Provision for credit losses - off-balance sheet
(575)
1,957
1,411
445
(309)
Allowance for credit losses - loans
65,130
61,775
55,864
55,817
55,231
Allowance for credit losses - off-balance sheet
8,113
8,688
6,731
5,320
4,875
Net charge-offs
$
1,641
$
(296)
$
1,876
$
1,104
$
1,081
The ACL increased $2.8 million during the quarter.
 
Provision expense of $4.4 million was driven by loan growth partially offset by improvement
 
in qualitative factors, in part
due to continued improvement in credit quality.
 
In addition, $1.6 million in charge-offs on two commercial and industrial
 
loans offset the provision expense for the quarter.
 
The
reserve on unfunded commitments decreased $0.6 million due to higher
 
line utilization in the quarter.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
60
The table below presents the allocation of the allowance for credit losses as of the dates
 
indicated.
 
The allocation in one portfolio segment does not preclude its availability to
absorb losses in other segments.
 
March 31, 2023
December 31, 2022
ACL
 
Amount
Percent of
ACL to
Total ACL
Percent of
Loans to
Total Loans
ACL
 
Amount
Percent of
ACL to
Total ACL
Percent of
Loans to
Total Loans
Loans
Off-
Balance
Sheet
Total
Loans
Off-
Balance
Sheet
Total
(Dollars in thousands)
Commercial and industrial
$
12,022
$
174
$
12,196
17
%
17
%
$
12,272
$
245
$
12,517
18
%
19
%
Commercial and industrial
lines of credit
15,207
287
15,494
19
19
14,531
74
14,605
21
18
Energy
4,679
541
5,220
3
3
4,396
787
5,183
7
3
Commercial real estate
20,763
712
21,475
33
33
19,504
700
20,204
29
32
Construction and land
development
5,774
6,324
12,098
15
15
5,337
6,830
12,167
17
15
Residential real estate
3,061
51
3,112
7
7
3,110
35
3,145
4
8
Multifamily real estate
2,880
9
2,889
5
5
2,253
14
2,267
3
4
Consumer
744
15
759
1
1
372
3
375
1
1
Total
$
65,130
$
8,113
$
73,243
100
%
100
%
$
61,775
$
8,688
$
70,463
100
%
100
%
Refer to “Note 3: Loans and Allowance for Credit Losses” within the notes to consolidated financial statements –
 
unaudited for a summary of the changes in the ACL.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
61
Charge-offs and Recoveries
Net charge-offs were $1.6 million for the three-month period ended
 
March 31, 2023 primarily related to a charge-off of a collateral-dependent
 
commercial and industrial loan.
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
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
2023
2022
2022
2022
2022
Commercial and industrial
0.51
%
(0.02)
%
-
%
0.28
%
(0.27)
%
Commercial and industrial lines of credit
-
(0.01)
1.10
(0.56)
0.76
Energy
-
(0.46)
1.19
4.77
(1.02)
Commercial real estate
-
-
(0.21)
(0.45)
0.34
Construction and land development
-
-
-
-
-
Residential real estate
-
-
-
0.21
-
Multifamily real estate
-
-
-
-
-
Consumer
-
(0.03)
(0.05)
-
0.05
Total net charge-offs to average loans
0.12
%
(0.02)
%
0.16
%
0.10
%
0.10
%
Non-performing Assets and Other Asset Quality Metrics
Non-performing assets include: (i) non-performing loans, which
 
includes non-accrual loans, loans past due 90 days or more and still accruing
 
interest, and loans modified
prior to January 1, 2023 under TDRs that are not performing in accordance with their modified
 
terms; (ii) foreclosed assets held for sale; (iii) repossessed assets; and (iv) impaired
debt securities.
Credit quality metrics generally improved during the first quarter of 2023.
 
Non-performing assets decreased to $11.2 million at March 31, 2023 primarily due
 
to a $1.8 million
decrease from the charge-off of one commercial and industrial loan,
 
as well as paydowns. The non-performing assets to total assets ratio decreased from 0.64% at
 
March 31, 2022 to
0.16% at March 31, 2023. In addition, classified loans decreased $0.7 million
 
during the first quarter of 2023. Net charge-offs were $1.6 million for the first quarter
 
of 2023
compared to net recoveries of ($0.3) million in the prior quarter and net charge-offs
 
of $1.1 million in the prior year first quarter.
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 they may have on the Company’s markets, clients, and prospects. The Company is monitoring
 
the impact of a rising interest rate environment on the commercial real estate
market and enterprise and leverage loans that is currently partially mitigated
 
by low debt-to-equity ratios.
 
As of March 31, 2023, the Company did not identify any systemic issues
within its loan portfolio that would significantly affect the credit quality of the
 
loan portfolio.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
62
The table below summarizes our non-performing assets and related ratios as of
 
the dates indicated:
For the Quarter Ended
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
2023
2022
2022
2022
2022
Asset quality
(Dollars in thousands)
Non-accrual loans
$
9,490
$
11,272
$
16,923
$
27,698
$
33,071
Loans past due 90 days or more and still accruing
868
750
303
2,163
1,534
Total non-performing loans
10,358
12,022
17,226
29,861
34,605
Foreclosed assets held for sale
855
1,130
973
973
973
Total non-performing assets
$
11,213
$
13,152
$
18,199
$
30,834
$
35,578
Loans 30-89 days past due
$
5,056
$
19,519
$
21,383
$
16,635
$
15,950
Asset quality metrics (%)
Non-performing loans to total loans
0.18
%
0.22
%
0.37
%
0.66
%
0.79
%
Non-performing assets to total assets
0.16
0.20
0.31
0.54
0.64
ACL to total loans
1.15
1.15
1.19
1.23
1.27
ACL + RUC to total loans
(1)
1.30
1.31
1.34
1.35
1.38
ACL to non-performing loans
629
514
324
187
160
Classified loans / (total capital + ACL)
9.4
10.1
11.3
12.1
10.8
Classified loans / (total capital + ACL + RUC)
(1)
9.3
%
10.0
%
11.2
%
12.0
%
10.7
%
(1)
Includes the accrual for off-balance sheet credit risk from unfunded commitments.
Deposits and Other Borrowings
The following table sets forth the maturity of time deposits as of March
 
31, 2023:
As of March 31, 2023
Three Months
 
or Less
Three to Six Months
Six to Twelve
Months
After Twelve Months
Total
(Dollars in thousands)
Time deposits in excess of FDIC insurance limit
$
34,077
$
22,585
$
198,742
$
119,578
$
374,982
Time deposits below FDIC insurance limit
291,514
254,286
352,729
102,516
1,001,045
Total
$
325,591
$
276,871
$
551,471
$
222,094
$
1,376,027
At March 31, 2023, our deposits totaled $5.8 billion, an increase of $186 million
 
or 3% from December 31, 2022. The increase included $430 million in time deposits and
 
$186
million in money market, NOW and savings deposits,
 
partially offset by a decrease of $430 million in non-interest-bearing deposits.
 
The increase in time deposits was the result of a
 
63
$405 million net increase in wholesale funding to support current and expected
 
loan growth and to partially supplement the decrease in client deposits. The
 
increase in money market,
NOW, and
 
savings deposits was driven primarily by increases in money market deposits.
Other borrowings include FHLB advances, a line of credit, SBA loan secured
 
borrowings, and our trust preferred security.
 
At March 31, 2023, other borrowings totaled $332
million, a $78 million, or 31% increase from December 31, 2022.
 
During the three-month period ended March 31, 2023, $6.0 million of FHLB advances matured
 
and were converted
into a drawdown on the FHLB line of credit and $6.5 million of net FHLB advances
 
were paid off.
 
The Company utilized an additional $102.5 million of net draws on the
 
FHLB line
of credit and the conversion of $6.0 million of FHLB advances
 
to the FHLB line of credit to support loan growth and changes in deposits, resulting in
 
a balance of $183.4 million
outstanding on the FHLB line of credit as of March 31, 2023.
As of March 31, 2023, the Company had approximately $2.4 billion of uninsured
 
deposits, which is an estimated amount based on the same methodologies and assumptions
used for the Bank’s regulatory requirements.
 
Excluding pass-thru accounts where clients have deposit insurance at the correspondent
 
financial institution, our uninsured deposits are
$2.0 billion, or 35% of total deposits as of March 31, 2023. The average
 
client account balance as of March 31, 2023 is less than $250 thousand for both individual
 
accounts and
business accounts in total after excluding pass-through and ICS deposits. We
 
have geographic and industry diversity within our deposit base
 
as the majority of our deposits are located
in our footprint states of Kansas, Oklahoma, Texas,
 
Missouri,
 
and Colorado. The Company believes that its current capital ratios and
 
liquidity are sufficient to mitigate the risks of
uninsured deposits.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
64
Liquidity and Capital Resources
Contractual Obligations and Off-Balance Sheet Arrangements
The Company is subject to contractual obligations made in the ordinary
 
course of business. The obligations include deposit
liabilities, other borrowed funds, and operating leases. Refer to “Note 7: Time
 
Deposits and Other Borrowings” and “Note 4: Leases”
within the notes to consolidated financial statements – unaudited for
 
a listing of the Company’s significant
 
contractual cash obligations
and contractual obligations to third parties on lease obligations, respectively.
 
As a financial services provider, the Company
 
is a party to various financial instruments with off-balance sheet risks, such
 
as
commitments to extend credit. Off-balance sheet arrangements represent
 
the Company’s future cash requirements.
 
However, a portion
of these commitments may expire without being drawn upon. Refer to
 
“Note 15: Commitments and Credit Risk” within the notes to
consolidated financial statements – unaudited for a listing of the Company’s
 
off-balance
 
sheet arrangements.
The Company’s short-term and long
 
-term contractual obligations, including off-balance
 
sheet obligations, may be satisfied
through the Company’s on-balance
 
sheet and off-balance sheet liquidity discussed below.
Liquidity
The Company’s liquidity strategy is to maintain adequate, but not excessive,
 
liquidity to meet the daily cash flow needs of clients
while attempting to achieve adequate earnings for stockholders. The liquidity
 
position is monitored continuously by 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
statement of financial condition and (ii) off-balance sheet liquidity resources,
 
which represent funds available from third-party sources.
The Company’s on-balance sheet and off-balance sheet liquidity resources
 
consisted of the following as of the dates indicated:
March 31, 2023
December 31, 2022
(Dollars in thousands)
Total on-balance sheet liquidity
$
1,014,222
$
986,482
Total off-balance sheet liquidity
1,264,618
770,165
Total liquidity
$
2,278,840
$
1,756,647
On-balance sheet liquidity as a percent of assets
15
%
15
%
Total liquidity as a percent of assets
33
%
27
%
For the three months ended March 31, 2023, the Company’s cash and cash
 
equivalents declined $37 million from December 31,
2022
 
to $263 million, representing 4% of total assets. During the three-month period
 
ended March 31, 2023, the Company increased the
AFS securities portfolio on an amortized cost basis by $49 million, net
 
of paydowns,
 
maturities, and amortization.
 
As of March 31,
2023, the Company had $244 million in securities that could be pledged
 
and $222 million that could be sold at a net gain based on
market conditions at the time. In addition, the Company increased funded
 
loans by $276 million, net of payoffs and charge-offs during
the three-month period ended March 31, 2023 that reduced
 
cash and cash equivalents.
 
The Company’s time deposits increased by $430 million primarily from
 
wholesale funding, while savings and money market
deposits increased by $186 million. Non-interest-bearing deposits decreased
 
$430 million as elevated year-end balances were deployed
by clients in the quarter in addition to clients migrating into savings and
 
money market accounts.
 
Other borrowings decreased $17
million during the three-month period ended March 31, 2023, largely related
 
to a reduction in Federal Funds purchased.
 
The Company did not purchase any common stock during the first three months of
 
2023. As of March 31, 2023, $16 million
remains available for repurchase under our share repurchase program. The
 
amount and timing of such future share repurchases will be
dependent on a number of factors, including the price of our common stock,
 
overall capital levels and cash flow needs. There is no
assurance that we will repurchase up to the full amount remaining under
 
our program.
 
 
 
65
During March 2023, the Company offered and sold Series A Preferred Stock for an aggregate purchase price of $7.8 million. No
dividends related to the preferred stock were declared or paid during
 
the three months ended March 31, 2023.
The Company believes that its current on and off-balance sheet liquidity
 
will be sufficient to meet anticipated cash requirements
for the next 12 months and thereafter. The Company believes that it has several on and off-balance
 
sheet options to address any resulting
reductions in cash and cash equivalents in order to maintain appropriate liquidity.
Capital Requirements
The Company and the Bank are subject to various regulatory capital requirements
 
administered by the federal banking agencies.
The regulatory capital requirements involve quantitative measures of
 
the Company’s assets, liabilities, select off-balance sheet items and
equity. Failure to meet minimum capital requirements can initiate certain
 
mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
 
Company’s consolidated financial statements. Refer to “Note 10:
Regulatory Matters” in the notes to consolidated financial statements – unaudited
 
for additional information. Management believes that
as of March 31, 2023, the Company and the Bank met all capital adequacy requirements
 
to which they are subject.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance
 
with GAAP and with general practices within the financial
services industry. Application of these principles requires management to make complex and subjective estimates and
 
assumptions that
affect the amounts reported in the financial statements and accompanying
 
notes. The Company bases estimates on historical experience
and on various other assumptions that it believes
 
to be reasonable under current circumstances. These assumptions form the basis for
management judgments about the carrying values of assets and liabilities that are
 
not readily available from independent, objective
sources. The Company evaluates estimates on an ongoing basis. Use of alternative assumptions
 
may have resulted in significantly
different estimates. Actual results may differ from these estimates.
A discussion of these policies can be found in the section captioned “Critical Accounting Policies and Estimates” in
Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2022 Form
 
10-K.
 
There have
been no changes in the Company’s application of critical accounting policies
 
and estimates since December 31, 2022.
 
Recent Accounting Pronouncements
Refer to “Note 1: Nature of Operations and Summary of Significant Accounting Policies” included in the notes to consolidated
financial statements – unaudited included elsewhere in this Form 10-Q.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
66
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
A primary component of market risk is interest rate volatility. Interest rate risk management is a key element of the
 
Company’s
statement of financial condition management. Interest rate risk is the risk that
 
net interest margins will erode over time due to changing
market conditions. Many factors can cause margins to erode: (i) lower loan demand;
 
(ii) increased competition for funds; (iii) weak
pricing policies; (iv) statement of financial condition mismatches; and
 
(v) changing liquidity demands. The objective is to maximize
income while minimizing interest rate risk. The Company manages its sensitivity position using
 
its interest rate risk policy. The
management of interest rate risk is a three-step process and involves:
 
(i) measuring the interest rate risk position; (ii) policy constraints;
and (iii) strategic review and implementation.
Our exposure to interest rate risk is managed by the Asset/Liability Committee (“ALCO”). The ALCO uses a combination of
three systems to measure the statement of financial condition’s interest rate
 
risk position. The three systems in combination are expected
to provide a better overall result than a single system alone. The three systems include:
 
(i) gap reports; (ii) earnings simulation; and (iii)
economic value of equity. The ALCO’s primary tools to change the interest rate risk position are: (i) investment portfolio duration;
 
(ii)
deposit
 
and borrowing mix; and (iii) on-balance sheet derivatives.
The ALCO evaluates interest rate risk using a rate shock method and rate ramp method. In a rate shock analysis, rates change
immediately,
 
and the change is sustained over the time horizon. In a rate ramp analysis, rate changes
 
occur gradually over time.
Management reviews and utilizes both methods in managing interest rate risk,
 
however, both methods represent a risk indicator, not a
forecast. The following tables summarize the simulated changes in net interest income and
 
fair value of equity over a 12-month horizon
using a rate shock and rate ramp method as of the dates indicated:
Hypothetical Change in Interest Rate - Rate Shock
March 31, 2023
March 31, 2022
Change in Interest
Rate (Basis Points)
Percent change in net
interest income
Percent change in fair
value of equity
Percent change in net
interest income
Percent change in fair
value of equity
+300
2.0
%
(18.4)
%
6.5
%
(8.1)
%
+200
1.3
(12.3)
3.9
(4.6)
+100
0.6
(5.8)
1.6
(2.0)
Base
-
%
-
%
-
%
-
%
-100
(0.7)
5.7
NA
(1)
NA
(1)
-200
(1.7)
11.7
NA
(1)
NA
(1)
-300
(5.3)
17.6
NA
(1)
NA
(1)
(1)
The Company excluded the down rate environment from its analysis due to the low interest rate environment.
Hypothetical Change in Interest Rate - Rate Ramp
March 31, 2023
March 31, 2022
Change in Interest Rate
 
(Basis Points)
Percent change in net interest
income
Percent change in net interest
income
+300
(0.1)
%
2.8
%
+200
(0.1)
1.6
+100
-
0.6
Base
-
%
-
%
-100
0.1
NA
(1)
-200
0.1
NA
(1)
-300
(0.6)
NA
(1)
(1)
 
The Company excluded the down rate environment from its analysis due to the low interest rate environment.
 
67
The Company’s position is slightly asset sensitive as of March 31, 2023
 
which decreased compared to both March 31, 2022 and
December 31, 2022 due to the drastic change in market rates from the prior year.
 
Compared to December 31, 2022, the Company’s
position is slightly less asset sensitive due to the reduction in demand deposits. The aggregate
 
beta assumption utilized as of March 31,
2023 was approximately 60% which is slightly higher than our previous
 
assumption due to continued competitive and pricing pressure
on deposits. Other key assumptions updated this quarter include updated
 
deposit decay rates, new business spreads and updating market
yield curves. Other assumptions included in the model that are periodically
 
updated include loan prepayments and call provisions within
investment and debt holdings.
 
The Company is monitoring interest rate sensitivity closely as $4.2 billion or 62%
 
of earning assets
mature or reprice within the twelve-month period following March 31, 2023,
 
including $3.1 billion that repriced in the first month. $4.9
billion of interest-bearing liabilities mature or reprice over the same twelve-month
 
period. As of March 31, 2023 and December 31,
2022, the investment portfolio duration was approximately 5.2 years.
 
The Company is reviewing additional options to manage the
statement of financial condition sensitivity based on the interest rate environment
 
and composition of assets and liabilities in the next
twelve months and beyond.
The models the Company uses include assumptions regarding interest rates
 
while balances remain unchanged. These assumptions
are inherently uncertain and, as a result, the model cannot precisely estimate net interest income
 
or precisely predict the impact of higher
or lower interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude,
 
and frequency
of interest rate changes as well as changes in market conditions, customer behavior
 
and management strategies, among other factors.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive
 
Officer and Chief Financial Officer, has
evaluated the effectiveness of the Company’s disclosure controls and procedures
 
(as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934 (“Exchange Act”)) as of March 31, 2023. Based on that evaluation, the Company’s Chief Executive Officer and
Chief Financial Officer concluded that the Company’s disclosure controls
 
and procedures were effective as of March 31, 2023.
 
Changes in Internal Control over Financial Reporting
Our internal control over financial reporting continues to be updated
 
as necessary to accommodate modifications to our business
processes and accounting procedures. There has been no change in our internal
 
control over financial reporting (as such term is defined
in Rule 13a-15(f) under the Exchange Act) during the first quarter of 2023 that has materially affected, or
 
is reasonably likely to
materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the normal course of business, we are named or threatened to be named
 
as a defendant in various lawsuits. Management,
following consultation with legal counsel, does not expect the ultimate disposition
 
of any or a combination of these matters to have a
material adverse effect on our business, financial condition, results of operations,
 
cash flows or growth prospects. However, given the
nature, scope, and complexity of the extensive legal and regulatory landscape
 
applicable to our business (including laws and regulations
governing consumer protection, fair lending, fair labor, privacy, information
 
security and anti-money laundering and anti-terrorism
laws), we, like all banking organizations, are subject to heightened legal
 
and regulatory compliance and litigation risk.
 
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider
 
the factors discussed in Part I, "Item 1A.
Risk Factors" in our 2022 Form 10-K, which could materially affect
 
our business, financial condition, or results of operations in future
periods.
 
There were no material changes from the risk factors disclosed in the 2022 Form 10-K.
 
 
 
68
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a)
Sales of Unregistered Securities.
On March 29, 2023, the Company entered into a Securities Purchase Agreement
 
with certain investors qualified as "accredited
investors," as such term is defined in Rule 501(a) of Regulation D ("Regulation
 
D") promulgated under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to which the Company offered and sold 7,750 shares of Series A Preferred Stock, for an
aggregate purchase price of $7,750,000. The offer and sale of the Series A Preferred Stock by the Company was made in reliance
upon the exemptions from registration available under Section 4(a)(2) of
 
the Securities Act and Rule 506(b) of Regulation D.
 
Pursuant to the Certificate of Designations for the Series A Preferred Stock filed March 29, 2023, holders of the Series A Preferred
Stock will be entitled to receive, only when, as and if declared by the Company’s
 
Board of Directors or a duly authorized committee
thereof, non-cumulative cash dividends on the liquidation preference
 
of $1,000 per share of Series A Preferred Stock at a rate of
8.00% per annum, payable quarterly in arrears. Such dividends are not mandatory
 
or cumulative and are payable only to the extent
declared by the Company’s Board of Directors or a duly authorized committee
 
thereof. The Series A
 
Preferred Stock is perpetual
and has no maturity date and is not subject to any mandatory redemption, sinking
 
fund, or other similar provisions. The holders of
the Series A
 
Preferred Stock will not have any right to require the redemption
 
or repurchase of their shares of Series A Preferred
Stock. The Company may, at its option and subject to required regulatory approval, redeem the Series A Preferred Stock (i) in whole
or in part, from time to time, on March 29, 2028, or on any dividend payment date on or
 
after March 29, 2028, or (ii) in whole but
not in part at any time within 90 days following a “regulatory capital treatment event”
 
(as defined in the Certificate of Designations)
in each case at a redemption price equal to $1,000 per share, plus the per share
 
amount of any declared and unpaid dividends,
without accumulation of any undeclared dividends.
 
The Company intends to use the net proceeds from the sale of the Series A Preferred Stock for general corporate purposes, including
providing capital to support strategic growth and for making contributions
 
to the capital of CrossFirst Bank, to support its lending,
investing and other banking activities.
(b)
Not applicable.
(c)
Share Repurchase Program
On May 10, 2022, the Company announced that its Board of Directors approved
 
a share repurchase program under which the
Company may repurchase up to $30 million of its common stock. No shares
 
were repurchased during the three months ended March
31, 2023.
 
As of March 31, 2023, $16 million remains available for repurchase under
 
this share repurchase program. Repurchases
under the program may be made in the open market or privately negotiated
 
transactions in compliance with SEC Rule 10b-18,
subject to market conditions, applicable legal requirements,
 
and other relevant factors. The program does not obligate the Company
to acquire any amount of common stock and may be suspended at any time at the
 
Company's discretion. No time limit has been set
for completion of the program.
 
69
ITEM 5. OTHER INFORMATION
 
Effective May 1, 2023, the Company refined its organizational structure
 
to support future growth, new business lines, recent
acquisitions, and to effectively utilize the skills and expertise on our team as we optimize for
 
the future.
 
In connection with the
reorganization:
•
 
W. Randall Rapp will continue to serve as President of the Bank with overarching
 
responsibility for all markets and credit
administration.
•
 
Steve Peterson will continue to serve as Chief Banking Officer, with responsibility
 
for sales management, commercial and
industrial (C&I) strategy, and our business lines.
•
 
Amy Fauss will continue to serve as Chief Human Resources Officer and
 
will also assume the role of Chief Administrative
Officer with overarching responsibility for human resources, services
 
and support, and technology.
•
 
Jenny Payne will continue to serve as the Chief Risk Officer and will report to the
 
Chief Executive Officer of the Bank and
the Company.
 
 
 
70
ITEM 6. EXHIBITS
 
 
Exhibit
Number
Exhibit Description
**
101.INS*
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags
are embedded within the Inline XBRL document
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
104*
Cover Page Interactive Data File (formation in Inline XBRL and contained in Exhibit 101)
*
 
Filed Herewith
**
 
Furnished Herewith
 
†
 
Indicates a management contract or compensatory plan arrangement
 
 
71
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed
 
on its
behalf by the undersigned thereunto duly authorized.
CrossFirst Bankshares, Inc.
Date:
 
May 5, 2023
/s/ Benjamin R. Clouse
 
Benjamin R. Clouse
 
Chief Financial Officer
 
(Duly authorized officer and principal financial officer)