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CrossFirst Bankshares, Inc. Reports Record Third Quarter Net Interest Income and Net Income

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LEAWOOD, Kan., Oct. 21, 2019 (GLOBE NEWSWIRE) -- CrossFirst Bankshares, Inc. (Nasdaq: CFB), the bank holding company for CrossFirst Bank, today reported its results for the third quarter of 2019, including record net income of $10.4 million, or $0.21 per diluted share and year-to-date 2019 net income of $29.2 million or $0.61 per diluted share. CrossFirst continues to deliver growth to drive net interest income, earnings and operating leverage while managing through a declining interest rate environment.

"We are pleased with our third quarter results and first quarter reported as a public company," said CrossFirst’s CEO and President George F. Jones, Jr. “While our organization experienced interest margin compression from declining rates, we were still able to deliver net interest income growth in the third quarter. Our teams delivered strong balance sheet growth and we had another quarter of record net income. I am very proud of our employees and what they were able to accomplish.”

2019 Third Quarter Highlights*:

  • Record quarterly net income of $10.4 million, an increase of 63% from the third quarter of 2018

  • Record year-to-date net income of $29.2 million, an increase of 215% from the same period in 2018

  • Diluted EPS of $0.21 for the quarter, an increase of 40% from the same period in 2018

  • Diluted EPS of $0.61 for year-to-date 2019, an increase of 177% from the same period in 2018

  • Achieved efficiency ratios of 54.3% for the quarter and 59.4% year-to-date

  • Grew loans by $163 million from the previous quarter-end and $895 million or 33% since September 30, 2018

  • Grew deposits by $74 million from the previous quarter-end and $851 million or 30% since September 30, 2018

  • Book value per share of $11.59 at September 30, 2019 compared to $9.43 at September 30, 2018

*All share and per share information provided in this release has been adjusted to reflect a 2-for-1 stock split effected in the form of a dividend on December 21, 2018.

Quarter-to-Date

Year-to-Date

September 30,

September 30,

2018

2019

2018

2019

(Dollars in millions except per share data)

Net income

$

6.4

$

10.4

$

9.3

$

29.2

Diluted EPS

$

0.15

$

0.21

$

0.22

$

0.61

Return on average assets

0.70

%

0.89

%

0.37

%

0.89

%

Return on average common equity

6.68

%

7.58

%

3.51

%

7.76

%

Non-GAAP return on average tangible common equity(1)

6.84

%

7.68

%

3.61

%

7.89

%

Net interest margin

3.35

%

3.19

%

3.23

%

3.29

%

Net interest margin, fully tax-equivalent(2)

3.44

%

3.24

%

3.34

%

3.35

%

Efficiency ratio

65.9

%

54.3

%

79.1

%

59.4

%

Non-GAAP efficiency ratio, fully tax-equivalent(1)(2)

64.3

%

53.4

%

76.8

%

58.4

%

(1) Represents a non-GAAP measure. See "Table 7. Non-GAAP Financial Measures" for a reconciliation of this measure.

(2) Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal taxes. The incremental federal tax rate used is 21.0%.

Income from Operations

Net Interest Income

The Company produced record interest income of $55.5 million for the third quarter of 2019, an increase of 36% from the third quarter of 2018 and 2% greater than the second quarter of 2019. Interest income growth was primarily a result of continued strong growth in average outstanding earning assets. The tax-equivalent yield on earning assets declined from 5.18% to 5.00% during the third quarter of 2019 primarily due to the movement of variable rate assets indexed to market rates and changes in the investment portfolio yields resulting from higher prepayment speeds on the Company's mortgage backed portfolio. Year-to-date interest income is up 47% over the same period in 2018.

Interest expense for the third quarter of 2019 was $19.7 million, or 67% higher than the third quarter of 2018 and 2% higher than the second quarter of 2019. Average interest-bearing deposits in the third quarter of 2019 totaled $3.2 billion, an increase of $847 million or 37% from $2.3 billion in the same quarter in 2018. The interest-bearing deposit mix changes during the quarter were focused on lowering margin exposure to declining rates, however this offset some of the impact of the lower deposit rates during the quarter. Non-deposit funding costs increased to 1.95% from 1.93% in the second quarter of 2019 while overall cost of funds for the quarter was 1.94%, compared to 1.99% for the second quarter of 2019.

Tax-equivalent net interest margin declined to 3.24% for the quarter compared to 3.44% for the same quarter in 2018, reflecting the impact of the declining rate environment. For the nine months ended September 30, 2019, the Company reported a net interest margin of 3.35%, slightly higher than the same period for 2018. The tax-equivalent adjustment, which accounts for income taxes saved on the interest earned on nontaxable securities and loans, was $0.6 million for the third quarter of 2019 and $0.8 million for the third quarter of 2018, and $0.6 million for the second quarter of 2019. Net interest income totaled $35.8 million for the third quarter of 2019 or 3% greater than the second quarter of 2019. Year-to-date net interest income was 34% higher than the same period of 2018 reflecting the Company's strong balance sheet growth and maintenance of net interest margin.

Non-Interest Income

Non-interest income increased $2.0 million in the third quarter of 2019 or 171% compared to the same quarter of 2018 and $1.5 million or 92% compared to the second quarter of 2019. While the Company continues to increase fee income commensurate with its growth, the back-to-back swap program generated strong fee income with $1.1 million of new fees recorded during the quarter. During the third quarter of 2019, the Company also recorded a one-time $0.8 million gain related to a changed in derivative valuation. Historically, the company used a peer group in order to value the counter-party risk to assess potential credit default. As the program has matured, the Company reviewed the valuation methodology and implemented a more sophisticated view of risk as back-to-back swaps are cross collateralized with the loans being hedged.

Non-Interest Expense

Non-interest expense for the third quarter of 2019 increased $1.3 million, or 7%, compared to the third quarter of 2018 and decreased $0.8 million, or 4% from the second quarter of 2019. Compared to the third quarter of 2018, salary and employment-related expenses increased $1.6 million for additional employee headcount required to support growth and data processing costs were higher from the Company's increased volumes of activity, partially offset by a $0.5 million decrease in FDIC insurance expense. As compared to the second quarter of 2019, salary and employment-related expenses decreased $0.2 million as a result of continuing to manage resource allocation and hiring and FDIC insurance expense decreased $0.6 million as a result of a one-time small bank credit. Year-to-date non-interest expense increased by less than 1% compared to the same period in 2018.

CrossFirst’s effective tax rate for the nine months ended September 30, 2019 was 15.4% as compared to (10.8)% for the nine months ended September 30, 2018. The year-over-year change was primarily due to higher earnings, a reduction in tax-exempt income due to average yields on tax exempt securities decreasing, and permanent tax benefits from a stock-based compensation award in 2018 as compared to 2019. The effective tax rate for the third quarter of 2019 was 20.0% compared to 19.6% for the second quarter of 2019. For both of the comparable periods, the Company continues to benefit from the tax-exempt municipal bond portfolio creating an effective tax rate lower than the statutory tax rates.

Balance Sheet Performance & Analysis

During the third quarter of 2019, total assets increased by $178 million or 4% compared to June 30, 2019 with both strong loan and deposit growth. Asset growth for CrossFirst was $935 million or 25% over the last twelve months. While both loans and deposits grew for the quarter, loan volumes outpaced deposit growth increasing the loan to deposit ratio from 96.7% to 99.2%. During the third quarter of 2019, total available for sale investment securities increased $28 million to $733 million, while the overall average for the quarter was $728 million. Tax- exempt municipal securities on average increased $18 million and mortgage backed securities decreased $10 million. The increase in investment securities was part of management's strategy to manage liquidity and optimize income.

Loan Growth Results

The Company continues to maintain a diversified loan portfolio while experiencing strong loan growth of 5% for the third quarter of 2019 and 33% since September 30, 2018. Loan yields declined 13 basis points in the overall portfolio commensurate with the adjustable rate loan movements with Libor and Prime over the course of the quarter. The Company experienced $204 million in payoffs for the quarter, but was able to fund $367 million in loans to replace and grow the overall portfolio.

(Dollars in millions)

3Q18

4Q18

1Q19

2Q19

3Q19

% of
Total

QoQ Growth
($)

QoQ Growth
(%)(1)

YoY Growth
($)

YoY Growth
(%)(1)

Period-end loans (gross)

Commercial and industrial

$

958

$

1,134

$

1,163

$

1,254

$

1,313

36.1

%

$

59

5

%

$

355

37

%

Energy

312

358

376

386

396

10.9

10

3

84

27

Commercial real estate

770

847

948

968

993

27.3

25

3

223

29

Construction and land development

436

440

427

463

528

14.5

65

14

92

21

Residential real estate

226

246

331

359

365

10.0

6

2

139

62

Equity lines of credit

22

20

20

21

22

0.6

1

3

Consumer installment

20

24

22

25

22

0.6

(3

)

(14

)

2

6

Total

$

2,744

$

3,069

$

3,287

$

3,476

$

3,639

100.0

%

$

163

5

%

$

895

33

%

Average loans, net of unearned income

$

2,523

$

2,911

$

3,176

$

3,398

$

3,541

$

143

4

%

$

1,018

40

%

Yield on loans for the period ending

5.35

%

5.56

%

5.75

%

5.66

%

5.53

%

(1) Actual unrounded values are used to calculate the reported percent disclosed. Accordingly, recalculations using the amounts in millions as disclosed in this release may not produce the same amounts.

Deposit Growth Results

The Company continues to maintain a traditional deposit mix, with the goal of keeping pace with growth in the loan portfolio. Deposit growth was primarily funded with money market accounts during the quarter, which have historically adjusted with movements in fed funds rates. To continue lowering the duration of its deposit base, the Company did not renew $67 million of brokered deposits that matured during the quarter.

(Dollars in millions)

3Q18

4Q18

1Q19

2Q19

3Q19

% of
Total

QoQ Growth
($)

QoQ Growth
(%)(1)

YoY Growth
($)

YoY Growth
(%)(1)

Period-end deposits

Non-interest bearing deposits

$

505

$

484

$

488

$

512

$

514

14.1

%

$

2

%

$

9

2

%

Transaction deposits

56

82

119

137

146

4.0

%

9

7

90

163

Savings and money market deposits

1,448

1,632

1,511

1,634

1,776

48.5

%

142

9

328

23

Time deposits < $100,000

338

440

554

535

469

12.8

%

(66

)

(12

)

131

39

Time deposits > $100,000

460

570

728

766

753

20.6

%

(13

)

(2

)

293

64

Total

$

2,807

$

3,208

$

3,400

$

3,584

$

3,658

100.0

%

$

74

2

%

$

851

30

%

Brokered deposits

$

262

$

343

$

424

$

397

$

330

9.0

%

$

(67

)

(17

)%

$

68

26

%

Average deposits

Non-interest bearing deposits

$

492

$

492

$

477

$

513

$

535

14.5

%

$

22

4

%

$

43

9

%

Transaction deposits

56

63

104

144

135

3.7

%

(9

)

(6

)

79

141

Savings and money market deposits

1,450

1,498

1,544

1,560

1,744

47.2

%

184

12

294

20

Time deposits

801

913

1,165

1,305

1,277

34.6

%

(28

)

(2

)

476

59

Total

$

2,799

$

2,966

$

3,290

$

3,522

$

3,691

100.0

%

$

169

5

%

$

892

32

%

Cost of deposits for the period ending

1.42

%

1.70

%

1.96

%

1.99

%

1.94

%

Cost of interest-bearing deposits for
the period ending

1.72

%

2.04

%

2.30

%

2.33

%

2.26

%

(1) Actual unrounded values are used to calculate the reported percent disclosed. Accordingly, recalculations using the amounts in millions as disclosed in this release may not produce the same amounts.

Asset Quality Position

The Company continued to add to the allowance for loan loss in order to support loan growth and changes in relative risk for the overall portfolio, including with respect to one previously disclosed non-performing loan, recording a provision expense of $4.9 million for the quarter. Net charge-offs were $4.7 million for the quarter as a result of liquidating two other previously identified non-performing loans, as compared to net recoveries of $0.3 million for the third quarter in 2018. During the quarter, non-performing assets to assets declined from 1.18% in the second quarter to 1.00% in the third quarter and classified assets to capital continued to trend down.

Asset quality (Dollars in millions)

3Q18

4Q18

1Q19

2Q19

3Q19

QoQ Growth
($)

YoY Growth
($)

Non-accrual loans

$

12.6

$

17.8

$

13.0

$

50.0

$

43.6

$

(6.4

)

$

31.0

Other real estate owned

2.5

2.5

2.5

2.5

Non-performing assets

13.1

17.8

15.5

52.8

46.7

(6.1

)

33.6

Loans 90+ days past due and still accruing

0.4

0.2

0.6

0.4

0.2

Loans 30 - 89 days past due

26.3

3.7

31.1

23.6

64.7

41.1

38.4

Classified loans

54.3

101.4

97.5

88.3

85.2

(3.1

)

30.9

Net charge-offs (recoveries)

(0.3

)

0.2

0.7

4.7

4.7

5.0

Provision for loan loss

3.0

4.5

2.9

2.9

4.9

2.0

1.9

Allowance for loan loss

33.5

37.8

40.0

42.9

43.0

0.1

9.5


Asset quality metrics

3Q18

4Q18

1Q19

2Q19

3Q19

Non-performing assets to total assets

0.35

%

0.43

%

0.36

%

1.18

%

1.00

%

Allowance for loan loss to total loans

1.22

1.23

1.22

1.24

1.18

Allowance for loan loss to non-performing loans

257

212

307

85

97

Net charge-offs (recoveries) to average loans(1)

(0.05

)

0.03

0.09

0.53

Loans 30 - 89 days past due to loans

0.96

0.12

0.95

0.68

1.78

Provision to average loans(1)

0.47

0.61

0.36

0.34

0.54

Classified Loans / (Total Capital + ALLL)

12.3

19.2

18.7

16.3

13.2

(1) Interim periods annualized.

Capital Position After Initial Public Offering

At September 30, 2019, stockholders’ equity totaled $602 million, or $11.59 per share, compared to $499 million, or $11.00 per share, at June 30, 2019. Tangible common stockholders' equity was $595 million and tangible book value per share was $11.44 at September 30, 2019. The increase in stockholders’ equity was a result of quarterly earnings, an increase in accumulated other comprehensive income for unrealized bond gains, and proceeds received from the initial public offering.

Period-end (Dollars in millions, except per share data)

3Q18

4Q18

1Q19

2Q19

3Q19

Total Stockholders' Equity

$

410

$

490

$

481

$

499

$

602

Book value per share

$

9.43

$

10.21

$

10.63

$

11.00

$

11.59

Tangible book value per share(1)

$

9.24

$

10.04

$

10.46

$

10.83

$

11.44

Common equity tier 1 capital ratio

10.55

%

11.75

%

11.23

%

11.02

%

12.91

%

Tier 1 capital ratio

11.38

12.53

11.23

11.04

12.93

Total capital ratio

12.32

13.51

12.20

12.04

13.90

Leverage ratio

11.39

12.43

11.15

10.87

12.57

(1) Represents a non-GAAP measure. See "Table 7. Non-GAAP Financial Measures" for a reconciliation of this measure.

On September 17, 2019 the underwriters for the initial public offering, acquired an additional 844,362 shares of CrossFirst's common stock pursuant to the partial exercise of the underwriters’ over- allotment option granted in connection with the initial public offering. The additional shares were sold at the IPO price of $14.50 per share, less underwriting discounts and commissions. Net proceeds from the sale of the additional shares were approximately $11.4 million, after deducting underwriting discounts and commissions. During the third quarter of 2019, the Company issued 6,594,362 new shares, including the over-allotment, bringing its total net proceeds from the offering to approximately $87.0 million. The Company intends to use the net proceeds from the offering to support our growth, organically or through mergers and acquisitions, and for general corporate purposes. As previously disclosed, the Company is currently considering using a portion of the net proceeds for the opening of a second smaller full-service branch in the Dallas MSA, in addition to consistently evaluating other strategic opportunities.

Conference Call and Webcast

CrossFirst will hold a conference call and webcast to discuss third quarter 2019 results on Monday, October 21, 2019 at 4 p.m. CDT / 5 p.m. EDT. The conference call and webcast may also include discussion of Company developments, forward-looking statements and other material information about business and financial matters. Investors, news media, and other participants should register for the call or audio webcast at https://investors.CrossFirstbankshares.com. Participants may dial into the call toll-free at (877) 621- 5851 from anywhere in the U.S. or (470) 495-9492 internationally, using conference ID no. 6057529. Participants are encouraged to dial into the call or access the webcast approximately 10 minutes prior to the start time.

A replay of the webcast will be available on the Company website. A replay of the conference call will be available two hours following the close of the call until October 28, 2019, accessible at (855) 859-2056 with conference ID no. 6057529.

Cautionary Notice about Forward-Looking Statements

The financial results in this press release reflect preliminary, unaudited results, which are not final until the Company’s Form 10-Q is filed. This earnings release contains forward-looking statements. These forward-looking statements reflect the Company's current views with respect to, among other things, future events and its financial performance. Any statements about management’s expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. Any or all of the forward-looking statements in this earnings release may turn out to be inaccurate. The inclusion of forward-looking information in this earnings release should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. The Company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect our financial condition, results of operations, business strategy and financial needs. Our actual results could differ materially from those anticipated in such forward-looking statements.

Accordingly, the Company cautions you that any such forward-looking statements are not a guarantee of future performance and that 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. Such factors include, without limitation, those listed from time to time in reports that the Company files with the Securities and Exchange Commission. These forward-looking statements are made as of the date of this communication, and the Company does not intend, and assumes no obligation, to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events or circumstances, except as required by law.

About CrossFirst

CrossFirst Bankshares, Inc., is a Kansas corporation and a registered bank holding company for its wholly-owned subsidiary CrossFirst Bank, which is headquartered in Leawood, Kansas. CrossFirst Bank has seven full-service banking offices primarily along the I-35 corridor in Kansas, Missouri, Oklahoma and Texas.

CROSSFIRST BANKSHARES, INC. CONTACT:
Matt Needham, Director of Investor Relations
(913) 312-6822
https://investors.crossfirstbankshares.com


Unaudited Financial Tables

  • Table 1. Selected Financial Highlights

  • Table 2. Year-to-Date Analysis of Changes in Net Interest Income (2018 & 2019)

  • Table 3. 2018 - 2019 Quarterly Analysis of Changes in Net Interest Income

  • Table 4. Linked Quarterly Analysis of Changes in Net Interest Income

  • Table 5. Consolidated Balance Sheets

  • Table 6. Consolidated Statements of Income

  • Table 7. Non-GAAP Financial Measures

TABLE 1. SELECTED FINANCIAL HIGHLIGHTS (UNAUDITED)
(Dollars in thousands, except per share data)

CrossFirst Bankshares, Inc.

Quarterly Selected Financials (Unaudited)

3Q18

4Q18

1Q19

2Q19

3Q19

Income Statement Data

Interest income

$

40,775

$

47,068

$

51,317

$

54,192

$

55,529

Interest expense

11,807

14,753

17,712

19,318

19,743

Net interest income

28,968

32,315

33,605

34,874

35,786

Provision for loan losses

3,000

4,500

2,850

2,850

4,850

Non-interest income

1,185

1,195

1,645

1,672

3,212

Non-interest expense

19,875

20,166

22,631

21,960

21,172

Net income before taxes

7,278

8,844

9,769

11,736

12,976

Income tax expense (benefit)

924

(1,490

)

419

2,297

2,592

Net income

6,354

10,334

9,350

9,439

10,384

Preferred stock dividends

525

525

175

Net income available to common stockholders

5,829

9,809

9,175

9,439

10,384

Non-GAAP core operating income(1)

$

6,481

$

6,600

$

7,989

$

9,754

$

10,384

Balance Sheet Data

Cash and cash equivalents

$

118,323

$

216,541

$

117,317

$

141,373

$

128,126

Securities

690,580

663,678

707,430

704,776

733,093

Gross loans (net of unearned income)

2,736,262

3,060,747

3,277,598

3,467,204

3,629,792

Allowance for loan losses

33,540

37,826

40,001

42,852

42,995

Goodwill and intangibles

7,821

7,796

7,770

7,745

7,720

Non-interest bearing deposits

504,794

484,284

488,375

511,837

513,832

Total deposits

2,806,580

3,208,097

3,399,899

3,584,136

3,658,108

Borrowings and repurchase agreements

483,145

388,391

368,597

364,246

357,614

Trust preferred securities, net of fair value adjustment

875

884

893

902

912

Preferred stock

30,000

30,000

Common stock(2)

359,725

424,975

428,864

430,800

519,336

Total stockholders' equity

409,780

490,336

480,514

499,195

602,435

Tangible common stockholders' equity(1)

$

371,959

$

452,540

$

472,744

$

491,450

$

594,715

Share and Per Share Data

Basic earnings per common share(2)

$

0.15

$

0.22

$

0.20

$

0.21

$

0.22

Diluted earning per common share(2)

0.15

0.22

0.20

0.20

0.21

Book value per share(2)

9.43

10.21

10.63

11.00

11.59

Tangible book value per share(1)(2)

$

9.24

$

10.04

$

10.46

$

10.83

$

11.44

Basic weighted average common shares outstanding(2)

37,790,614

43,853,170

45,093,442

45,236,264

48,351,553

Diluted weighted average common shares outstanding(2)

38,778,624

44,920,448

45,960,267

46,211,780

49,164,549

Shares outstanding at end of period(2)

40,261,480

45,074,322

45,202,370

45,367,641

51,969,203

Selected Ratios

Return on average assets

0.70

%

1.06

%

0.91

%

0.86

%

0.89

%

Return on average common equity

6.68

9.03

7.98

7.78

7.58

Yield on earning assets

4.72

5.01

5.18

5.12

4.94

Yield on earning assets - tax equivalent(3)

4.81

5.08

5.25

5.18

5.00

Yield on securities

3.18

3.24

3.23

3.08

2.85

Yield on securities - tax equivalent(3)

3.58

3.61

3.59

3.42

3.19

Yield on loans

5.35

5.56

5.75

5.66

5.53

Cost of interest-bearing liabilities

1.73

2.01

2.25

2.29

2.24

Cost of interest-bearing deposits

1.72

2.04

2.30

2.33

2.26

Cost of funds

1.46

1.72

1.96

1.99

1.94

Cost of deposits

1.42

1.70

1.96

1.99

1.94

Cost of other borrowings

1.77

1.79

1.86

1.93

1.95

Net interest margin - tax equivalent(3)

3.44

3.51

3.46

3.35

3.24

Non-interest expense to average assets

2.20

2.06

2.20

2.00

1.82

Efficiency ratio(4)

65.91

60.18

64.20

60.09

54.29

Non-interest bearing deposits to total deposits

17.99

15.10

14.36

14.28

14.05

Loans to deposits

97.49

%

95.41

%

96.40

%

96.74

%

99.23

%

Credit Quality Ratios

Allowance for loan losses to total loans

1.22

%

1.23

%

1.22

%

1.24

%

1.18

%

Nonperforming assets to total assets

0.35

0.43

0.36

1.18

1.00

Nonperforming loans to total loans

0.48

0.58

0.40

1.45

1.22

Allowance for loan losses to nonperforming loans

256.65

212.30

307.27

85.20

97.12

Net charge-offs (recoveries) to average loans(5)

(0.05

)%

0.03

%

0.09

%

%

0.53

%

Capital Ratios

Total stockholders' equity to total assets

11.03

%

11.94

%

11.26

%

11.16

%

12.95

%

Common equity tier 1 capital ratio

10.55

11.75

11.23

11.02

12.91

Tier 1 risk-based capital ratio

11.38

12.53

11.23

11.04

12.93

Total risk-based capital ratio

12.32

13.51

12.20

12.04

13.90

Tier 1 leverage ratio

11.39

%

12.43

%

11.15

%

10.87

%

12.57

%

(1) Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" for a reconciliation of this measure.

(2) Share data has been adjusted to reflect a 2-for-1 stock split effected in the form of a dividend on December 21, 2018.

(3) Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal taxes. The incremental tax rate used is 21.0%.

(4) We calculate efficiency ratio as non-interest expense divided by the sum of net interest income and non-interest income.

(5) Interim periods are annualized.


TABLE 2. YEAR-TO-DATE ANALYSIS OF CHANGES IN NET INTEREST INCOME (UNAUDITED)

Nine Months Ended

September 30,

2018

2019

Average
Balance

Interest
Income /
Expense

Average
Yield /
Rate(3)

Average
Balance

Interest
Income /
Expense

Average
Yield /
Rate(3)

(Dollars in thousands)

Interest-earning assets:

Securities - taxable

$

273,525

$

6,447

3.15

%

$

334,272

$

7,447

2.98

%

Securities - tax-exempt(1)

484,090

14,062

3.88

378,651

10,672

3.77

Federal funds sold

18,782

281

2.00

18,714

345

2.46

Interest-bearing deposits in other banks

174,740

2,200

1.68

135,030

2,107

2.09

Gross loans, net of unearned income(2)

2,275,039

89,262

5.25

3,373,118

142,319

5.64

Total interest-earning assets(1)

3,226,176

$

112,252

4.65

%

4,239,785

$

162,890

5.14

%

Allowance for loan losses

(29,607

)

(41,329

)

Other non-interest-earning assets

166,661

196,900

Total assets

$

3,363,230

$

4,395,356

Interest-bearing liabilities

Transaction deposits

$

53,995

$

101

0.25

%

$

127,785

$

1,139

1.19

%

Savings and money market deposits

1,381,291

15,658

1.52

1,616,558

27,326

2.26

Time deposits

809,550

10,880

1.80

1,249,219

22,956

2.46

Total interest-bearing deposits

2,244,836

26,639

1.59

2,993,562

51,421

2.30

FHLB and short-term borrowings

381,166

5,020

1.76

366,708

5,240

1.91

Trust preferred securities, net of fair value
adjustments

860

100

15.47

895

112

16.74

Non-interest bearing deposits

402,850

508,888

Cost of funds

3,029,712

$

31,759

1.40

%

3,870,053

$

56,773

1.96

%

Other liabilities

10,929

22,762

Stockholders' equity

322,589

502,541

Total liabilities and stockholders' equity

$

3,363,230

$

4,395,356

Net interest income(1)

$

80,493

$

106,117

Net interest spread(1)

3.25

%

3.18

%

Net interest margin(1)

3.34

%

3.35

%

(1) Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal taxes. The incremental tax rate used is 21.0%.

(2) Average loan balances include nonaccrual loans.

(3) Actual unrounded values are used to calculate the reported yield or rate disclosed. Accordingly, recalculations using the amounts in thousands as disclosed in this release may not produce the same amounts.


YEAR-TO-DATE VOLUME & RATE VARIANCE TO NET INTEREST INCOME (UNAUDITED)

Nine Months Ended

September 30, 2019 over 2018


Average Volume

Yield/Rate

Net Change(2)

(Dollars in thousands)

Interest Income

Securities - taxable

$

1,364

$

(364

)

$

1,000

Securities - tax-exempt(1)

(3,000

)

(390

)

(3,390

)

Federal funds sold

(1

)

65

64

Interest-bearing deposits in other banks

(562

)

469

(93

)

Gross loans, net of unearned income

45,980

7,077

53,057

Total interest income(1)

43,781

6,857

50,638

Interest Expense

Transaction deposits

277

761

1,038

Savings and money market deposits

3,024

8,644

11,668

Time deposits

7,209

4,867

12,076

Total interest-bearing deposits

10,510

14,272

24,782

FHLB and short-term borrowings

(195

)

415

220

Trust preferred securities, net of fair value adjustments

4

8

12

Total interest expense

10,319

14,695

25,014

Net interest income(1)

$

33,462

$

(7,838

)

$

25,624

(1) Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal taxes. The incremental tax rate used is 21.0%.

(2) The change in interest not due solely to volume or rate has been allocated in proportion to the respective absolute dollar amounts of the change in volume or rate.


TABLE 3. 2018 - 2019 QUARTERLY ANALYSIS OF CHANGES IN NET INTEREST INCOME
(UNAUDITED)

Three Months Ended

September 30,

2018

2019

Average
Balance

Interest
Income /
Expense

Average
Yield /
Rate(3)

Average
Balance

Interest
Income /
Expense

Average
Yield /
Rate(3)

(Dollars in thousands)

Interest-earning assets:

Securities - taxable

$

304,937

$

2,454

3.19

%

$

335,045

$

2,264

2.68

%

Securities - tax-exempt(1)

447,333

4,338

3.85

392,644

3,592

3.63

Federal funds sold

20,674

110

2.10

16,315

89

2.16

Interest-bearing deposits in other banks

132,585

614

1.84

171,913

881

2.03

Gross loans, net of unearned income(2) (3)

2,523,107

34,012

5.35

3,540,707

49,327

5.53

Total interest-earning assets(1)

3,428,636

$

41,528

4.81

%

4,456,624

$

56,153

5.00

%

Allowance for loan losses

(31,716

)

(43,327

)

Other non-interest-earning assets

191,956

197,661

Total assets

$

3,588,876

$

4,610,958

Interest-bearing liabilities

Transaction deposits

$

56,072

$

33

0.24

%

$

134,987

$

386

1.13

%

Savings and money market deposits

1,450,397

6,139

1.68

1,743,575

9,553

2.17

Time deposits

801,416

3,827

1.89

1,276,571

8,064

2.51

Total interest-bearing deposits

2,307,885

9,999

1.72

3,155,133

18,003

2.26

FHLB and short-term borrowings

397,252

1,772

1.77

345,794

1,703

1.95

Trust preferred securities, net of fair value
adjustments

868

36

16.21

904

37

16.06

Non-interest bearing deposits

491,942

535,467

Cost of funds

3,197,947

$

11,807

1.46

%

4,037,298

$

19,743

1.94

%

Other liabilities

14,904

29,833

Total stockholders' equity

376,025

543,827

Total liabilities and stockholders' equity

$

3,588,876

$

4,610,958

Net interest income(1)

$

29,721

$

36,410

Net interest spread(1)

3.35

%

3.06

%

Net interest margin(1)

3.44

%

3.24

%

(1) Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal taxes. The incremental tax rate used is 21.0%.

(2) Average loan balances include nonaccrual loans.

(3) Actual unrounded values are used to calculate the reported yield or rate disclosed. Accordingly, recalculations using the amounts in thousands as disclosed in this release may not produce the same amounts.


QUARTER TO DATE VOLUME & RATE VARIANCE TO NET INTEREST INCOME (UNAUDITED)

Three Months Ended

September 30, 2019 over 2018

Average Volume

Yield/Rate

Net Change(2)

(Dollars in thousands)

Interest Income

Securities - taxable

$

227

$

(417

)

$

(190

)

Securities - tax-exempt(1)

(509

)

(237

)

(746

)

Federal funds sold

(24

)

3

(21

)

Interest-bearing deposits in other banks

198

69

267

Gross loans, net of unearned income

14,136

1,179

15,315

Total interest income(1)

14,028

597

14,625

Interest Expense

Transaction deposits

97

256

353

Savings and money market deposits

1,397

2,017

3,414

Time deposits

2,728

1,509

4,237

Total interest-bearing deposits

4,222

3,782

8,004

FHLB and short-term borrowings

(241

)

172

(69

)

Trust preferred securities, net of fair value adjustments

1

1

Total interest expense

3,982

3,954

7,936

Net interest income(1)

$

10,046

$

(3,357

)

$

6,689

(1) Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal taxes. The incremental tax rate used is 21.0%

(2) The change in interest not due solely to volume or rate has been allocated in proportion to the respective absolute dollar amounts of the change in volume or rate.


TABLE 4. LINKED QUARTERLY ANALYSIS OF CHANGES IN NET INTEREST INCOME
(UNAUDITED)

Three Months Ended

June 30, 2019

September 30, 2019

Average
Balance

Interest
Income /
Expense

Average
Yield /
Rate(3)

Average
Balance

Interest
Income /
Expense

Average
Yield /
Rate(3)

(Dollars in thousands)

Interest-earning assets:

Securities - taxable

$

345,005

$

2,611

3.04

%

$

335,045

$

2,264

2.68

%

Securities - tax-exempt(1)

374,750

3,529

3.78

392,644

3,592

3.63

Federal funds sold

15,165

96

2.55

16,315

89

2.16

Interest-bearing deposits in other banks

110,460

580

2.10

171,913

881

2.03

Gross loans, net of unearned income(2) (3)

3,398,297

47,989

5.66

3,540,707

49,327

5.53

Total interest-earning assets(1)

4,243,677

$

54,805

5.18

%

4,456,624

$

56,153

5.00

%

Allowance for loan losses

(41,277

)

(43,327

)

Other non-interest-earning assets

199,603

197,661

Total assets

$

4,402,003

$

4,610,958

Interest-bearing liabilities

Transaction deposits

$

144,020

$

477

1.33

%

$

134,987

$

386

1.13

%

Savings and money market deposits

1,559,979

8,955

2.30

1,743,575

9,553

2.17

Time deposits

1,305,244

8,065

2.48

1,276,571

8,064

2.51

Total interest-bearing deposits

3,009,243

17,497

2.33

3,155,133

18,003

2.26

FHLB and short-term borrowings

371,624

1,784

1.93

345,794

1,703

1.95

Trust preferred securities, net of fair value
adjustments

895

37

16.79

904

37

16.06

Non-interest bearing deposits

513,320

535,467

Cost of funds

3,895,082

$

19,318

1.99

%

4,037,298

$

19,743

1.94

%

Other liabilities

20,041

29,833

Total stockholders' equity

486,880

543,827

Total liabilities and stockholders' equity

$

4,402,003

$

4,610,958

Net interest income(1)

$

35,487

$

36,410

Net interest spread(1)

3.19

%

3.06

%

Net interest margin(1)

3.35

%

3.24

%

(1) Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal taxes. The incremental tax rate used is 21.0%.

(2) Average loan balances include nonaccrual loans.

(3) Actual unrounded values are used to calculate the reported yield or rate disclosed. Accordingly, recalculations using the amounts in thousands as disclosed in this release may not produce the same amounts.


LINKED QUARTER VOLUME & RATE VARIANCE TO NET INTEREST INCOME (UNAUDITED)

Three Months Ended

September 30, 2019 over June 30, 2019

Average Volume

Yield/Rate

Net Change(2)

(Dollars in thousands)

Interest Income

Securities - taxable

$

(68

)

$

(279

)

$

(347

)

Securities - tax-exempt(1)

189

(126

)

63

Federal funds sold

8

(15

)

(7

)

Interest-bearing deposits in other banks

321

(20

)

301

Gross loans, net of unearned income

2,303

(965

)

1,338

Total interest income(1)

2,753

(1,405

)

1,348

Interest Expense

Transaction deposits

(27

)

(64

)

(91

)

Savings and money market deposits

1,095

(497

)

598

Time deposits

(128

)

127

(1

)

Total interest-bearing deposits

940

(434

)

506

FHLB and short-term borrowings

(103

)

22

(81

)

Trust preferred securities, net of FV adjustments

Total interest expense

837

(412

)

425

Net interest income(1)

$

1,916

$

(993

)

$

923

(1) Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal taxes. The incremental tax rate used is 21.0%.

(2) The change in interest not due solely to volume or rate has been allocated in proportion to the respective absolute dollar amounts of the change in volume or rate.


TABLE 5. CONSOLIDATED BALANCE SHEETS

December 31, 2018

September 30, 2019

(Unaudited)

(Dollars in thousands)

Assets

Cash and cash equivalents

$

216,541

$

128,126

Available for sale securities - taxable

296,133

323,531

Available for sale securities - tax-exempt

367,545

409,562

Premises and equipment, held for sale

3,444

Loans, net of allowance for loan losses of $37,826 and

$42,995 at December 31, 2018 and September 30, 2019, respectively

3,022,921

3,586,797

Premises and equipment, net

74,945

71,314

Restricted equity securities

14,525

16,053

Interest receivable

14,092

15,909

Foreclosed assets held for sale

2,471

Deferred tax asset

16,316

7,429

Goodwill and other intangible assets, net

7,796

7,720

Bank-owned life insurance

63,811

65,228

Other

9,146

17,173

Total assets

$

4,107,215

$

4,651,313

Liabilities and stockholders' equity

Deposits

Non-interest bearing

$

484,284

$

513,832

Savings, NOW and money market

1,714,136

1,922,522

Time

1,009,677

1,221,754

Total deposits

3,208,097

3,658,108

Federal funds purchased and repurchase agreements

75,406

49,810

Federal Home Loan Bank advances

312,985

307,804

Other borrowings

884

912

Interest payable and other liabilities

19,507

32,244

Total liabilities

3,616,879

4,048,878

Stockholders' equity

Redeemable preferred stock, $0.01 par value, $25 liquidation value:

authorized - 5,000,000 shares

issued - 1,200,000 and 0 shares at December 31, 2018

and September 30, 2019, respectively

12

Common stock, $0.01 par value:

authorized - 200,000,000 shares

issued - 45,074,322 and 51,969,203 shares at December 31, 2018

and September 30, 2019, respectively

451

520

Additional paid-in capital

454,512

518,816

Retained earnings

38,567

65,282

Other

(196

)

(84

)

Accumulated other comprehensive income (loss)

(3,010

)

17,901

Total stockholders' equity

490,336

602,435

Total liabilities and stockholders' equity

$

4,107,215

$

4,651,313


TABLE 6. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Three months ended

Nine months ended

September 30,

September 30,

2018

2019

2018

2019

(Dollars in thousands except per share data)

Interest Income

Loans, including fees

34,012

49,327

89,262

142,319

Available for sale securities

Taxable

2,200

1,991

5,729

6,646

Tax-exempt

3,586

2,969

11,622

8,820

Deposits with financial institutions

723

970

2,481

2,452

Dividends on bank stocks

254

272

718

801

Total interest income

40,775

55,529

109,812

161,038

Interest Expense

Deposits

9,999

18,003

26,639

51,421

Fed funds purchased and repurchase agreements

287

74

628

501

Advances from Federal Home Loan Bank

1,468

1,629

4,308

4,739

Other borrowings

53

37

184

112

Total interest expense

11,807

19,743

31,759

56,773

Net Interest Income

28,968

35,786

78,053

104,265

Provision for Loan Losses

3,000

4,850

9,000

10,550

Net Interest Income after Provision for Loan Losses

25,968

30,936

69,053

93,715

Non-Interest Income

Service charges and fees (rebates) on customer accounts

(100

)

72

506

441

Gain on sale of available for sale securities

195

34

608

467

Impairment of premises and equipment held for sale

(171

)

(171

)

(424

)

Gain on sale of loans

25

49

618

207

Income from bank-owned life insurance

513

476

1,511

1,416

Swap fee income, net

253

1,879

299

2,415

Other non-interest income

470

702

1,517

2,007

Total non-interest income

1,185

3,212

4,888

6,529

Non-Interest Expense

Salaries and employee benefits

12,652

14,256

43,689

43,296

Occupancy

2,132

2,080

6,199

6,301

Professional fees

766

427

2,421

1,923

Deposit insurance premiums

823

302

2,411

2,020

Data processing

528

649

1,470

1,868

Advertising

527

580

1,982

1,770

Software and communication

630

900

1,958

2,407

Depreciation and amortization

516

413

1,306

1,320

Other non-interest expense

1,301

1,565

4,153

4,858

Total non-interest expense

19,875

21,172

65,589

65,763

Net Income Before Taxes

7,278

12,976

8,352

34,481

Income tax expense (benefit)

924

2,592

(904

)

5,308

Net Income

$

6,354

$

10,384

$

9,256

$

29,173

Basic Earnings Per Share(1)

$

0.15

$

0.22

$

0.23

$

0.63

Diluted Earnings Per Share(1)

$

0.15

$

0.21

$

0.22

$

0.61

(1) Share data has been adjusted to reflect a 2-for-1 stock split effected in the form of a dividend on December 21, 2018.


TABLE 7. NON-GAAP FINANCIAL MEASURES

Non-GAAP Financial Measures
In addition to disclosing financial measures determined in accordance with GAAP the Company discloses non-GAAP financial measures in this release. The Company believes that the non-GAAP financial measures presented in this release reflect industry conventions, or standard measures within the industry, and provide useful information to the Company's management, investors and other parties interested in the Company's operating performance. These measurements should be considered in addition to, but not as a substitute for, financial information prepared in accordance with GAAP. We have defined below each of the non-GAAP measures we use in this release, but these measures may not be synonymous to similar measurement terms used by other companies.

CrossFirst provides reconciliations of these non-GAAP measures below. The measures used in this release include the following:

  • We calculate "return on average tangible common equity" as net income available to common stockholders divided by average tangible common equity. Average tangible common equity is calculated as average common equity less average goodwill and intangibles and average preferred equity. The most directly comparable GAAP measure is return on average common equity.

  • We calculate ‘‘non-GAAP core operating income’’ as net income adjusted to remove non-recurring or non-core income and expense items related to:

    • Restructuring charges and adjustments associated with the transition of our former CEO - In connection with the departure of our former CEO in the second quarter of 2018, we incurred restructuring charges in the second quarter of 2018 related to the acceleration of certain stock-based compensation and employee costs, some of which were adjusted in the fourth quarter of 2018.

    • Impairment charges associated with two buildings that were held-for-sale - We acquired a new, larger corporate headquarters to accommodate our business needs, which eliminated the need for two smaller support buildings. The two smaller support buildings had been acquired recently and were extensively remodeled, which resulted in a difference between book and market value for those assets. We sold one of the buildings in 2018. The remaining building was sold during the second quarter of 2019.

    • State tax credits as a result of the purchase and improvement of our new corporate headquarters. We acquired a new, larger corporate headquarters to accommodate our business needs. Our purchase and improvement of the new headquarters resulted in state tax credits.

    The most directly comparable GAAP financial measure for non-GAAP core operating income is net income.

  • We calculate "tangible common stockholders' equity" as total stockholders' equity less goodwill and intangibles and preferred equity. The most directly comparable GAAP measure is total stockholders' equity.

  • We calculate ‘‘tangible book value per share’’ as tangible common stockholders' equity (defined above) divided by the total number of shares outstanding. The most directly comparable GAAP measure is book value per share.

  • We calculate "non-GAAP tax-equivalent efficiency ratio" as non-interest expense divided by net interest income plus tax-effected interest income on our tax-free municipal bond portfolio plus non-interest income. The most directly comparable financial measure is the efficiency ratio.

Quarter Ended

Nine Months Ended

09/30/2018

12/31/2018

03/31/2019

06/30/2019

09/30/2019

09/30/2018

09/30/2019

(Dollars in thousands)

Return on average tangible common equity:

Net income available to common
stockholders

$

5,829

$

9,809

$

9,175

$

9,439

$

10,384

$

7,681

$

28,998

Average common equity

346,025

430,881

466,506

486,880

543,827

292,589

499,354

Less: average goodwill and intangibles

7,835

7,810

7,784

7,759

7,733

7,860

7,759

Average tangible common equity

338,190

423,071

458,722

479,121

536,094

284,729

491,595

Return on average common equity

6.68

%

9.03

%

7.98

%

7.78

%

7.58

%

3.51

%

7.76

%

Return on average tangible common equity

6.84

%

9.20

%

8.11

%

7.90

%

7.68

%

3.61

%

7.89

%


Quarter Ended

09/30/18

12/31/18

03/31/19

06/30/19

09/30/19

(Dollars in thousands)

Non-GAAP core operating income:

Net Income

$

6,354

$

10,334

$

9,350

$

9,439

$

10,384

Add: restructuring charges

(815

)

Less: tax effect(1)

(210

)

Restructuring charges, net of tax

(605

)

Add: fixed asset impairments

171

424

Less: tax effect(1)

44

109

Fixed asset impairments, net of tax

127

315

Add: state tax credit(2)

(3,129

)

(1,361

)

Non-GAAP core operating income

$

6,481

$

6,600

$

7,989

$

9,754

$

10,384

(1) Represents the tax impact of the adjustments above at a tax rate of 25.73%

(2) No tax effect


Quarter Ended

09/30/2018

12/31/2018

03/31/2019

06/30/2019

09/30/2019

(Dollars in thousands except per share data)

Tangible common stockholders' equity:

Total Stockholders' equity

$

409,780

$

490,336

$

480,514

$

499,195

$

602,435

Less: goodwill and other intangible assets

7,821

7,796

7,770

7,745

7,720

Less: preferred stock

30,000

30,000

Tangible common stockholders' equity

$

371,959

$

452,540

$

472,744

$

491,450

$

594,715

Tangible book value per share:

Tangible common stockholders' equity

$

371,959

$

452,540

$

472,744

$

491,450

$

594,715

Shares outstanding at end of period

40,261,480

45,074,322

45,202,370

45,367,641

51,969,203

Book value per share

$

9.43

$

10.21

$

10.63

$

11.00

$

11.59

Tangible book value per share

$

9.24

$

10.04

$

10.46

$

10.83

$

11.44


Quarter Ended

Nine Months Ended

09/30/2018

12/31/2018

03/31/2019

06/30/2019

09/30/2019

09/30/2018

09/30/2019

(Dollars in thousands)

Non-GAAP Tax Equivalent Efficiency
Ratio

Non-interest expense (Numerator)

$

19,875

$

20,166

$

22,631

$

21,960

$

21,172

$

65,589

$

65,763

Net interest income

28,968

32,315

33,605

34,874

35,786

78,053

104,265

Tax equivalent interest income

753

658

616

612

624

2,440

1,852

Net interest income - tax equivalent

29,721

32,973

34,221

35,486

36,410

80,493

106,117

Non-interest income

1,185

1,195

1,645

1,672

3,212

4,888

6,529

Total tax-equivalent income (Denominator)

$

30,906

$

34,168

$

35,866

$

37,158

$

39,622

$

85,381

$

112,646

Efficiency Ratio

65.91

%

60.18

%

64.20

%

60.09

%

54.29

%

79.08

%

59.36

%

Non-GAAP Tax Equivalent Efficiency
Ratio

64.31

%

59.02

%

63.10

%

59.10

%

53.43

%

76.82

%

58.38

%