CFB - CrossFirst Bankshares Inc. Reports Record Fourth Quarter & Full-Year 2019 Operating Revenue and Net Income

January, 23 2020 04:01 PM CrossFirst Bankshares Inc.

LEAWOOD, Kan., Jan. 23, 2020 (GLOBE NEWSWIRE) -- CrossFirst Bankshares, Inc. (Nasdaq: CFB), the bank holding company for CrossFirst Bank, reported its results for the fourth quarter and full-year of 2019, including record net income of $11.4 million, or $0.22 per diluted share, and full-year 2019 net income of $40.6 million, or $0.83 per diluted share. CrossFirst continued to deliver growth in operating revenue and earnings while managing through a declining interest rate environment.

"We are pleased to announce our 23rd consecutive quarter of record operating revenue performance," said CrossFirst CEO and President George F. Jones, Jr. “Despite the headwinds of a declining rate environment, we were able to deliver quarterly operating revenue growth through strong balance sheet growth and by maintaining our net interest margin. Doubling our net income year over year is a tremendous success for our Company. We have built a great organization and I am proud of what we have accomplished during the year.”

2019 Fourth Quarter and Full-Year Highlights:

Approaching $5 billion of assets with 30% operating revenue growth compared to full-year 2018
Record quarterly net income of $11.4 million, an increase of 10% from the fourth quarter of 2018
Record full-year net income of $40.6 million, a year-over-year increase of 107%
Diluted EPS of $0.83 for full-year 2019, a year-over-year increase of 77%
Achieved efficiency ratios of 55.6% for the quarter and 58.4% for the year
Grew loans by $223 million from the previous quarter and $793 million or 26% since year-end December 31, 2018
Grew deposits by $266 million from the previous quarter and $716 million or 22% since year-end December 31, 2018
Book value per share of $11.80 at December 31, 2019 compared to $10.21 at December 31, 2018









Quarter-to-Date
Year-to-Date

December 31,
December 31,

2018
2019
2018
2019

(Dollars in millions except per share data)
Operating revenue⁽¹⁾
$
33.5

$
39.4

$
116.5

$
150.2

Net income
$
10.3

$
11.4

$
19.6

$
40.6

Diluted EPS
$
0.22

$
0.22

$
0.47

$
0.83














Return on average assets

1.06
%

0.94
%

0.56
%

0.90
%
Non-GAAP core operating return on average assets⁽²⁾

0.67
%

0.94
%

0.57
%

0.88
%
Return on average common equity

9.03
%

7.45
%

5.34
%

7.67
%
Non-GAAP return on average tangible common equity⁽²⁾

9.20
%

7.55
%

5.47
%

7.79
%
Net interest margin

3.44
%

3.17
%

3.29
%

3.26
%
Net interest margin, fully tax-equivalent⁽³⁾

3.51
%

3.23
%

3.39
%

3.31
%
Efficiency ratio

60.2
%

55.6
%

73.6
%

58.4
%
Non-GAAP core operating efficiency ratio, fully tax-equivalent⁽²⁾⁽³⁾

61.4
%

54.7
%

67.7
%

57.2
%

^{(1) Net interest income plus non-interest income.}
^{(2) Represents a non-GAAP measure. See "Table 6. Non-GAAP Financial Measures" for a reconciliation of this measure.}
^{(3) 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 interest income of $55.2 million for the fourth quarter of 2019, an increase of 17% from the fourth quarter of 2018 and remained flat from the previous quarter due to the declining interest rate environment. Full-year interest income is up 38% year-over- year primarily as a result of continued strong growth in average earning assets. The tax-equivalent yield on earning assets declined from 5.00% to 4.76% during the fourth quarter of 2019 primarily due to the movement of variable rate assets indexed to market rates.

Interest expense for the fourth quarter of 2019 was $18.0 million, or 22% higher than the fourth quarter of 2018 and 9% lower than the third quarter of 2019. Average interest-bearing deposits in the fourth quarter of 2019 totaled $3.3 billion, an increase of $806 million or 33% from the same quarter in 2018. Compared to the third quarter of 2019, interest-bearing deposit mix changes during the quarter were a result of responding to declining rates to lower margin exposure, therefore most of the new deposit growth came from variable rate accounts. Non- deposit funding costs decreased to 1.86% from 1.95% in the third quarter of 2019 while overall cost of funds for the quarter was 1.71%, compared to 1.94% for the third quarter of 2019.

Tax-equivalent net interest margin declined to 3.23% for the quarter compared to 3.51% for the same quarter in 2018, reflecting the impact of the declining rate environment. For full-year 2019, the Company reported a tax equivalent net interest margin of 3.31%, slightly lower than full-year 2018 results. The tax-equivalent adjustment, which accounts for income taxes saved on the interest earned on nontaxable securities and loans, was $0.7 million for the fourth quarter of both 2019 and 2018, and $0.6 million for the third quarter of 2019. Net interest income totaled $37.2 million for the fourth quarter of 2019 or 4% greater than the third quarter of 2019. Full-year 2019 net interest income totaled $141.4 million or 28% 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 $1.0 million in the fourth quarter of 2019 or 83% compared to the same quarter of 2018 and decreased $1.0 million or 32% lower compared to the third quarter of 2019. While the Company continues to increase fee income commensurate with its growth, during the quarter the Company recorded $0.5 million of bond gains as well as more income from the back to back swap program than in the fourth quarter in 2018. The reduction in non-interest income from the prior quarter was due to increased activity for swap fees and a one-time $0.8 million gain related to a change in derivative valuation in the third quarter of 2019. For full-year 2019, non-interest income increased $2.6 million compared to full-year 2018 primarily due to the increased swap activity, the revaluation of the swap program, and the additional activity derived from additional balance sheet and customer growth.

Non-Interest Expense

Non-interest expense for the fourth quarter of 2019 increased $1.7 million, or 9%, compared to the fourth quarter of 2018 and increased $0.7 million, or 3%, from the third quarter of 2019. Compared to the fourth quarter of 2018, salary and employment-related expenses increased $1.4 million for additional employee headcount required to support growth and data processing costs were higher from the Company's increased volumes of activity from balance sheet growth and a larger customer base. As compared to the third quarter of 2019, salary and employment-related expenses decreased $0.4 million as a result of continuing to manage resource allocation and hiring, FDIC insurance expense increased as a result of a one-time small bank credit in the third quarter and professional fees increased $0.6 million. For full-year 2019, non-interest expense increased 2% or $1.9 million compared to full-year 2018 primarily due to salary and employment expenses to support growth and higher data processing costs.

CrossFirst’s effective tax rate for the twelve months ended December 31, 2019 was 16.6% as compared to (13.9)% for the twelve months ended December 31, 2018. The year-over-year change was due to higher earnings, state tax credits related to our new headquarters, a reduction in tax-exempt income due to average yields on tax exempt securities decreasing, and permanent tax benefits from stock-based compensation awards vested and exercised in 2018 as compared to 2019. The effective tax rate for the fourth quarter of 2019 was 19.4% compared to (16.8)% for the fourth quarter of 2018. For both of the comparable periods, the Company continued 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 fourth quarter of 2019, total assets increased by $292 million or 6% compared to September 30, 2019 with both strong loan and deposit growth. Asset growth for CrossFirst was $836 million or 20% year-over-year. During the fourth quarter of 2019, total available for sale investment securities increased $9 million to $742 million, while the overall average for the quarter was $745 million. Tax-exempt municipal securities on average increased $35 million and mortgage-backed securities decreased $19 million. Overall, the Company increased the size of the bond portfolio during 2019 by $78 million, or 12% compared to year-end 2018. The increase in investment securities was part of management's strategy to manage liquidity and optimize income.

Loan Growth Results

The Company continued to maintain a diversified loan portfolio while experiencing strong loan growth of 6% for the fourth quarter of 2019 and 26% since December 31, 2018. Loan yields declined 32 basis points in the overall portfolio commensurate with the adjustable rate loan movements in LIBOR and Prime during the quarter. The Company experienced $174 million in payoffs for the quarter, but funded $255 million in loans to new borrowers to replace and grow the overall portfolio.
































































































































































































































































































































































































































(Dollars in millions)
4Q18

1Q19

2Q19

3Q19

4Q19

% of Total

QoQ Growth ($)

QoQ Growth (%)⁽¹⁾

YoY Growth ($)

YoY Growth (%)⁽¹⁾




















































































































































































































































Average loans (gross)











































































































Commercial and industrial
$
1,021


$
1,145


$
1,224


$
1,284


$
1,315


35
%

$
31

2
%

$
294


29
%
Energy

349



367



383



389



400


11



11

3



51


15

Commercial real estate

810



866



946



974



1,007


27



33

3



197


24

Construction and land development

449



444



457



487



599


16



112

23



150


33

Residential real estate

240



310



342



362



384


10



22

6



144


60

Consumer & Equity Lines

42



44



46



45



45


1



—

(1
)


3


5

Total
$
2,911


$
3,176



3,398


$
3,541



3,750


100
%

$
209

6
%

$
839


29
%






























































Yield on loans for the period ending

5.56
%


5.75
%


5.66
%


5.53
%


5.21
%

^{(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 fourth quarter, which have historically adjusted with movements in Federal Funds rates. During the fourth quarter, the Company added short term wholesale funding and $62 million of brokered deposits to replace the brokered funding that previously rolled off in the third quarter of 2019.

(Dollars in millions)
4Q18


1Q19


2Q19


3Q19


4Q19

% of Total

QoQ Growth ($)

QoQ Growth (%)⁽¹⁾

YoY Growth ($)

YoY Growth (%)⁽¹⁾
Average deposits



































Non-interest bearing deposits
$
492


$
477


$
513


$
535


$
522


14
%

$
(13
)

(3
)%

$
30

6
%
Transaction deposits

63



104



144



135



200


5
%


65


49



137

217

Savings and money market deposits

1,498



1,544



1,560



1,744



1,854


49
%


110


6



356

24

Time deposits

913



1,165



1,305



1,277



1,226


32
%


(51
)

(4
)


313

34

Total
$
2,966


$
3,290


$
3,522


$
3,691


$
3,802


100
%

$
111


3
%

$
836

28
%




































Cost of deposits for the period ending

1.70
%


1.96
%


1.99
%


1.94
%


1.70
%
















Cost of interest-bearing deposits for the period ending

2.04
%


2.30
%


2.33
%


2.26
%


1.97
%

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, recording a provision expense of $3.4 million for the fourth quarter. Net charge-offs were $5.5 million for the quarter as a result of a partial charge-off of a previously identified non-performing commercial and industrial loan, as compared to charge-offs of $0.2 million for the fourth quarter in 2018. During the quarter, non-performing assets to total assets and overall asset quality remained consistent with the previous quarters asset quality metrics.





















Asset quality (Dollars in millions)
4Q18

1Q19

2Q19

3Q19

4Q19
Non-accrual loans
$
17.8


$
13.0


$
50.0


$
43.6


$
39.7

Other real estate owned

—



2.5



2.5



2.5



3.6

Non-performing assets

17.8



15.5



52.8



46.7



47.9

Loans 90+ days past due and still accruing

—



—



0.2



0.6



4.6

Loans 30 - 89 days past due

3.7



31.1



23.6



64.7



4.5

Net charge-offs (recoveries)

0.2



0.7



—



4.7



5.5





















Asset quality metrics (%)
4Q18

1Q19

2Q19

3Q19

4Q19
Non-performing assets to total assets

0.43
%


0.36
%


1.18
%


1.00
%


0.97
%
Allowance for loan loss to total loans

1.23



1.22



1.24



1.18



1.06

Allowance for loan loss to non-performing loans

212



307



85



97



92

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

0.03



0.09



—



0.53



0.58

Provision to average loans⁽¹⁾

0.61



0.36



0.34



0.54



0.09

⁽¹⁾ Interim periods annualized.

Capital Position

At December 31, 2019, stockholders’ equity totaled $613 million, or $11.80 per share, compared to $602 million, or $11.59 per share, at September 30, 2019. Tangible common stockholders' equity was $606 million and tangible book value per share was $11.66 at December 31, 2019. The increase in stockholders' equity for the fourth quarter was primarily a result of quarterly earnings and modest movement in accumulated other comprehensive income for unrealized bond gains.

Period-end (Dollars in millions, except per share data)
4Q18

1Q19

2Q19

3Q19

4Q19
Total Stockholders' Equity
$
490


$
481


$
499


$
602


$
613





















Book value per share
$
10.21


$
10.63


$
11.00


$
11.59


$
11.80

Tangible book value per share⁽¹⁾
$
10.04


$
10.46


$
10.83


$
11.44


$
11.66





















Common equity tier 1 capital ratio

11.75
%


11.23
%


11.02
%


12.91
%


12.19
%
Tier 1 capital ratio

12.53



11.23



11.04



12.93



12.21

Total capital ratio

13.51



12.20



12.04



13.90



13.08

Leverage ratio

12.43



11.15



10.87



12.57



12.08

^{(1) Represents a non-GAAP measure. See "Table 6. Non-GAAP Financial Measures" for a reconciliation of this measure.}

During the third quarter of 2019, the Company issued 6,594,362 new shares in its initial public offering, 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 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 fourth quarter 2019 and year end results on Thursday, January 23, 2020 at 4 p.m. CST / 5 p.m. EST. 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. 5624769. 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's website. A replay of the conference call will be available two hours following the close of the call until January 30, 2020, accessible at (855) 859-2056 with conference ID no. 5624769.

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 Annual Report on Form 10-K 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. Consolidated Balance Sheets
Table 2. Consolidated Statements of Income
Table 3. Year-to-Date Analysis of Changes in Net Interest Income (2018 & 2019)
Table 4. 2018 - 2019 Quarterly Analysis of Changes in Net Interest Income
Table 5. Linked Quarterly Analysis of Changes in Net Interest Income
Table 6. Non-GAAP Financial Measures



TABLE 1. CONSOLIDATED BALANCE SHEETS

As of December 31,








2018



2019 (unaudited)




(Dollars in thousands)
Assets







Cash and cash equivalents
$
216,541


$
187,320

Available for sale securities - taxable

296,133



298,208

Available for sale securities - tax-exempt

367,545



443,426

Premises and equipment, held for sale

3,444



—

Loans, net of allowance for loan losses of $40,896 and $37,826 at December 31,




2019 and 2018, respectively

3,022,921



3,811,348

Premises and equipment, net

74,945



70,210

Restricted equity securities

14,525



17,278

Interest receivable

14,092



15,716

Foreclosed assets held for sale

—



3,619

Deferred tax asset

16,316



9,560

Goodwill and other intangible assets, net

7,796



7,694

Bank-owned life insurance

63,811



65,689

Other

9,146



12,943

Total assets
$
4,107,215


$
4,943,011

Liabilities and stockholders’ equity






Deposits






Non-interest bearing
$
484,284


$
521,826

Savings, NOW and money market

1,714,136



2,162,187

Time

1,009,677



1,239,746

Total deposits

3,208,097



3,923,759

Federal funds purchased and repurchase agreements

75,406



14,921

Federal Home Loan Bank advances

312,985



358,743

Other borrowings

884



921

Interest payable and other liabilities

19,507



31,245

Total liabilities

3,616,879



4,329,589

Stockholders’ equity







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


authorized - 5,000,000 shares, issued - 0 and 1,200,000 shares at December 31,


2019 and 2018, respectively

12



—

Common stock, $0.01 par value:


authorized - 200,000,000 shares, issued - 51,969,203 and 45,074,322 shares at December 31, 2019 and 2018, respectively

451



520

Additional paid-in capital

454,512



519,870

Retained earnings

38,567



76,666

Other

(196
)


(85
)
Accumulated other comprehensive income (loss)

(3,010
)


16,451

Total stockholders’ equity

490,336



613,422

Total liabilities and stockholders’ equity
$
4,107,215


$
4,943,011


TABLE 2. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


Three Months Ended December 31,

Twelve Months Ended December 31,

2018

2019

2018

2019









(Dollars in thousands except per share data)
Interest Income














Loans, including fees Available for sale securities
$
40,813


$
49,208

$
130,075


$
191,527

Available for sale securities - Taxable

2,243



1,894


7,972



8,540

Available for sale securities - Tax-exempt

3,135



3,191


14,757



12,011

Deposits with financial institutions

615



601


3,096



3,053

Dividends on bank stocks

262



286


980



1,087

Total interest income

47,068



55,180


156,880



216,218

Interest Expense




Deposits

12,733



16,247


39,372



67,668

Fed funds purchased and repurchase agreements

440



91


1,068



592

Advances from Federal Home Loan Bank

1,533



1,628


5,841



6,367

Other borrowings

47



35


231



147

Total interest expense

14,753



18,001


46,512



74,774

Net Interest Income

32,315



37,179


110,368



141,444

Provision for Loan Losses

4,500



3,350


13,500



13,900

Net Interest Income after Provision for Loan Losses

27,815



33,829


96,868



127,544

Non-Interest Income














Service charges and fees (rebates) on customer accounts

(62
)


163


444



604

Gain (loss) on sale of available for sale securities

(70
)


520


538



987

Impairment of premises and equipment held for sale

—



—


(171
)


(424
)
Gain on sale of loans

209



—


827



207

Income from bank-owned life insurance

458



462


1,969



1,878

Swap fee income, net

(14
)


338


285



2,753

Other non-interest income

674



703


2,191



2,710

Total non-interest income

1,195



2,186


6,083



8,715

Non-Interest Expense














Salaries and employee benefits

12,429



13,818


56,118



57,114

Occupancy

2,015



2,048


8,214



8,349

Professional fees

899



1,041


3,320



2,964

Deposit insurance premiums

775



767


3,186



2,787

Data processing

525



676


1,995



2,544

Advertising

709



685


2,691



2,455

Software and communication

672



910


2,630



3,317

Depreciation and amortization

482



414


1,788



1,734

Other non-interest expense

1,660



1,526


5,813



6,384

Total non-interest expense

20,166



21,885


85,755



87,648

Net Income Before Taxes

8,844



14,130


17,196



48,611

Income tax expense (benefit)

(1,490
)


2,746


(2,394
)


8,054

Net Income
$
10,334


$
11,384

$
19,590


$
40,557

Basic Earnings Per Share
$
0.22


$
0.22

$
0.48


$
0.85

Diluted Earnings Per Share
$
0.22


$
0.22

$
0.47


$
0.83


TABLE 3. YEAR-TO-DATE ANALYSIS OF CHANGES IN NET INTEREST INCOME (UNAUDITED)


Twelve Months Ended December 31,

2018

2019

Average Balance

Interest Income / Expense

Average Yield / Rate⁽³⁾

Average Balance

Interest Income / Expense

Average Yield / Rate⁽³⁾












Interest-earning assets:
(Dollars in thousands)




















Securities - taxable
$
281,709


$
8,952

3.18
%

$
330,051


$
9,627

2.92
%
Securities - tax-exempt⁽¹⁾

459,231



17,856

3.89



390,908



14,533

3.72

Federal funds sold

16,377



339

2.07



15,195



364

2.40

Interest-bearing deposits in other banks

159,279



2,757

1.73



139,538



2,689

1.93

Gross loans, net of unearned income⁽²⁾

2,435,424



130,075

5.34



3,468,079



191,527

5.52

Total interest-earning assets⁽¹⁾

3,352,020


$
159,979

4.77
%


4,343,771


$
218,740

5.04
%
Allowance for loan losses

(30,921
)






(41,971
)




Other non-interest-earning assets

173,556







197,963





Total assets
$
3,494,655






$
4,499,763





Interest-bearing liabilities











Transaction deposits
$
56,321


$
175

0.31
%

$
146,109


$
1,742

1.19
%
Savings and money market deposits

1,410,727



23,405

1.66



1,676,417



35,385

2.11

Time deposits

835,595



15,792

1.89



1,243,304



30,541

2.46

Total interest-bearing deposits

2,302,643



39,372

1.71



3,065,830



67,668

2.21

FHLB and short-term borrowings

395,825



7,004

1.77



366,577



6,959

1.90

Trust preferred securities, net of fair value adjustments

864



136

15.69



899



147

16.34

Non-interest-bearing deposits

425,243



—

—



512,142



—

—

Cost of funds

3,124,575


$
46,512

1.49
%


3,945,448


$
74,774

1.90
%
Other liabilities

12,634







25,708





Stockholders’ equity

357,446







528,607





Total liabilities and stockholders' equity
$
3,494,655






$
4,499,763





Net interest income⁽¹⁾


$
113,467





$
143,966


Net interest spread⁽¹⁾




3.28
%





3.14
%
Net interest margin⁽¹⁾




3.39
%





3.31
%

^{(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)


Twelve Months Ended December 31, 2019 over 2018

Average Volume

Yield/Rate

Net Change⁽²⁾






Interest Income
(Dollars in thousands)
Securities - taxable
$
1,449


$
(774
)

$
675

Securities - tax-exempt⁽¹⁾

(2,568
)


(755
)


(3,323
)
Federal funds sold

(26
)


51



25

Interest-bearing deposits in other banks

(365
)


297



(68
)
Gross loans, net of unearned income

56,927



4,525



61,452

Total interest income⁽¹⁾

55,417



3,344



58,761

Interest Expense











Transaction deposits

564



1,003



1,567

Savings and money market deposits

4,911



7,069



11,980

Time deposits

9,115



5,634



14,749

Total interest-bearing deposits

14,590



13,706



28,296

FHLB and short-term borrowings

(538
)


493



(45
)
Trust preferred securities, net of fair value adjustments

5



6



11

Total interest expense

14,057



14,205



28,262

Net interest income⁽¹⁾
$
41,360


$
(10,861
)

$
30,499

^{(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. 2018 - 2019 QUARTERLY ANALYSIS OF CHANGES IN NET INTEREST INCOME (UNAUDITED)


Three Months Ended December 31,

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
$
305,995


$
2,505

3.25
%

$
317,524


$
2,180

2.72
%
Securities - tax-exempt⁽¹⁾

385,463



3,793

3.90



427,280



3,861

3.59

Federal funds sold

9,239



58

2.49



4,750



19

1.61

Interest-bearing deposits in other banks

113,403



558

1.95



152,917



582

1.51

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

2,911,350



40,812

5.56



3,749,865



49,208

5.21

Total interest-earning assets⁽¹⁾

3,725,450


$
47,726

5.08
%


4,652,336


$
55,850

4.76
%
Allowance for loan losses

(34,818
)






(43,877
)




Other non-interest-earning assets

194,010







201,117





Total assets
$
3,884,642






$
4,809,576





Interest-bearing liabilities











Transaction deposits
$
63,223


$
74

0.46
%

$
200,480


$
603

1.19
%
Savings and money market deposits

1,498,075



7,747

2.05



1,854,042



8,059

1.72

Time deposits

912,882



4,912

2.13



1,225,752



7,585

2.46

Total interest-bearing deposits

2,474,180



12,733

2.04



3,280,274



16,247

1.97

FHLB and short-term borrowings

439,322



1,984

1.79



366,190



1,719

1.86

Trust preferred securities, net of fair value adjustments

876



36

16.34



913



35

15.18

Non-interest-bearing deposits

491,689



—

—



521,799



—

—

Cost of funds

3,406,067


$
14,753

1.72
%


4,169,176


$
18,001

1.71
%
Other liabilities

17,694







34,443





Total stockholders' equity

460,881







605,957





Total liabilities and stockholders' equity
$
3,884,642






$
4,809,576





Net interest income⁽¹⁾


$
32,973





$
37,849


Net interest spread⁽¹⁾




3.36
%





3.05
%
Net interest margin⁽¹⁾




3.51
%





3.23
%

^{(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 non-accrual 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 December 31, 2019 over 2018

Average Volume

Yield/Rate

Net Change⁽²⁾







(Dollars in thousands)
Interest Income











Securities - taxable
$
93


$
(418
)

$
(325
)
Securities - tax-exempt⁽¹⁾

387



(319
)


68

Federal funds sold

(23
)


(16
)


(39
)
Interest-bearing deposits in other banks

167



(143
)


24

Gross loans, net of unearned income

11,105



(2,709
)


8,396

Total interest income⁽¹⁾

11,729



(3,605
)


8,124

Interest Expense
Transaction deposits

305



224



529

Savings and money market deposits

1,672



(1,360
)


312

Time deposits

1,841



832



2,673

Total interest-bearing deposits

3,818



(304
)


3,514

FHLB and short-term borrowings

(340
)


75



(265
)
Trust preferred securities, net of fair value adjustments

1



(2
)


(1
)
Total interest expense

3,479



(231
)


3,248

Net interest income⁽¹⁾
$
8,250


$
(3,374
)

$
4,876

^{(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. LINKED QUARTERLY ANALYSIS OF CHANGES IN NET INTEREST INCOME (UNAUDITED)



Three Months Ended

September 30, 2019

December 31, 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
$
335,045


$
2,263

2.68
%

$
317,524


$
2,180

2.72
%
Securities - tax-exempt⁽¹⁾

392,644



3,592

3.63



427,280



3,861

3.59

Federal funds sold

16,315



89

2.16



4,750



19

1.61

Interest-bearing deposits in other banks

171,913



881

2.03



152,917



582

1.51

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

3,540,707



49,327

5.53



3,749,865



49,208

5.21

Total interest-earning assets⁽¹⁾

4,456,624


$
56,152

5.00
%


4,652,336


$
55,850

4.76
%
Allowance for loan losses

(43,327
)







(43,877
)




Other non-interest-earning assets

197,661








201,117





Total assets
$
4,610,958







$
4,809,576






















Interest-bearing liabilities










Transaction deposits
$
134,987


$
386

1.13
%

$
200,480


$
603

1.19
%
Savings and money market deposits

1,743,575



9,553

2.17



1,854,042



8,059

1.72

Time deposits

1,276,571



8,064

2.51



1,225,752



7,585

2.46

Total interest-bearing deposits

3,155,133



18,003

2.26



3,280,274



16,247

1.97

FHLB and short-term borrowings

345,794



1,703

1.95



366,190



1,719

1.86

Trust preferred securities, net of fair value










adjustments

904




37

16.06



913



35

15.18

Non-interest-bearing deposits

535,467




—

—



521,799



—

—

Cost of funds

4,037,298



$
19,743

1.94
%


4,169,176


$
18,001

1.71
%
Other liabilities

29,833









34,443





Total stockholders' equity

543,827









605,957





Total liabilities and stockholders' equity
$
4,610,958








$
4,809,576























Net interest income⁽¹⁾


$
36,409





$
37,849

Net interest spread⁽¹⁾




3.06
%





3.05
%
Net interest margin⁽¹⁾




3.24
%





3.23
%

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

Three Months Ended December 31, 2019 over September 30, 2019

Average Volume

Yield/Rate

Net Change⁽²⁾







(Dollars in thousands)
Interest Income











Securities - taxable
$
(118
)

$
35


$
(83
)
Securities - tax-exempt⁽¹⁾

310



(41
)


269

Federal funds sold

(51
)


(19
)


(70
)
Interest-bearing deposits in other banks

(90
)


(209
)


(299
)
Gross loans, net of unearned income

2,825



(2,944
)


(119
)
Total interest income⁽¹⁾

2,876



(3,178
)


(302
)
Interest Expense
Transaction deposits

195



22



217

Savings and money market deposits

576



(2,070
)


(1,494
)
Time deposits

(319
)


(160
)


(479
)
Total interest-bearing deposits

452



(2,208
)


(1,756
)
FHLB and short-term borrowings

97



(81
)


16

Trust preferred securities, net of FV adjustments

—



(2
)


(2
)
Total interest expense

549



(2,291
)


(1,742
)
Net interest income⁽¹⁾
$
2,327


$
(887
)

$
1,440

TABLE 6. 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 a former executive - 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 "Non-GAAP core operating return on average assets" as as non-GAAP core operating income (as defined above) divided by average assets. The most directly comparable GAAP financial measure is return on average assets, which is calculated as net income divided by average assets.
We calculate ‘‘non-GAAP core operating return on average common equity’’ as non-GAAP core operating income (as defined above) less preferred dividends divided by average common equity. The most directly comparable GAAP financial measure is return on average common equity, which is calculated as net income less preferred dividends divided by average common equity.
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 (as 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 core operating efficiency ratio - fully tax equivalent" as non-interest expense adjusted to remove non-recurring non-interest expenses as defined above under non-GAAP core operating income divided by net interest income on a fully tax-equivalent basis plus non-interest income adjusted to remove non-recurring non-interest income as defined above under non-GAAP core operating income. The most directly comparable financial measure is the efficiency ratio.





Quarter Ended
Twelve Months Ended

12/31/2018
03/31/2019
06/30/2019
09/30/2019
12/31/2019
12/31/2018
12/31/2019

(Dollars in thousands)
Non-GAAP return on average tangible common equity:







Net income available to common stockholders
$
9,809

$
9,175

$
9,439

$
10,384

$
11,384

$
17,490

$
40,382

Average common equity

430,881


466,506


486,880


543,827


605,957


327,446


526,224

Less: average goodwill and intangibles

7,810


7,784


7,759


7,733


7,708


7,847


7,746

Average tangible common equity

423,071


458,722


479,121


536,094


598,249


319,599


518,478

Return on average common equity

9.03
%

7.98
%

7.78
%

7.58
%

7.45
%

5.34
%

7.67
%
Non-GAAP Return on average tangible common equity

9.20
%

8.11
%

7.90
%

7.68
%

7.55
%

5.47
%

7.79
%





Quarter Ended
Twelve Months Ended

12/31/2018
03/31/2019
06/30/2019
09/30/2019
12/31/2019
12/31/2018
12/31/2019

(Dollars in thousands)
Non-GAAP core operating income:


















Net Income
$
10,334

$
9,350

$
9,439
$
10,384
$
11,384
$
19,590

$
40,557

Add: restructuring charges

(815
)

—


—

—

—

4,733


—

Less: tax effect⁽¹⁾

(210
)

—


—

—

—

1,381


—

Restructuring charges, net of tax

(605
)

—


—

—

—

3,352


—

Add: fixed asset impairments

—


—


424

—

—

171


424

Less: tax effect⁽¹⁾

—


—


109

—

—

44


109

Fixed asset impairments, net of tax

—


—


315

—

—

127


315

Add: state tax credit⁽²⁾

(3,129
)

(1,361
)

—

—

—

(3,129
)

(1,361
)
Non-GAAP core operating income
$
6,600

$
7,989

$
9,754
$
10,384
$
11,384
$
19,940

$
39,511

^{(1) Represents the tax impact of the adjustments above at a tax rate of 25.73%}
^{(2) No tax effect}











Quarter Ended

Twelve Months Ended

12/31/2018
03/31/2019
06/30/2019
09/30/2019
12/31/2019
12/31/2018
12/31/2019

(Dollars in thousands)
Non-GAAP core operating return on average

assets:







Net income
10,334

9,350

9,439

10,384

11,384

19,590

40,557

Non-GAAP core operating income
6,600

7,989

9,754

10,384

11,384

19,940

39,511

Average assets
3,884,642

4,168,243

4,402,002

4,610,958

4,809,576

3,494,655

4,499,763

Return on average assets
1.06
%
0.91
%
0.86
%
0.89
%
0.94
%
0.56
%
0.90
%
Non-GAAP core operating return on average assets
0.67
%
0.78
%
0.89
%
0.89
%
0.94
%
0.57
%
0.88
%




Quarter Ended

Twelve Months Ended

12/31/2018
03/31/2019
06/30/2019
09/30/2019
12/31/2019
12/31/2018
12/31/2019

(Dollars in thousands)
Non-GAAP core operating return on common





















equity:







Net income
$
10,334

$
9,350

$
9,439

$
10,384

$
11,384

$
19,590

$
40,557

Non-GAAP core operating income

6,600


7,989


9,754


10,384


11,384


19,940


39,511

Less: Preferred stock dividends

525


175


—


—


—


2,100


175

Net income available to common stockholders

9,809


9,175


9,439


10,384


11,384


17,490


40,382

Non-GAAP core operating income available to common stockholders

6,075


7,814


9,754


10,384


11,384


17,840


39,336

Average common equity
$
430,881

$
466,506

$
486,880

$
543,827

$
605,957

$
327,446

$
526,224

GAAP return on average common equity

9.03
%

7.98
%

7.78
%

7.58
%

7.45
%

5.34
%

7.67
%
Non-GAAP core operating return on common equity

5.59
%

6.79
%

8.04
%

7.58
%

7.45
%

5.45
%

7.48
%


Quarter Ended

12/31/2018

03/31/2019

06/30/2019

09/30/2019

12/31/2019



(Dollars in thousands except per share data)
Tangible common stockholders' equity:

Total stockholders' equity
$
490,336

$



480,514

$

499,195

$

602,435


613,422

Less: goodwill and other intangible














assets

7,796


7,770


7,745


7,720
7,694

Less: preferred stock

30,000


—


—


—
—

Tangible common stockholders' equity
$
452,540

$
472,744

$
491,450

$
594,715

$
605,728

Tangible book value per share:
























Tangible common stockholders' equity
$
452,540

$
472,744

$
491,450

$
594,715
605,728

Shares outstanding at end of period

45,074,322


45,202,370


45,367,641


51,969,203
51,969,203

Book value per share
$
10.21

$
10.63

$
11.00

$
11.59
11.80

Tangible book value per share
$
10.04

$
10.46

$
10.83

$
11.44
11.66





Quarter Ended


Twelve Months Ended

12/31/2018
03/31/2019
06/30/2019
09/30/2019
12/31/2019
12/31/2018
12/31/2019

(Dollars in thousands)
Non-GAAP Core Operating Efficiency Ratio -







Fully Tax Equivalent







Non-interest expense
$
20,166

$
22,631

$
21,960

$
21,172

$
21,885

$
85,755

$
87,648

Less: restructuring charge
$
(815
)
$
—

$
—

$
—

$
—

$
4,733

$
—

Non-GAAP non-interest expense







(numerator)

20,981


22,631


21,960

21,172

$
21,885

$
81,022

$
87,648

Net interest income

32,315


33,605


34,874

35,786


37,179


110,368


141,444

Tax equivalent interest income

658


616


612

624


670


3,099


2,522

Non-interest income

1,195


1,645


1,672

3,212


2,186


6,083


8,715

Add: fixed asset impairments
$
—

$
—

$
424

$
—

$
—

$
171

$
424

Total tax-equivalent income (denominator)
$
34,168

$
35,866

$
37,582

$
39,622

$
40,035

$
119,721

$
153,105

Efficiency Ratio

60.18
%

64.20
%

60.09
%

54.29
%

55.60
%

73.64
%

58.37
%
Non-GAAP Core Operating Efficiency Ratio -







Fully Tax Equivalent

61.41
%

63.10
%

58.43
%

53.43
%

54.66
%

67.68
%

57.25
%

Company Name:	CrossFirst Bankshares Inc.
Stock Symbol:	CFB
Market:	NYSE
Website:	crossfirstbank.com

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