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


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%
Energy312  358  376  386  396  10.9  10  3  84  27 
Commercial real estate770  847  948  968  993  27.3  25  3  223  29 
Construction and land development436  440  427  463  528  14.5  65  14  92  21 
Residential real estate226  246  331  359  365  10.0  6  2  139  62 
Equity lines of credit22  20  20  21  22  0.6  1  3     
Consumer installment20  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 ending5.35% 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 deposits56  82  119  137  146  4.0% 9  7  90  163 
Savings and money market deposits1,448  1,632  1,511  1,634  1,776  48.5% 142  9  328  23 
Time deposits < $100,000338  440  554  535  469  12.8% (66) (12) 131  39 
Time deposits > $100,000460  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 deposits56  63  104  144  135  3.7% (9) (6) 79  141 
Savings and money market deposits1,450  1,498  1,544  1,560  1,744  47.2% 184  12  294  20 
Time deposits801  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 ending1.42% 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 assets13.1  17.8  15.5  52.8  46.7  (6.1) 33.6 
Loans 90+ days past due and still accruing0.4      0.2  0.6  0.4  0.2 
Loans 30 - 89 days past due26.3  3.7  31.1  23.6  64.7  41.1  38.4 
Classified loans54.3  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 loss3.0  4.5  2.9  2.9  4.9  2.0  1.9 
Allowance for loan loss33.5  37.8  40.0  42.9  43.0  0.1  9.5 


Asset quality metrics3Q18 4Q18 1Q19 2Q19 3Q19
Non-performing assets to total assets0.35% 0.43% 0.36% 1.18% 1.00%
Allowance for loan loss to total loans1.22  1.23  1.22  1.24  1.18 
Allowance for loan loss to non-performing loans257  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 loans0.96  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 ratio10.55% 11.75% 11.23% 11.02% 12.91%
Tier 1 capital ratio11.38  12.53  11.23  11.04  12.93 
Total capital ratio12.32  13.51  12.20  12.04  13.90 
Leverage ratio11.39  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 sold18,782  281  2.00  18,714  345  2.46 
Interest-bearing deposits in other banks174,740  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 assets166,661      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 deposits1,381,291  15,658  1.52  1,616,558  27,326  2.26 
Time deposits809,550  10,880  1.80  1,249,219  22,956  2.46 
Total interest-bearing deposits2,244,836  26,639  1.59  2,993,562  51,421  2.30 
FHLB and short-term borrowings381,166  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 deposits402,850      508,888     
Cost of funds3,029,712  $31,759  1.40% 3,870,053  $56,773  1.96%
Other liabilities10,929      22,762     
Stockholders' equity322,589      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 income45,980  7,077  53,057 
Total interest income(1)43,781  6,857  50,638 
Interest Expense     
Transaction deposits277  761  1,038 
Savings and money market deposits3,024  8,644  11,668 
Time deposits7,209  4,867  12,076 
Total interest-bearing deposits10,510  14,272  24,782 
FHLB and short-term borrowings(195) 415  220 
Trust preferred securities,  net of fair value adjustments4  8  12 
Total interest expense10,319  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 sold20,674  110  2.10  16,315  89  2.16 
Interest-bearing deposits in other banks132,585  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 assets191,956      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 deposits1,450,397  6,139  1.68  1,743,575  9,553  2.17 
Time deposits801,416  3,827  1.89  1,276,571  8,064  2.51 
Total interest-bearing  deposits2,307,885  9,999  1.72  3,155,133  18,003  2.26 
FHLB and short-term borrowings397,252  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 deposits491,942      535,467     
Cost of funds3,197,947  $11,807  1.46% 4,037,298  $19,743  1.94%
Other liabilities14,904      29,833     
Total stockholders' equity376,025      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 banks198  69  267 
Gross loans, net of unearned income14,136  1,179  15,315 
Total interest income(1)14,028  597  14,625 
Interest Expense     
Transaction deposits97  256  353 
Savings and money market deposits1,397  2,017  3,414 
Time deposits2,728  1,509  4,237 
Total interest-bearing deposits4,222  3,782  8,004 
FHLB and short-term borrowings(241) 172  (69)
Trust preferred securities,  net of fair value adjustments1    1 
Total interest expense3,982  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 sold15,165  96  2.55  16,315  89  2.16 
Interest-bearing deposits in other banks110,460  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 assets199,603      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 deposits1,559,979  8,955  2.30  1,743,575  9,553  2.17 
Time deposits1,305,244  8,065  2.48  1,276,571  8,064  2.51 
Total interest-bearing  deposits3,009,243  17,497  2.33  3,155,133  18,003  2.26 
FHLB and short-term borrowings371,624  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 deposits513,320      535,467     
Cost of funds3,895,082  $19,318  1.99% 4,037,298  $19,743  1.94%
Other liabilities20,041      29,833     
Total stockholders' equity486,880      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 sold8  (15) (7)
Interest-bearing deposits in other banks321  (20) 301 
Gross loans, net of unearned income2,303  (965) 1,338 
Total interest income(1)2,753  (1,405) 1,348 
Interest Expense     
Transaction deposits(27) (64) (91)
Savings and money market deposits1,095  (497) 598 
Time deposits(128) 127  (1)
Total interest-bearing deposits940  (434) 506 
FHLB and short-term borrowings(103) 22  (81)
Trust preferred securities, net of FV adjustments     
Total interest expense837  (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 - taxable296,133  323,531 
Available for sale securities - tax-exempt367,545  409,562 
Premises and equipment, held for sale3,444   
Loans, net of allowance for loan losses of $37,826 and   
$42,995 at December 31, 2018 and September 30, 2019, respectively3,022,921  3,586,797 
Premises and equipment, net74,945  71,314 
Restricted equity securities14,525  16,053 
Interest receivable14,092  15,909 
Foreclosed assets held for sale  2,471 
Deferred tax asset16,316  7,429 
Goodwill and other intangible assets, net7,796  7,720 
Bank-owned life insurance63,811  65,228 
Other9,146  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 market1,714,136  1,922,522 
Time1,009,677  1,221,754 
Total deposits3,208,097  3,658,108 
Federal funds purchased and repurchase agreements75,406  49,810 
Federal Home Loan Bank advances312,985  307,804 
Other borrowings884  912 
Interest payable and other liabilities19,507  32,244 
Total liabilities3,616,879  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, respectively12   
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, respectively451  520 
Additional paid-in capital454,512  518,816 
Retained earnings38,567  65,282 
Other(196) (84)
Accumulated other comprehensive income (loss)(3,010) 17,901 
Total stockholders' equity490,336  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 fees34,012  49,327  89,262  142,319 
Available for sale securities       
Taxable2,200  1,991  5,729  6,646 
Tax-exempt3,586  2,969  11,622  8,820 
Deposits with financial institutions723  970  2,481  2,452 
Dividends on bank stocks254  272  718  801 
Total interest income40,775  55,529  109,812  161,038 
Interest Expense       
Deposits9,999  18,003  26,639  51,421 
Fed funds purchased and repurchase agreements287  74  628  501 
Advances from Federal Home Loan Bank1,468  1,629  4,308  4,739 
Other borrowings53  37  184  112 
Total interest expense11,807  19,743  31,759  56,773 
Net Interest Income28,968  35,786  78,053  104,265 
Provision for Loan Losses3,000  4,850  9,000  10,550 
Net Interest Income after Provision for Loan Losses25,968  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 securities195  34  608  467 
Impairment of premises and equipment held for sale(171)   (171) (424)
Gain on sale of loans25  49  618  207 
Income from bank-owned life insurance513  476  1,511  1,416 
Swap fee income, net253  1,879  299  2,415 
Other non-interest income470  702  1,517  2,007 
Total non-interest income1,185  3,212  4,888  6,529 
Non-Interest Expense       
Salaries and employee benefits12,652  14,256  43,689  43,296 
Occupancy2,132  2,080  6,199  6,301 
Professional fees766  427  2,421  1,923 
Deposit insurance premiums823  302  2,411  2,020 
Data processing528  649  1,470  1,868 
Advertising527  580  1,982  1,770 
Software and communication630  900  1,958  2,407 
Depreciation and amortization516  413  1,306  1,320 
Other non-interest expense1,301  1,565  4,153  4,858 
Total non-interest expense19,875  21,172  65,589  65,763 
Net Income Before Taxes7,278  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 equity346,025  430,881  466,506  486,880  543,827  292,589  499,354 
Less: average goodwill and intangibles7,835  7,810  7,784  7,759  7,733  7,860  7,759 
Average tangible common equity338,190  423,071  458,722  479,121  536,094  284,729  491,595 
Return on average common equity6.68% 9.03% 7.98% 7.78% 7.58% 3.51% 7.76%
Return on average tangible common equity6.84% 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 impairments171      424   
Less: tax effect(1)44      109   
Fixed asset impairments, net of tax127      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 assets7,821  7,796  7,770  7,745  7,720 
Less: preferred stock30,000  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 period40,261,480  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%