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UNITED STATES
SECURITIES AND EXCHANGE
 
COMMISSION
WASHINGTON, DC 20549
FORM
10-Q
 
 
QUARTERLY REPORT PURSUANT
 
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended
March 31, 2022
 
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to
 
______
Commission file number
001-39028
 
CROSSFIRST BANKSHARES, INC.
 
(Exact Name of Registrant as Specified in its Charter)
Kansas
26-3212879
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
11440 Tomahawk Creek Parkway
Leawood
,
KS
66211
(Address of principal executive offices)
(Zip Code)
(
913
)
312-6822
 
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed
 
since last report)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, par value $0.01 per share
CFB
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required
 
to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
 
reports), and
(2) has been subject to such filing requirements for the past 90 days.
 
Yes
 
 
No
 
Indicate by check mark whether the registrant has submitted electronically
 
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or
 
for such shorter period that the registrant
was required to submit such files).
 
Yes
 
 
No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
 
filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
 
“large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not
 
to use the extended transition period for
complying with any new or revised financial accounting standards provided
 
pursuant to Section 13(a) of the Exchange Act.
 
 
Indicate by check mark whether the registrant is a shell company (as defined
 
in Rule 12b-2 of the Exchange Act). Yes
 
 
No
 
As of May 4, 2022, the registrant had
49,645,914
 
shares of common stock, par value $0.01, outstanding.
 
2
CrossFirst Bankshares, Inc.
Form 10-Q for the Quarter Ended March 31, 2022
Index
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Forward-Looking Information
4
5
6
7
8
Notes to Condensed Consolidated Financial Statements (unaudited)
9
14
14
18
34
36
37
37
38
40
40
44
44
44
45
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
46
49
49
51
52
54
54
54
54
55
57
60
61
62
63
64
Part II. Other Information
64
65
65
66
67
 
3
Forward-Looking Information
This report may contain forward-looking statements that reflect our
 
current views with respect to, among other things, future
events and our financial performance. These statements are often, but not always, made through
 
the use of words or phrases such as
“may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,”
 
“continue,” “will,” “anticipate,” “seek,” “estimate,”
“intend,” “plan,” “strive,” “projection,” “goal,” “target,” “outlook,”
 
“aim,” “would,” “annualized” and “outlook,” or the negative version
of those words or other comparable words or phrases of a future or forward-looking
 
nature.
 
These forward-looking statements are not historical facts, and are based
 
on current expectations, estimates and projections about
our industry, management’s beliefs and certain assumptions made by management,
 
many of which, by their nature, are inherently
uncertain and beyond our control. Accordingly, 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. Such possible events or
factors include: risks associated with the current outbreak of the novel
 
coronavirus, or the COVID-19 pandemic, changes in economic
conditions in the Company’s market area, changes in policies by regulatory
 
agencies, governmental legislation and regulation,
fluctuations in interest rates, changes in liquidity requirements, demand
 
for loans in the Company’s market area, changes in accounting
and tax principles, estimates made on income taxes, competition with other
 
entities that offer financial services, cybersecurity threats,
and such other factors as discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December
 
31, 2021, filed
with the Securities and Exchange Commission (“SEC”) on February
 
28, 2022, any subsequent quarterly report on Form 10-Q as well as
in the Company’s other filings with the SEC.
 
The Company undertakes
 
no obligation to revise or publicly release the results of any revision to these forward-looking
statements, except as required by law. Given these risks and uncertainties,
 
readers are cautioned not to place undue reliance on such
forward-looking statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Condensed Consolidated Financial Statements (unaudited)
4
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2022
December 31, 2021
(2)
(Unaudited)
(Dollars in thousands)
Assets
Cash and cash equivalents
$
276,927
$
482,727
Available-for-sale securities - taxable
196,721
192,146
Available-for-sale securities - tax-exempt
526,057
553,823
Loans, net of unearned fees
4,349,568
4,256,213
Allowance for credit losses on loans
(1)
55,231
58,375
Net loans
4,294,337
4,197,838
Premises and equipment, net
65,799
66,069
Restricted equity securities
10,526
11,927
Interest receivable
16,933
16,023
Foreclosed assets held for sale
973
1,148
Bank-owned life insurance
67,886
67,498
Other
61,962
32,258
Total assets
$
5,518,121
$
5,621,457
Liabilities and stockholders’ equity
Deposits
 
 
Noninterest-bearing
$
1,110,284
$
1,163,224
Savings, NOW and money market
2,999,329
2,895,986
Time
512,067
624,387
Total deposits
4,621,680
4,683,597
Federal Home Loan Bank advances
226,600
236,600
Other borrowings
1,022
1,009
Interest payable and other liabilities
45,620
32,678
Total liabilities
4,894,922
4,953,884
Stockholders’ equity
Common stock, $
0.01
 
par value:
 
 
authorized -
200,000,000
 
shares, issued -
52,926,555
 
and
52,590,015
 
shares at
March 31, 2022 and December 31, 2021, respectively
529
526
Treasury stock, at cost:
 
 
3,198,302
 
and
2,139,970
 
shares held at March 31, 2022 and December 31, 2021,
respectively
(45,109)
(28,347)
Additional paid-in capital
527,468
526,806
Retained earnings
161,323
147,099
Accumulated other comprehensive income (loss)
(21,012)
21,489
Total stockholders’ equity
623,199
667,573
Total liabilities and stockholders’ equity
$
5,518,121
$
5,621,457
(1)
As of December 31, 2021, this line represents the allowance for loan losses. See further
 
discussion in
“Note 1: Nature of
Operations and Summary of Significant Accounting Policies”
in the Notes to Condensed Consolidated Financial Statements
(unaudited).
(2)
The year-end Condensed Consolidated Balance Sheet was derived from
 
audited financial statements, but does not include all
disclosures required by accounting principles generally accepted in the
 
United States of America.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Condensed Consolidated Financial Statements (unaudited)
5
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
Three Months Ended
March 31,
2022
2021
(Dollars in thousands except per share data)
Interest Income
Loans, including fees
$
42,728
$
43,758
Available-for-sale securities - taxable
1,044
751
Available-for-sale securities - tax-exempt
3,692
3,351
Deposits with financial institutions
152
128
Dividends on bank stocks
144
165
Total interest income
47,760
48,153
Interest Expense
Deposits
3,511
5,728
Fed funds purchased and repurchase agreements
-
1
Federal Home Loan Bank Advances
1,109
1,283
Other borrowings
25
24
Total interest expense
4,645
7,036
Net Interest Income
43,115
41,117
Provision for Credit Losses
(1)
(625)
7,500
Net Interest Income after Provision for Credit Losses
(1)
43,740
33,617
Non-Interest Income
 
 
Service charges and fees on customer accounts
1,408
957
Realized gains (losses) on available-for-sale securities
(26)
10
Unrealized losses, net on equity securities
 
(103)
(39)
Income from bank-owned life insurance
388
416
Swap fees and credit valuation adjustments, net
118
155
ATM and credit card interchange income
2,664
2,328
Other non-interest income
493
317
Total non-interest income
4,942
4,144
Non-Interest Expense
Salaries and employee benefits
17,941
13,553
Occupancy
2,493
2,494
Professional fees
805
782
Deposit insurance premiums
737
1,151
Data processing
812
716
Advertising
692
303
Software and communication
1,270
1,065
Foreclosed assets, net
(53)
50
Other non-interest expense
2,969
2,704
Total non-interest expense
27,666
22,818
Net Income Before Taxes
21,016
14,943
Income tax expense
4,188
2,908
Net Income
$
16,828
$
12,035
Basic Earnings Per Share
$
0.33
$
0.23
Diluted Earnings Per Share
$
0.33
$
0.23
(1)
For the three-months ended March 31, 2021, this line represents the provision for loan
 
losses. See further discussion of this
change in
“Note 1: Nature of Operations and Summary of Significant Accounting Policies”
in the Notes to Condensed
Consolidated Financial Statements (unaudited).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Condensed Consolidated Financial Statements (unaudited)
6
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - UNAUDITED
Three Months Ended
March 31,
2022
2021
(Dollars in thousands)
Net Income
$
16,828
$
12,035
Other Comprehensive Loss
Unrealized loss on available-for-sale securities
(58,956)
(9,070)
Less: income tax benefit
(14,433)
(2,221)
Unrealized loss on available-for-sale securities
(44,523)
(6,849)
Reclassification adjustment for realized gains (losses) included in income
(26)
10
Less: income tax expense (benefit)
(6)
2
Less: reclassification adjustment for realized gain (loss) included
 
in income, net of income tax
(20)
8
Unrealized gain on cash flow hedges
2,655
-
Less: income tax expense
653
-
Unrealized gain on cash flow hedges, net of income tax
2,002
-
Other comprehensive loss
(42,501)
(6,857)
Comprehensive Income (Loss)
$
(25,673)
$
5,178
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Condensed Consolidated Financial Statements (unaudited)
7
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED
Common Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated Other
Comprehensive
Income
Treasury Stock
Total
Shares
Amount
(Dollars in thousands)
Balance at December 31, 2020
51,679,516
$
523
$
522,911
$
77,652
$
29,403
$
(6,061)
$
624,428
Net income
-
-
-
12,035
-
-
12,035
Change in unrealized depreciation of available-
for-sale securities
-
-
-
-
(6,857)
-
(6,857)
Issuance of shares from equity-based awards
87,650
-
(404)
-
-
-
(404)
Open market common share repurchases
(88,497)
-
-
-
-
(1,052)
(1,052)
Employee receivables from sale of stock
-
-
-
35
-
-
35
Stock-based compensation
-
-
649
-
-
-
649
Balance at March 31, 2021
51,678,669
$
523
$
523,156
$
89,722
$
22,546
$
(7,113)
$
628,834
Common Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated Other
Comprehensive
Income (Loss)
Treasury Stock
Total
Shares
Amount
(Dollars in thousands)
Balance at December 31, 2021
50,450,045
$
526
$
526,806
$
147,099
$
21,489
$
(28,347)
$
667,573
Cumulative effect from changes in accounting
principle
(a)
-
-
-
(2,610)
-
-
(2,610)
Net income
-
-
-
16,828
-
-
16,828
Other comprehensive loss
-
-
-
-
(42,501)
-
(42,501)
Issuance of shares from equity-based awards
303,040
3
(620)
-
-
-
(617)
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
Exercise of warrants
33,500
-
167
-
-
-
167
Balance at March 31, 2022
49,728,253
$
529
$
527,468
$
161,323
$
(21,012)
$
(45,109)
$
623,199
(a)
 
Includes the impact of implementing Accounting Standards Update (“ASU”)
 
2016-13, Financial Instruments - Credit Losses (Accounting Standard Codification
 
(“ASC”) 326):
Measurement of Credit Losses on Financial Instruments.
 
See “Note 1: Nature of Operations and Summary of Significant Accounting Policies” in
 
the Notes to Condensed
Consolidated Financial Statements (unaudited) for more information on the
 
Company’s adoption of this guidance
 
and the impact to the Company’s
 
results of operations.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Condensed Consolidated Financial Statements (unaudited)
8
CROSSFIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
Three Months Ended
March 31,
2022
2021
(Dollars in thousands)
Operating Activities
Net income
$
16,828
$
12,035
Items not requiring (providing) cash
 
 
Depreciation and amortization
1,241
1,375
Provision for credit losses
(1)
(625)
7,500
Accretion of discounts and amortization of premiums on securities
1,116
1,310
Equity based compensation
1,115
649
Deferred income taxes
3,358
1,824
Net realized (gains) losses on available-for-sale securities
26
(10)
Changes in
Interest receivable
(910)
(751)
Other assets
14,115
(28,730)
Other liabilities
(21,779)
(4,937)
Net cash provided by (used in) operating activities
14,485
(9,735)
Investing Activities
 
 
Net change in loans
(94,437)
(74,947)
Purchases of available-for-sale securities
(49,138)
(74,575)
Proceeds from maturities of available-for-sale securities
11,582
33,329
Proceeds from the sale of foreclosed assets
237
-
Purchase of premises and equipment
(962)
(118)
Proceeds from the sale of premises and equipment and related insurance claims
13
-
Proceeds from sale of restricted equity securities
1,544
1,626
Net cash used in investing activities
(131,161)
(114,685)
Financing Activities
Net increase in demand deposits, savings, NOW and money market accounts
50,403
468,521
Net decrease in time deposits
(112,320)
(111,691)
Net increase (decrease) in fed funds purchased and repurchase agreements
-
988
Repayment of Federal Home Loan Bank advances
(10,000)
(10,000)
Issuance of common shares, net of issuance cost
170
-
Proceeds from employee stock purchase plan
172
-
Repurchase of common stock
(16,762)
(1,052)
Acquisition of common stock for tax withholding obligations
(793)
(404)
Net decrease in employee receivables
6
35
Net cash provided by (used in) financing activities
(89,124)
346,397
Increase (Decrease) in Cash and Cash Equivalents
(205,800)
221,977
Cash and Cash Equivalents, Beginning of Period
482,727
408,810
Cash and Cash Equivalents, End of Period
$
276,927
$
630,787
Supplemental Cash Flows Information
Interest paid
$
4,784
$
7,287
Income taxes paid
$
-
$
130
(1)
 
For the three-months ended March 31, 2021, this line represents the Provision
 
for loan losses.
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
9
Note 1: Nature of Operations and Summary of Significant Accounting Policies
Organization and Nature of Operations
CrossFirst Bankshares, Inc. (the “Company”) is a bank holding company whose principal activities
 
are the ownership and
management of its wholly-owned subsidiary, CrossFirst Bank (the
 
“Bank”). In addition, the Bank has
three
 
subsidiaries including
CrossFirst Investments, Inc. (“CFI”) that holds investments in marketable
 
securities, CFBSA I, LLC and CFBSA II, LLC.
The Bank is primarily engaged in providing a full range of banking and financial
 
services to individual and corporate customers
through its branches in: (i) Leawood, Kansas; (ii) Wichita, Kansas; (iii) Kansas City, Missouri;
 
(iv) Oklahoma City, Oklahoma; (v)
Tulsa, Oklahoma; (vi) Dallas, Texas; (vii) Frisco, Texas; and (viii) Phoenix, Arizona.
During the first quarter of 2022, the Company expanded its restaurant finance
 
group. The group will provide established and
high-growth restaurant chains customized banking solutions, including
 
financing, treasury services, commercial cards, merchant
processing, and international banking services.
 
Basis of Presentation
The Company’s accounting and reporting policies conform to accounting
 
principles generally accepted in the United States
(“GAAP”). The consolidated financial statements include the accounts of the Company,
 
the Bank, CFI, CFBSA I, LLC and CFBSA II,
LLC. All significant intercompany accounts and transactions have been eliminated in consolidation.
The condensed consolidated interim financial statements are unaudited.
 
Certain information and footnote disclosures presented in
accordance with GAAP have been condensed or omitted and should be read in conjunction with the Company’s
 
consolidated financial
statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December
 
31, 2021 (the “2021
Form 10-K”), filed with the Securities and Exchange Commission (the “SEC”) on
 
February 28, 2022.
 
In the opinion of management, the interim financial statements include all adjustments
 
which are of a normal, recurring nature
necessary for the fair presentation of the financial position, results of operations,
 
and cash flows of the Company and the disclosures
made are adequate to make the interim financial information not
 
misleading. The consolidated financial statements have been prepared
in accordance with GAAP for interim financial information and the instructions to Form 10-Q adopted
 
by the SEC.
 
Refer to the “accounting pronouncements implemented” below for
 
changes in the accounting policies of the Company.
 
No
significant changes to the Company’s accounting policies, other
 
than those mentioned under “accounting pronouncements implemented”
below, have occurred since December 31, 2021, the most recent date
 
financial statements were provided within the Company’s 2021
Form 10-K. Operating results for the interim periods disclosed herein
 
are not necessarily indicative of the results that may be expected
for a full year or any future period.
Use of Estimates
The Company identified accounting policies and estimates that, due
 
to the difficult, subjective or complex judgments and
assumptions inherent in those policies and estimates and the potential sensitivity
 
of the Company’s financial statements to those
judgments and assumptions, are critical to an understanding of the
 
Company’s financial condition and results of operations. Actual
results could differ from those estimates. The allowance for credit losses, deferred
 
tax asset, and fair value of financial instruments are
particularly susceptible to significant change.
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
10
Cash Equivalents
The Company had $
182
 
million of cash and cash equivalents at the Federal Reserve Bank of Kansas City as of March
 
31, 2022.
The reserve required at March 31, 2022 was $
0
.
 
Emerging Growth Company (“EGC”)
The Company is currently an EGC. An EGC may take advantage of reduced reporting requirements and is relieved of
 
certain
other significant requirements that are otherwise generally applicable
 
to public companies. Among the reductions and reliefs, the
Company elected to extend the transition period for complying with new or revised
 
accounting standards affecting public companies.
This means that the financial statements the Company files or furnishes will not be
 
subject to all new or revised accounting standards
generally applicable to public companies for the transition period for so
 
long as the Company remains an EGC or until the Company
affirmatively and irrevocably opts out of the extended transition period
 
under the JOBS Act.
Accounting Pronouncements Implemented
ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement
 
of Credit Losses on Financial
Instruments:
Background
 
– ASU 2016-13 and its subsequent amendments provide new guidance on the impairment model for financial assets
measured at amortized cost, including loans held-for-investment and
 
off-balance sheet credit exposures. The Current Expected
Credit Loss (“CECL”) model requires an estimate of expected credit losses, measured
 
over the contractual life of an instrument,
that considers forecasts of future economic conditions in addition to information
 
about past events and current conditions. ASU
2016-13 requires new disclosures, including the use of vintage
 
analysis on the Company’s credit quality indicators.
 
In addition, ASU 2016-13 removes the available-for-sale (“AFS”) securities other-than-temporary-impairment model that reduced
the cost basis of the investment and is replaced with an impairment model that
 
will recognize an allowance for credit losses on
available-for-sale securities.
 
Implementation
 
– The Company established a CECL committee to formulate and oversee the implementation process including
selection, implementation, and testing of third-party software.
 
The Company used a loss-rate ("cohort") method to estimate the expected allowance
 
for credit losses ("ACL") for all loan pools.
The cohort method identifies and captures the balance of a pool of loans with similar
 
risk characteristics, as of a particular point
in time to form a cohort, then tracks the respective losses generated by that cohort of loans over
 
their remaining lives, or until the
loans are “exhausted” (i.e.; have reached an acceptable point in time at which
 
a significant majority of all losses are
expected to have been recognized). The cohort method closely aligned
 
with the Company's incurred loss model. This allowed the
Company to take advantages of the efficiencies of processes and procedures already
 
in practice.
The Company began parallel processing with the existing allowance for
 
loan losses model during the first quarter of 2019
recalibrating inputs as necessary. The Company formulated changes to policies, procedures,
 
disclosures, and internal controls that
were necessary to transition to the new standard. A third-party completed validation of the completeness, accuracy, and
reasonableness of the model in the fourth quarter of 2021. Refer to
 
“Note 4: Loans and Allowance for Credit Losses (“ACL”)” for
additional information regarding the policies, procedures, and credit
 
quality indicators used by the Company.
Impact of adoption
 
– The Company adopted ASU 2016-13 on January 1, 2022 using the modified retrospective approach. All
disclosures as of and for the three-months ended March 31, 2022 are presented
 
in accordance with ASC 326, Financial
Instruments-Credit Losses. The Company did not recast comparative financial
 
periods and has presented those disclosures under
previously applicable GAAP.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
11
The Company used the prospective transition approach for AFS securities for which other-than-temporary-impairment
 
has been
recognized prior to January 1, 2022. As a result, the amortized cost basis remains the same before and after the effective date of
ASU 2016-13.
 
Because the Company chose the cohort method, the model must consider
 
net deferred fees and costs. As a result, the Company
transferred the previously disclosed unearned fees into the applicable loan
 
segments.
The following table illustrates the impact of adopting ASU 2016-13 and details how outstanding loan balances have been
reclassified because of changes made to the Company’s loan segments under
 
CECL
:
January 1, 2022
As Reported under ASU
2016-13
Pre-ASU 2016-13
Impact of ASU 2016-13
Adoption
(Dollars in thousands)
Assets:
Loans (outstanding balance)
Commercial
$
843,024
$
1,401,681
$
(558,657)
Commercial lines of credit
617,398
-
617,398
Energy
278,579
278,860
(281)
Commercial real estate
1,278,479
1,281,095
(2,616)
Construction and land development
574,852
578,758
(3,906)
Residential real estate
360,046
600,816
(240,770)
Multifamily real estate
240,230
-
240,230
PPP
-
64,805
(64,805)
Consumer
63,605
63,605
-
Gross Loans
4,256,213
4,269,620
(13,407)
Net deferred loan fees and costs
-
13,407
(13,407)
Allowance for credit losses on loans
56,628
58,375
(1,747)
Loans, net
4,199,585
4,197,838
1,747
Deferred tax asset
$
13,647
$
14,474
$
(827)
Liabilities
Allowance for credit losses on off-balance
sheet exposures
$
5,184
$
-
$
5,184
Stockholders' equity
Retained earnings
$
144,489
$
147,099
$
(2,610)
In connection with adoption of ASU 2016-13, changes were made to the Company’s loan segments to align with the methodology
applied in determining the allowance under CECL. The commercial loan portfolio was separated
 
into term loans and lines of
credit. In addition, the remaining Paycheck Protection Program (“PPP”)
 
loans were consolidated into the commercial term loan
segment due to their declining outstanding balance. The Company also separated
 
the residential and multifamily real estate loan
segments. Refer to “Note 4: Loans and Allowance for Credit Losses (“ACL”)” for detail on the loan segments.
 
Accounting Policies:
 
The Company updated the below accounting policies due to adoption of ASU 2016-13:
Notes to Condensed Consolidated Financial Statements
(unaudited)
12
Accrued Interest -
The Company made an accounting policy election to exclude accrued interest from
 
the amortized cost basis of loans. In addition,
the Company elected not to measure an allowance for credit losses for accrued
 
interest receivable, because a timely write-off
policy exists. The policy generally requires loans to be placed on nonaccrual
 
when principal or interest is 90 days or more past
due unless the loan is well-secured and in the process of collection. A well-secured loan means that collateral or a guaranty has
sufficient value to pay off the loan in full. When a loan is placed on nonaccrual, accrued interest is reversed
 
against interest
income.
 
The Company made a policy election to exclude accrued interest from
 
the amortized cost basis of AFS securities. AFS securities
are placed on non-accrual status when the Company no longer expects
 
to receive all contractual amounts due, which is generally
at 90 days past due. Accrued interest receivable is reversed against interest income when a security is placed on nonaccrual
 
status.
Accordingly, the Company did not recognize an allowance for credit loss against
 
accrued interest receivable.
 
Available-for-sale Securities in an Unrealized Loss Position –
 
For AFS securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more
 
likely than not
that it will be required to sell the security before recovery of its amortized cost basis. If
 
either of the criteria regarding
 
intent or
requirement to sell is met, the securities’ amortized cost basis is written down to fair value through income. For AFS securities
that do not meet the criteria above, the Company evaluates whether the decline
 
in fair value has resulted from credit losses or
other factors. Management considers the extent to which fair value is less than amortized
 
cost, any changes to the rating of the
security by a rating agency, and adverse conditions specifically related to
 
the security, among other factors.
 
If this assessment indicates that a credit loss exists, the present value of cash flows
 
expected to be collected from the security is
compared to the amortized cost basis of the security. If the present value of
 
cash flows expected to be collected is less than the
amortized cost basis, a credit loss exists and an allowance for credit losses is recorded
 
for the credit loss, limited by the amount
that the fair value is less than amortized cost basis.
 
ASU 2016-02, Leases (Topic 842):
 
Background
 
– ASU 2016-02 and its subsequent amendments require lessees to recognize the assets and liabilities that arise from
such leases. This represents a change from previous GAAP that did not require operating leases to be recognized on the lessees’
balance sheet. The purpose
 
of Topic 842 is to increase transparency and comparability between organizations
 
that enter into lease
agreements.
 
The update modifies lease disclosure requirements as well.
 
On the lease commencement date (or on the date of adoption), a lessee is required
 
to measure and record a lease liability equal to
the present value of the remaining lease payments, discounted using an appropriate
 
discount rate. In addition, a right-of-use asset
is recorded that consists of the initial measurement of the lease liability adjusted for
 
certain payments, including lease incentives
received and initial direct costs.
For operating leases, after lease commencement, the lease liability is reported
 
at the present value of the unpaid lease payments
discounted using the discount rate established at lease commencement. The
 
lease expense is calculated by summing all future
lease payments in the lease term and lease incentives not yet recognized. The sum is then
 
amortized on a straight-line basis over
the lease term. The right-of-use asset is amortized as the difference between the straight
 
-line expense and the amortizing lease
liability.
Implementation
 
– The Company’s lease agreements to which Topic 842 has been applied primarily relate to branch
 
real estate
properties located in the Kansas City, Missouri; Tulsa, Oklahoma; Dallas, Texas; Frisco, Texas; and Phoenix, Arizona markets.
The remaining lease terms range from two to twenty years with potential renewal
 
terms. The leases include various payment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
13
terms including fixed payments with annual increases to variable payments.
 
In addition, several of the leases include lease
incentives.
The discount rates were not readily determinable in the lease agreements. As a result, the Company used the
 
incremental
borrowing rate in accordance with Topic 842. The Company used the FHLB yield curve as the
 
incremental borrowing rate.
The Company elected several practical expedients that are listed below:
Practical Expedient Elected
Impact to Lease Accounting Implementation
An entity need not reassess whether any expired
or existing contracts are or contain leases.
The Company was not required to re-evaluate previously identified leases,
including embedded leases, that existed as of the adoption date.
 
An entity need not reassess the lease classification
for an expired or existing leases.
 
The Company was not required to re-classify previously identified operating
leases that existed as of the adoption date. The Company did not have any
capital leases as of December 31, 2021.
An entity need not reassess initial direct costs for
any existing leases.
The Company was not required to review previously established lease
agreements as of the adoption date for initial direct costs. Initial direct costs
increase the right-of-use asset and do not impact the lease liability.
An entity may combine lease and nonlease
components.
If not elected, the Company would be required to allocate the total
consideration in a lease contract to lease and nonlease components based
 
on
their relative standalone price. The election results in higher right-of-use
assets and lease liabilities.
Short-term lease exemption.
The Company is not required to record a right-of-use asset and lease liability
for a lease whose term is 12 months or less and does not include a purchase
option that the lessee is reasonably certain to exercise.
 
Impact of Adoption
 
– The Company adopted ASU 2016-02 on January 1, 2022 using the modified retrospective approach. The
Company did not recast comparative financial periods and has presented
 
those disclosures under previously applicable GAAP.
The following table illustrates the impact of adopting ASU 2016-02 on the Company’s financial statements:
January 1, 2022
As Reported under ASU
2016-02
Pre-ASU 2016-02
Impact of ASU 2016-02
Adoption
(Dollars in thousands)
Assets:
Right-of-use asset
$
23,589
$
-
$
23,589
Liabilities:
Lease incentive
-
2,125
(2,125)
Accrued rent payable
-
904
(904)
Lease liability
$
26,618
$
-
$
26,618
Recent Accounting Pronouncements
ASU 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt
 
Restructurings and Vintage Disclosures
Background
 
– ASU 2022-02 provides
 
new guidance on (i) troubled debt restructurings
 
(“TDRs”) and (ii) vintage disclosures for
gross write-offs. The update eliminates the accounting guidance for TDRs and requires a company to
 
determine if a modification
results in a new loan or a continuation of an existing loan. The update enhances the required
 
disclosures for certain modifications
made to borrowers experiencing financial difficulty.
 
In addition, the update requires disclosure of current-period gross
 
charge-offs by year of origination for financing receivables.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
14
For the Company, the amendments are effective as of January 1, 2023,
 
but early adoption is permitted and would be applied as of
the beginning of the fiscal year of adoption.
Impact of adoption
 
– The Company anticipates adopting ASU 2022-02 as of January 1, 2023. At this time, an estimate of the
impact cannot be established.
 
Note 2: Earnings Per Share
The following table presents the computation of basic and diluted earnings per
 
share:
Three Months Ended
March 31,
2022
2021
(Dollars in thousands except per share data)
Earnings per Share
Net income available to common stockholders
$
16,828
$
12,035
Weighted average common shares
50,251,297
51,657,204
Earnings per share
$
0.33
$
0.23
Diluted Earnings per Share
Net income available to common stockholders
$
16,828
$
12,035
Weighted average common shares
50,251,297
51,657,204
Effect of dilutive shares
659,193
724,270
Weighted average dilutive common shares
50,910,490
52,381,474
Diluted earnings per share
$
0.33
$
0.23
Stock-based awards not included because to do so would be antidilutive
285,672
669,112
Note 3: Securities
The amortized cost and approximate fair values, together with gross unrealized
 
gains and losses, of period end available-for-sale
securities consisted of the following:
 
March 31, 2022
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Approximate
Fair Value
(Dollars in thousands)
Available-for-sale securities
Mortgage-backed - GSE residential
$
179,842
$
105
$
11,113
$
168,834
Collateralized mortgage obligations - GSE residential
15,557
16
251
15,322
State and political subdivisions
552,069
6,820
25,437
533,452
Corporate bonds
5,223
46
99
5,170
Total available-for-sale securities
$
752,691
$
6,987
$
36,900
$
722,778
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
15
December 31, 2021
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Approximate
Fair Value
(Dollars in thousands)
Available-for-sale securities
Mortgage-backed - GSE residential
$
161,675
$
1,809
$
1,774
$
161,710
Collateralized mortgage obligations - GSE residential
18,130
311
10
18,431
State and political subdivisions
532,906
29,329
767
561,468
Corporate bonds
4,241
119
-
4,360
Total available-for-sale securities
$
716,952
$
31,568
$
2,551
$
745,969
As of March 31, 2022, the available-for-sale securities had $
6
 
million of accrued interest, excluded from the amortized cost basis.
 
The amortized cost and fair value of available-for-sale securities at March 31,
 
2022, by contractual maturity, are shown below:
 
March 31, 2022
Within
After One to
After Five to
After
One Year
Five Years
Ten Years
Ten Years
Total
(Dollars in thousands)
Available-for-sale securities
Mortgage-backed - GSE residential
(1)
Amortized cost
$
-
$
30
$
117
$
179,695
$
179,842
Estimated fair value
$
-
$
31
$
118
$
168,685
$
168,834
Weighted average yield
(2)
-
%
4.71
%
3.97
%
1.90
%
1.90
%
Collateralized mortgage obligations -
GSE residential
(1)
Amortized cost
$
-
$
-
$
2,405
$
13,152
$
15,557
Estimated fair value
$
-
$
-
$
2,420
$
12,902
$
15,322
Weighted average yield
(2)
-
%
-
%
2.78
%
2.01
%
2.13
%
State and political subdivisions
Amortized cost
$
741
$
5,186
$
92,361
$
453,781
$
552,069
Estimated fair value
$
747
$
5,334
$
94,719
$
432,652
$
533,452
Weighted average yield
(2)
3.49
%
3.95
%
3.29
%
2.67
%
2.79
%
Corporate bonds
Amortized cost
$
-
$
604
$
4,619
$
-
$
5,223
Estimated fair value
$
-
$
644
$
4,526
$
-
$
5,170
Weighted average yield
(2)
-
%
5.84
%
4.30
%
-
%
4.48
%
Total available-for-sale securities
Amortized cost
$
741
$
5,820
$
99,502
$
646,628
$
752,691
Estimated fair value
$
747
$
6,009
$
101,783
$
614,239
$
722,778
Weighted average yield
(2)
3.49
%
4.15
%
3.32
%
2.44
%
2.57
%
1)
Actual maturities may differ from contractual maturities because issuers may have
 
the rights to call or prepay obligations with or
without prepayment penalties.
2)
Yields are calculated based on amortized cost.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
16
The following tables show the number of securities, unrealized loss, 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, 2022 and December 31, 2021:
 
March 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
$
124,358
$
6,835
30
$
36,252
$
4,278
6
$
160,610
$
11,113
36
Collateralized
mortgage obligations
- GSE residential
12,339
237
17
560
14
1
12,899
251
18
State and political
subdivisions
232,842
24,747
149
5,900
690
8
238,742
25,437
157
Corporate bonds
4,745
99
3
-
-
-
4,745
99
3
Total temporarily
impaired securities
$
374,284
$
31,918
199
$
42,712
$
4,982
15
$
416,996
$
36,900
214
December 31, 2021
Less than 12 Months
12 Months or More
Total
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
Number of
Securities
(Dollars in thousands)
Available-for-sale
securities
Mortgage-backed -
GSE residential
$
87,306
$
1,774
16
$
-
$
-
-
$
87,306
$
1,774
16
Collateralized
mortgage obligations
- GSE residential
803
10
2
-
-
-
803
10
2
State and political
subdivisions
72,915
762
39
1,310
-
4
74,225
762
43
Corporate bonds
-
-
-
-
-
-
-
-
-
Total temporarily
impaired securities
$
161,024
$
2,546
57
$
1,310
$
-
4
$
162,334
$
2,546
61
Based on the Company’s evaluation at March 31, 2022, under the new
 
impairment model, an allowance for credit losses has
no
t
been recorded
no
r have unrealized losses been recognized into income. The issuers of the securities are of high
 
credit quality and have a
long history of no credit losses, management does not intend to sell and it is likely
 
that management will not be required to sell the
securities prior to their anticipated recovery, and the decline in fair value is largely
 
attributed to changes in interest rates and other
market conditions. The issuers continue to make timely principal and interest
 
payments.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
17
The following tables show the gross gains and losses on securities that matured
 
or were sold:
 
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)
For the Three Months Ended
March 31, 2021
Gross Realized
Gains
Gross Realized
Losses
Net Realized Gain
(Dollars in thousands)
Available-for-sale securities
$
21
$
11
$
10
Equity Securities
Equity securities consist of a $
2
 
million investment in a Community Reinvestment Act (“CRA”) mutual fund and $
1
 
million in
three private equity funds. Equity securities are included in “other assets” on
 
the Consolidated Balance Sheets.
The Company elected a measurement alternative for the three private
 
equity funds that allows the securities to remain at cost until
an impairment is identified or an observable price change for an identical
 
or similar investment of the same issuer occurs. Impairment is
recorded when there is evidence that the expected fair value of the investment
 
has declined to below the recorded cost. No such events
occurred during the three-month period ended March 31, 2022.
The following is a summary of the unrealized and realized losses recognized
 
in net income on equity securities:
 
Three Months Ended
March 31,
 
2022
2021
(Dollars in thousands)
Net losses recognized during the reporting period on equity securities
$
(103)
$
(39)
Less: net gains recognized during the reporting period on equity securities sold
 
during
the reporting period
-
-
Unrealized losses recognized during the reporting period on equity securities
 
still held at
the reporting date
$
(103)
$
(39)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
18
Note 4:
 
Loans and Allowance for Credit Losses (“ACL”)
Loan Portfolio Segments
Categories of loans at March 31, 2022 and December 31, 2021
 
include:
March 31, 2022
December 31, 2021
(Dollars in thousands)
Commercial
$
802,774
$
843,024
Commercial lines of credit
678,127
617,398
Energy
271,309
278,579
Commercial real estate
1,375,655
1,278,479
Construction and land development
563,538
574,852
Residential real estate
365,719
360,046
Multifamily real estate
243,107
240,230
Consumer
49,339
63,605
Loans, net of unearned fees
4,349,568
4,256,213
Less: allowance for credit losses
(1)
55,231
58,375
Loans, net
$
4,294,337
$
4,197,838
(1)
 
As of December 31, 2021, this line represents the allowance for loan losses. See further
 
discussion in "Note 1: Nature of Operations
and Summary of Significant Accounting Policies.”
 
Accrued interest of $
10
 
million at March 31, 2022 and December 31, 2021 presented in “other assets” on the
 
Consolidated
Balance Sheets is excluded from the amortized cost basis 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
 
- The category includes loans to commercial 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 Lines of Credit
– The category includes lines of credit to commercial 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 drawdown 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.
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
 
Notes to Condensed Consolidated Financial Statements
(unaudited)
19
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 established a CECL committee that meets at least quarterly to oversee the Allowance for Credit Loss 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