CFB - CrossFirst Bankshares Inc. Reports Second Quarter 2020 Results

July, 23 2020 04:02 PM CrossFirst Bankshares Inc.

LEAWOOD, Kan., July 23, 2020 (GLOBE NEWSWIRE) -- CrossFirst Bankshares, Inc. (Nasdaq: CFB), the bank holding company for CrossFirst Bank, today reported its results for the second quarter of 2020, including a net loss of $7.4 million, or $(0.14) per diluted share and year-to-date 2020 net loss of $3.5 million or $(0.07) per diluted share.

"Our overall core operating performance remained strong. We achieved our 25th consecutive quarter of operating revenue growth. However, we also made a prudent decision to increase our allowance for loan loss by $21 million as a result of the COVID-19 pandemic and volatility in energy prices. We remain focused on working with our customers and helping to provide solutions as the virus continues to take its toll on our local economies," said CrossFirst’s CEO and President Mike Maddox.

In addition, the Company's market value, compared to book value, and adverse trends in economic conditions, caused the Company to record a $7.4 million non-cash impairment charge, fully impairing the goodwill related to a previously acquired branch. Maddox continued, "Overall, this is a one-time impairment charge that has no impact on the long term value of our Company. Even with the challenging economy, our Company results reflect quarter over quarter balance sheet and operating revenue growth, increased efficiency, and stronger year-to-date pre-tax, pre-provision profit despite taking a goodwill impairment charge."

Second Quarter 2020 Highlights:

$5.5 billion of assets with 20% operating revenue growth compared to the second quarter of 2019
Pre-tax, pre-provision profit, a non-GAAP financial measure, for the second quarter of $12.8 million and year-to-date pre-tax, pre-provision profit of $30.9 million, both of which include a one-time $7.4 million goodwill impairment expense for 2020
Achieved an efficiency ratio of 71% for the second quarter of 2020 and a non-GAAP core efficiency ratio of 53% after adjusting for nonrecurring or non-core items
Grew loans by $418 million from the previous quarter and $953 million or 27% over the last twelve months; recorded $369 million of PPP loans during the second quarter
Grew deposits by $331 million from the previous quarter and $720 million or 20% over the last twelve months
Book value per share of $11.66 at June 30, 2020 compared to $11.00 at June 30, 2019



Quarter-to-Date

Year-to-Date


June 30,

June 30,


2019

2020

2019

2020


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

$
36.5


$
43.8


$
71.8


$
84.1

Net income (loss)

$
9.4


$
(7.4
)

$
18.8


$
(3.5
)
Diluted earnings (loss) per share

$
0.20


$
(0.14
)

$
0.40


$
(0.07
)
Return on average assets

0.86
%

(0.54
)%

0.88
%

(0.14
)%
Non-GAAP core operating return on average assets⁽²⁾

0.89
%

0.00
%

0.83
%

0.15
%
Return on average common equity

7.78
%

(4.84
)%

7.87
%

(1.15
)%
Non-GAAP return on average tangible common equity⁽²⁾

7.90
%

(4.90
)%

8.00
%

(1.16
)%
Net interest margin

3.30
%

3.14
%

3.34
%

3.16
%
Net interest margin, fully tax-equivalent⁽³⁾

3.35
%

3.19
%

3.40
%

3.22
%
Efficiency ratio

60.09
%

70.81
%

62.11
%

63.29
%
Non-GAAP core operating efficiency ratio, fully tax-equivalent⁽²⁾⁽³⁾

58.43
%

53.09
%

60.71
%

53.61
%
^{(1) Net interest income plus non-interest income.}
^{(2) Represents a non-GAAP measure. See "Table 5. 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%.}

COVID-19 Update

The COVID-19 pandemic and measures taken in response thereto have created economic uncertainty and negatively impacted most of our customers in some capacity. During the second quarter of 2020, we continued to operate in accordance with our comprehensive pandemic plan, which includes social distancing measures for customers and employee interactions. In addition, the Company has continued to support key regulatory relief programs for customers, increased provisions for loan losses, increased monitoring of key loan portfolio segments, modified loans, experienced slower discretionary spending, and elevated its risk management activities. Our branch-lite strategy, technology, and relationship banking model, have allowed us to effectively operate through the pandemic, work remotely to be safe, and have the agility to effectively serve our customers when they need it most. The Company continues to assess and monitor the COVID-19 pandemic and federal and local requirements in evaluating the full re-opening of its offices and remains flexible regarding process and timeline.

Coronavirus Aid, Relief, and Economic Security Act (CARES Act) Programs

As a preferred lender with the Small Business Administration ("SBA"), we were in a unique position to respond immediately to the provisions of the CARES Act, specifically the Paycheck Protection Program ("PPP") component. We are committed to helping our local businesses and the communities that we serve during these extremely challenging times and will continue to help customers access regulatory relief and other programs. As of June 30, 2020, we received and funded over 1,000 loans, totaling $369 million. The Company secured short term funding to support the PPP and plans to move the loans through the forgiveness process as quickly as possible. In addition to the PPP, we are granting loan modifications and 90/180 day payment deferrals for many customers who have requested additional relief. As of June 30, 2020, the Company has made modifications to $709 million in loans related to COVID-19 on its balance sheet, which, excluding the PPP loans, represents almost 16% of our total loan balances. We are evaluating each modification on a case-by-case basis and assessing the borrowers' willingness and capacity to support the loan until maturity. The Company will continue to implement additional governmental assistance programs as more details become available around the processes and procedures for such programs and grant loan modifications when appropriate.

Income from Operations

Net Interest Income

The Company produced interest income of $51.3 million for the second quarter of 2020, a decrease of 5% from the second quarter of 2019 and a decrease of 5% from the previous quarter. Interest income was down from the second quarter of 2019 primarily from the effect of declining interest rates. Average earning assets totaled $5.3 billion for the second quarter of 2020, an increase of $1 billion or 24% from the same quarter in 2019. The tax-equivalent yield on earning assets declined from 5.18% to 3.96% during the second quarter of 2020, compared to the second quarter of 2019, primarily due to the movement of variable rate assets indexed to declining market rates. Year-to-date the Company produced interest income of $105.5 million, with little change from the same period in the prior year.

Interest expense for the second quarter of 2020 was $10.1 million, or 48% lower than the second quarter of 2019 and 37% lower than the previous quarter. While average interest-bearing deposits increased to $3.5 billion in the second quarter of 2020, an increase of 18% from the same quarter in 2019, overall interest expense on interest-bearing deposits declined as a result of declining interest rates. Non-deposit funding costs decreased to 1.35% from 1.72% in the first quarter of 2020 while overall cost of funds for the quarter was 0.85%, compared to 1.49% for the first quarter of 2020. Year-to-date, the Company had interest expense of $26.1 million, a decrease of 30% from the same period in the prior year.

Tax-equivalent net interest margin decreased from 3.24% to 3.19% in the the current quarter and declined from 3.35% in the same quarter in 2019, reflecting the impact of the declining rate environment. Year-to-date, the Company had a tax equivalent margin of 3.22% compared to 3.40% over the same period in the prior year. As of June 30, 2020, CrossFirst is currently holding $369 million of PPP loans made during 2020 with an average interest rate of 2.35%. Second quarter 2020 net interest margin benefited from $2 million of loan fees that the Company will continue to recognize as the loans are forgiven. Over the course of the last several quarters, the Company has continued to shorten the duration of funding and adjusted variable rate accounts with market movements in interest rates, keeping pace with declining variable loan yields. 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 second quarter of 2020. Net interest income totaled $41.2 million for the second quarter of 2020 or 8% higher than the first quarter of 2020, and 18% higher than the second quarter of 2019.

Non-Interest Income

Non-interest income increased $1.0 million in the second quarter of 2020 or 58% compared to the same quarter of 2019 and increased 26% compared to the first quarter of 2020. While the Company continued to increase fee and credit card income commensurate with its growth, during the second quarter of 2020 the Company recorded $0.3 million of securities gains while the back-to-back swap fee income continued to remain low in the current interest rate environment. Year-to-date non-interest income increased 43% compared to the same period in the prior year.

Non-Interest Expense

Non-interest expense for the second quarter of 2020 was $31.0 million which increased 41% compared to the second quarter of 2019 and increased 40% from the first quarter of 2020. The Company recorded a $7.4 million expense related to a non-cash goodwill impairment charge in the second quarter of 2020 primarily as a result of current economic and industry conditions at June 30, 2020. In addition, during the second quarter of 2020, the Company incurred a $1.1 million valuation write down on a foreclosed property held on the balance sheet that increased non-interest expense. During the quarter, salary and employment expenses decreased from the previous quarter as a result of adjustments made to our annual incentive plan expense based on the results of our quarterly assessment of performance. Year-to-date non-interest expense increased 19% compared to the same period in the prior year as a result of these adjustments.

CrossFirst’s effective tax rate for the second quarter of 2020 was 10% as compared to 20% for the second quarter of 2019. The 2020 quarter-to-date income tax rate was impacted by a $20 million decrease in income before income taxes that reduced taxes at the statutory rate by $4 million; offset by $1 million for the non-deductible goodwill impairment. For both of the comparable periods, the Company continued to benefit from the tax-exempt municipal bond portfolio and bank-owned life insurance.

Balance Sheet Performance & Analysis

During the second quarter of 2020, total assets increased by $395 million or 8% compared to March 31, 2020 primarily as a result of the loans and funding required to support the PPP. Though total asset growth for CrossFirst was $989 million or 22% since June 30, 2019, the Company has tightened its credit underwriting process, which slowed loan growth for conventional lending for the most recent quarter. During the second quarter of 2020, total available for sale investment securities decreased $35 million to $700 million compared to March 31, 2020, while the overall average for the second quarter was $729 million. During the second quarter of 2020, tax-exempt municipal securities on average decreased $13 million and mortgage-backed securities decreased $21 million compared to March 31, 2020. The Company has continued to maintain a larger bond portfolio as part of management's strategy to manage liquidity and optimize income; however, as prepayments have continued to occur and rates have declined, CrossFirst has slowed its purchasing of new securities. The securities yields declined 14 basis points at a tax equivalent yield of 3.07% for the second quarter of 2020 compared to the prior quarter as a result of lower reinvestment yields and prepayments on mortgage backed securities increasing premium amortizations.

Loan Growth Results

The Company's period end loan growth of 10% during the second quarter of 2020 was primarily attributed to the $369 million of loans from the PPP, and grew 27% year over year from June 30, 2019. Loan yields declined 70 basis points during the second quarter commensurate with the effects from adjustable rate loan movements in LIBOR and Prime during 2020 and lower loan yields from the PPP.





















(Dollars in millions)
2Q19

3Q19

4Q19

1Q20

2Q20

% of Total

QoQ Growth ($)

QoQ Growth (%)⁽¹⁾

YoY Growth ($)

YoY Growth (%)⁽¹⁾
Average loans (gross)



















Commercial and industrial
1,224


1,284


1,315


1,339


1,381


31
%

$
42



3
%

$
157



13
%
Energy
383


389


400


412


404


9


(8
)


(2
)

21



6

Commercial real estate
946


974


1,007


1,034


1,115


26


81



8


169



18

Construction and land development
457


487


599


620


651


15


31



5


194



43

Residential real estate
342


362


384


455


517


12


62



13


175



51

Paycheck Protection Program
—


—


—


—


245


6


245



NA

245



NA
Consumer
46


45


45


45


44


1


(1
)


—


(2
)


(3
)
Total
$
3,398


$
3,541


$
3,750


$
3,905


$
4,357


100
%

$
452



12
%

$
959



28
%




















Yield on loans for the period ending
5.66
%

5.53
%

5.21
%

4.98
%

4.28
%










^{(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 & Other Borrowings

The Company continues to maintain a traditional deposit mix, with the goal of keeping pace with growth in the loan portfolio. Deposit growth continued to be funded primarily with money market accounts during the second quarter of 2020, which have historically adjusted with movements in Federal Funds rates. In addition, the Company saw growth in its non-interest bearing accounts as a result of PPP funding deposited into customer operating accounts. Notably, the Company's cost of interest bearing deposits declined 74 basis points reflective of changes made to deposit pricing in the prior quarter from declines in market rates.





















(Dollars in millions)
2Q19

3Q19

4Q19

1Q20

2Q20

% of Total

QoQ Growth ($)

QoQ Growth (%)⁽¹⁾

YoY Growth ($)

YoY Growth (%)⁽¹⁾
Average deposits



















Non-interest bearing deposits
$
513


$
535


$
522


$
540


$
746


17
%

$
206


38
%

$
233



45

%
Transaction deposits
144


135


200


341


414


10
%

73


21
%

270



188

%
Savings and money market deposits
1,560


1,744


1,854


1,887


1,933


45
%

46


2
%

373



24

%
Time deposits
1,305


1,277


1,226


1,166


1,195


28
%

29


2
%

(110
)


(8
)
%
Total
$
3,522


$
3,691


$
3,802


$
3,934


$
4,288


100
%

$
354


9
%

$
766



22

%




















Cost of deposits for the period ending
1.99
%

1.94
%

1.70
%

1.46
%

0.79
%










Cost of interest-bearing deposits for the period ending
2.33
%

2.26
%

1.97
%

1.69
%

0.95
%










^{(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.}

At June 30, 2020, other borrowings totaled $501.4 million, as compared to $374.6 million at December 31, 2019 and $365.1 million as of June 30, 2019. The increase in borrowings was principally due to additional Federal Home Loan Bank advances with new advances having an average maturity of 6 months and an average rate of 0.48% in order to take advantage of lower cost funding.

Asset Quality Position

Overall credit quality metrics were elevated as the Company added $21.0 million to the allowance for loan loss as a result of adverse movement of risk classifications due to the continued economic uncertainty resulting from the COVID-19 pandemic and volatility in energy prices. While the Company believes the reserve is reflective of the risk in the portfolio, in many cases the borrowers or specific impairments related to COVID-19 may have not yet been identified. The majority of loans that migrated to classified status during the quarter were related to the energy portfolio with some additional provisioning required for downgrades in the commercial and industrial portfolio.

Net charge-offs were $1.3 million for the second quarter of 2020 as compared to net charge-offs of $19.4 million for the first quarter in 2020. Nonperforming assets to total assets quarter over quarter increased to 0.74% primarily as a result of several energy loans that moved to non-accrual. The following table provides information regarding asset quality.

Asset quality (Dollars in millions)
2Q19

3Q19

4Q19

1Q20

2Q20
Non-accrual loans
$
50.0


$
43.6


$
39.7


$
26.3


$
37.5

Other real estate owned
2.5


2.5


3.6


3.6


2.5

Non-performing assets
52.8


46.7


47.9


29.9


40.3

Loans 90+ days past due and still accruing
0.2


0.6


4.6


—


0.2

Loans 30 - 89 days past due
23.6


64.7


6.8


19.5


34.9

Net charge-offs (recoveries)
—


4.7


5.5


19.4


1.3











Asset quality metrics (%)
2Q19

3Q19

4Q19

1Q20

2Q20
Non-performing assets to total assets
1.18
%

1.00
%

0.97
%

0.59
%

0.74
%
Allowance for loan loss to total loans
1.24


1.18


1.48


1.29


1.61

Allowance for loan loss to non-performing loans
85


97


129


196


189

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


0.53


0.58


2.00


0.12

Provision to average loans⁽¹⁾
0.34


0.54


2.05


1.44


1.94

Classified Loans / (Total Capital + ALLL)
16.3


13.2


13.2


15.8


34.9

^{(1) Interim periods annualized.}

Depending upon the future impact of the COVID-19 pandemic, we may need to make additional increases to our provision in future periods. The future impact of the pandemic is highly uncertain and cannot be fully predicted. The extent of the impact on our customers and, in turn, on our business and operations, will depend on future developments, including actions taken to contain the pandemic. To the extent the pandemic continues to cause a recession or decreased economic activity for an extended time period, we expect our business and operations will be negatively impacted. Customers may continue to seek additional loan modifications or restructuring, or we may experience additional adverse movement in risk classifications, any of which could potentially result in the need to adjust the total allowances for loan losses.

Capital Position

At June 30, 2020, common equity totaled $608 million, or $11.66 per share, compared to $602 million, or $11.58 per share, at December 31, 2019. Tangible common equity was $608 million and tangible book value per share was $11.65 at June 30, 2020 compared to tangible common equity of $594 million and tangible book value per common share of $11.43 at December 31, 2019.

The ratio of common equity Tier 1 capital to risk-weighted assets was approximately 12% and the total capital to risk-weighted assets was approximately 13% at June 30, 2020. The Company continues to remain well capitalized and as previously disclosed, the Company opened a second smaller full-service branch in the Dallas MSA on July 13th.

Leadership Succession of Chief Executive Officer

George F. Jones, Jr. transitioned his role as President & Chief Executive Officer, effective June 1, 2020, to Mike Maddox, the President and Chief Executive Officer of the Bank. Mr. Jones will continue to serve on the Company’s Board of Directors through 2021 and will serve as Vice Chairman. Mr. Jones will also continue to support the Company in growing and expanding our Dallas market. Additional information on Mr. Maddox's background can be found in our public filings.

Conference Call and Webcast

CrossFirst will hold a conference call and webcast to discuss second quarter 2020 results on Thursday, July 23, 2020 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. 4679884. 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 July 30, 2020, accessible at (855) 859-2056 with conference ID no. 4679884.

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 Quarterly Report on 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 as well as the uncertain impact of the COVID-19 pandemic. 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 eight full-service banking offices primarily along the I-35 corridor in Kansas, Missouri, Oklahoma and Texas.

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

Unaudited Financial Tables

Table 1. Consolidated Balance Sheets
Table 2. Consolidated Statements of Income
Table 3. 2019-2020 Year-to-Date Analysis of Changes in Net Interest Income
Table 4. 2019 - 2020 Quarterly Analysis of Changes in Net Interest Income
Table 5. Non-GAAP Financial Measures

TABLE 1. CONSOLIDATED BALANCE SHEETS


December 31, 2019

June 30, 2020



(unaudited)

(Dollars in thousands)
Assets



Cash and cash equivalents
$
187,320


$
194,371

Available-for-sale securities - taxable
298,208


256,121

Available-for-sale securities - tax-exempt
443,426


443,962

Loans, net of allowance for loan losses of $56,896 and $71,185 at December 31, 2019 and June 30, 2020, respectively
3,795,348


4,342,039

Premises and equipment, net
70,210


68,889

Restricted equity securities
17,278


20,675

Interest receivable
15,716


19,399

Foreclosed assets held for sale
3,619


2,502

Deferred tax asset
13,782


14,841

Goodwill and other intangible assets, net
7,694


247

Bank-owned life insurance
65,689


66,598

Other
12,943


32,610

Total assets
$
4,931,233


$
5,462,254

Liabilities and stockholders’ equity



Deposits



Noninterest bearing
$
521,826


$
750,333

Savings, NOW and money market
2,162,187


2,393,269

Time
1,239,746


1,160,541

Total deposits
3,923,759


4,304,143

Federal funds purchased and repurchase agreements
14,921


49,881

Federal Home Loan Bank advances
358,743


450,617

Other borrowings
921


942

Interest payable and other liabilities
31,245


48,579

Total liabilities
4,329,589


4,854,162

Stockholders’ equity



Common stock, $0.01 par value:



authorized - 200,000,000 shares, issued - 51,969,203 and 52,167,573 shares at December 31, 2019 and June 30, 2020, respectively
520


521

Additional paid-in capital
519,870


521,133

Retained earnings
64,803


61,344

Accumulated other comprehensive income
16,451


25,094

Total stockholders’ equity
601,644


608,092

Total liabilities and stockholders’ equity
$
4,931,233


$
5,462,254

TABLE 2. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2020

2019

2020

(Dollars in thousands except per share data)
Interest Income







Loans, including fees
$
47,989



$
46,323



$
92,992



$
94,662


Available for sale securities







Available for sale securities - Taxable
2,335



1,358



4,655



3,132


Available for sale securities - Tax-exempt
2,916



3,260



5,851



6,572


Deposits with financial institutions
676



45



1,482



536


Dividends on bank stocks
276



268



529



560


Total interest income
54,192



51,254



105,509



105,462


Interest Expense







Deposits
17,497



8,405



33,418



22,677


Fed funds purchased and repurchase agreements
133



46



427



108


Advances from Federal Home Loan Bank
1,651



1,620



3,110



3,231


Other borrowings
37



26



75



61


Total interest expense
19,318



10,097



37,030



26,077


Net Interest Income
34,874



41,157



68,479



79,385


Provision for Loan Losses
2,850



21,000



5,700



34,950


Net Interest Income after Provision for Loan Losses
32,024



20,157



62,779



44,435


Non-Interest Income







Service charges and fees on customer accounts
211



647



369



1,155


Gain on sale of available for sale securities
406



320



433



713


Impairment of premises and equipment held for sale
(424
)


—



(424
)


—


Gain on sale of loans
79



—



158



—


Income from bank-owned life insurance
473



453



940



909


Swap fee income (loss), net
159



(32
)


536



(41
)

ATM and credit card interchange income
459



896



836



1,381


Other non-interest income
309



350



469



612


Total non-interest income
1,672



2,634



3,317



4,729


Non-Interest Expense







Salaries and employee benefits
14,450



14,004



29,040



28,394


Occupancy
2,062



2,045



4,221



4,130


Professional fees
714



1,295



1,496



1,966


Deposit insurance premiums
881



1,039



1,718



2,055


Data processing
625



721



1,219



1,413


Advertising
477



223



1,190



723


Software and communication
828



937



1,507



1,813


Foreclosed assets, net
19



1,135



25



1,154


Goodwill impairment
—



7,397



—



7,397


Other non-interest expense
1,904



2,214



4,175



4,188


Total non-interest expense
21,960



31,010



44,591



53,233


Net Income (Loss) Before Taxes
11,736



(8,219
)


21,505



(4,069
)

Income tax expense (benefit)
2,297



(863
)


2,716



(570
)

Net Income (Loss)
9,439



(7,356
)


$
18,789



$
(3,499
)

Basic Earnings (Loss) Per Share
$
0.21



$
(0.14
)


$
0.41



$
(0.07
)

Diluted (Loss) Earnings Share
$
0.20



$
(0.14
)


$
0.40



$
(0.07
)

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


Six Months Ended

June 30,

2019

2020

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
$
333,879



$
5,184


3.13
%

$
299,456



$
3,692


2.48
%
Securities - tax-exempt⁽¹⁾
371,538



7,080


3.84


444,948



7,952


3.59

Federal funds sold
19,934



256


2.59


2,057



18


1.74

Interest-bearing deposits in other banks
116,171



1,226


2.13


172,294



518


0.60

Gross loans, net of unearned income⁽²⁾
3,287,935



92,992


5.70


4,132,279



94,662


4.61

Total interest-earning assets⁽¹⁾
4,129,457



$
106,738


5.21
%

5,051,034



$
106,842


4.25
%
Allowance for loan losses
(40,314
)






(59,267
)





Other non-interest-earning assets
196,625







218,043






Total assets
$
4,285,768







$
5,209,810






Interest-bearing liabilities











Transaction deposits
$
124,125



$
753


1.22
%

$
377,883



$
1,131


0.60
%
Savings and money market deposits
1,551,996



17,773


2.31


1,909,881



9,388


0.99

Time deposits
1,235,317



14,892


2.43


1,180,704



12,158


2.07

Total interest-bearing deposits
2,911,438



33,418


2.31


3,468,468



22,677


1.31

FHLB and short-term borrowings
377,338



3,537


1.89


444,141



3,342


1.51

Trust preferred securities, net of fair value adjustments
890



75


17.10


928



58


12.64

Non-interest-bearing deposits
495,377



—


—


643,659



—


—

Cost of funds
3,785,043



$
37,030


1.97
%

4,557,196



$
26,077


1.15
%
Other liabilities
19,169







40,406






Stockholders’ equity
481,556







612,208






Total liabilities and stockholders' equity
$
4,285,768







$
5,209,810






Net interest income⁽¹⁾


$
69,708






$
80,765



Net interest spread⁽¹⁾




3.24
%





3.10
%
Net interest margin⁽¹⁾




3.40
%





3.22
%
^{(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)

Six Months Ended

June 30, 2020 over 2019

Average Volume

Yield/Rate

Net Change⁽²⁾

(Dollars in thousands)
Interest Income





Securities - taxable
$
(495
)


$
(997
)


$
(1,492
)

Securities - tax-exempt⁽¹⁾
1,351



(479
)


872


Federal funds sold
(174
)


(64
)


(238
)

Interest-bearing deposits in other banks
426



(1,134
)


(708
)

Gross loans, net of unearned income
21,387



(19,717
)


1,670


Total interest income⁽¹⁾
22,495



(22,391
)


104


Interest Expense





Transaction deposits
916



(538
)


378


Savings and money market deposits
3,447



(11,832
)


(8,385
)

Time deposits
(628
)


(2,106
)


(2,734
)

Total interest-bearing deposits
3,735



(14,476
)


(10,741
)

FHLB and short-term borrowings
576



(771
)


(195
)

Trust preferred securities, net of fair value adjustments
3



(20
)


(17
)

Total interest expense
4,314



(15,267
)


(10,953
)

Net interest income⁽¹⁾
$
18,181



$
(7,124
)


$
11,057








^{(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. 2019 - 2020 QUARTERLY ANALYSIS OF CHANGES IN NET INTEREST INCOME
(UNAUDITED)


Three Months Ended

June 30,

2019

2020

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
%

$
290,342


$
1,626

2.25
%
Securities - tax-exempt⁽¹⁾
374,750


3,529

3.78


438,525


3,945

3.62

Federal funds sold
15,165


96

2.55


—


—

—

Interest-bearing deposits in other banks
110,460


580

2.10


186,388


45

0.10

Gross loans, net of unearned income^{(2) (3)}
3,398,297


47,989

5.66


4,357,055


46,323

4.28

Total interest-earning assets⁽¹⁾
4,243,677


$
54,805

5.18
%

5,272,310


$
51,939

3.96
%
Allowance for loan losses
(41,277
)





(60,889
)




Other non-interest-earning assets
199,602






230,092





Total assets
$
4,402,002






$
5,441,513





Interest-bearing liabilities











Transaction deposits
$
144,020


$
477

1.33
%

$
413,870


$
266

0.26
%
Savings and money market deposits
1,559,979


8,955

2.30


1,932,723


2,653

0.55

Time deposits
1,305,244


8,065

2.48


1,195,445


5,486

1.85

Total interest-bearing deposits
3,009,243


17,497

2.33


3,542,038


8,405

0.95

FHLB and short-term borrowings
371,624


1,784

1.93


496,556


1,668

1.35

Trust preferred securities, net of fair value adjustments
895


37

16.79


933


24

10.61

Non-interest-bearing deposits
513,320


—

—


745,864


—

—

Cost of funds
3,895,082


$
19,318

1.99
%

4,785,391


$
10,097

0.85
%
Other liabilities
20,040






44,656





Total stockholders' equity
486,880






611,466





Total liabilities and stockholders' equity
$
4,402,002






$
5,441,513





Net interest income⁽¹⁾


$
35,487





$
41,842


Net interest spread⁽¹⁾




3.19
%





3.11
%
Net interest margin⁽¹⁾




3.35
%





3.19
%












^{(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

June 30, 2020 over 2019

Average Volume

Yield/Rate

Net Change⁽²⁾

(Dollars in thousands)
Interest Income





Securities - taxable
$
(373
)

$
(612
)

$
(985
)
Securities - tax-exempt⁽¹⁾
572


(156
)

416

Federal funds sold
(48
)

(48
)

(96
)
Interest-bearing deposits in other banks
236


(771
)

(535
)
Gross loans, net of unearned income
11,615


(13,281
)

(1,666
)
Total interest income⁽¹⁾
12,002


(14,868
)

(2,866
)
Interest Expense





Transaction deposits
389


(600
)

(211
)
Savings and money market deposits
1,738


(8,040
)

(6,302
)
Time deposits
(641
)

(1,938
)

(2,579
)
Total interest-bearing deposits
1,486


(10,578
)

(9,092
)
FHLB and short-term borrowings
505


(621
)

(116
)
Trust preferred securities, net of fair value adjustments
1


(14
)

(13
)
Total interest expense
1,992


(11,213
)

(9,221
)
Net interest income⁽¹⁾
$
10,010


$
(3,655
)

$
6,355







^{(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. 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 (loss) 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 (loss)’’ as net income (loss) adjusted to remove non-recurring or non-core income and expense items related to:
- 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.
- Goodwill impairment - We performed an interim review of goodwill as of June 30, 2020. The book value of goodwill exceeded its fair market value and resulted in a $7.4 million impairment.

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

We calculate "Non-GAAP core operating return on average assets" as non-GAAP core operating income (loss) (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 (loss) 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 (loss) 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.
We calculate "non-GAAP pre-tax pre-provision profit" as net income (loss) before taxes plus the provision for loan losses.


Quarter Ended

Six Months Ended

06/30/2019

09/30/2019

12/31/2019

03/31/2020

06/30/2020

06/30/2019

06/30/2020

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













Net income (loss) available to common stockholders
$
9,439


$
10,384


$
(700
)

$
3,857


$
(7,356
)

$
18,614


$
(3,499
)
Average common equity
486,880


543,827


605,960


612,959


611,466


476,749


612,208

Less: average goodwill and intangibles
7,759


7,733


7,708


7,683


7,576


7,772


7,629

Average tangible common equity
479,121


536,094


598,252


605,276


603,890


468,977


604,579

Return on average common equity
7.78
%

7.58
%

(0.46
)%

2.53
%

(4.84
)%

7.87
%

(1.15
)%
Non-GAAP Return on average tangible common equity
7.90
%

7.68
%

(0.46
)%

2.56
%

(4.90
)%

8.00
%

(1.16
)%


Quarter Ended

Six Months Ended

06/30/2019

09/30/2019

12/31/2019

03/31/2020

06/30/2020

06/30/2019

06/30/2020

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













Net income (loss)
$
9,439


$
10,384


$
(700
)

$
3,857


$
(7,356
)

$
18,789


$
(3,499
)
Add: fixed asset impairments
424


—


—


—


—


424


—

Less: tax effect⁽¹⁾
109


—


—


—


—


109


—

Fixed asset impairments, net of tax
315


—


—


—


—


315


—

Add: Goodwill impairment⁽²⁾
—


—


—


—


7,397


—


7,397

Add: state tax credit⁽²⁾
—


—


—


—


—


(1,361
)

—

Non-GAAP core operating income (loss)
$
9,754


$
10,384


$
(700
)

$
3,857


$
41


$
17,743


$
3,898















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


Quarter Ended

Six Months Ended

06/30/2019

09/30/2019

12/31/2019

03/31/2020

06/30/2020

06/30/2019

06/30/2020

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













Net income (loss)
$
9,439


$
10,384


$
(700
)

$
3,857


$
(7,356
)

$
18,789


$
(3,499
)
Non-GAAP core operating income (loss)
9,754


10,384


(700
)

3,857


41


17,743


3,898

Average assets
$
4,402,002


$
4,610,958


$
4,809,579


$
4,975,531


$
5,441,513


$
4,285,768


$
5,209,810

Return on average assets
0.86
%

0.89
%

(0.06
)%

0.31
%

(0.54
)%

0.88
%

(0.14
)%
Non-GAAP core operating return on average assets
0.89
%

0.89
%

(0.06
)%

0.31
%

0.00
%

0.83
%

0.15
%


Quarter Ended

Six Months Ended

06/30/2019

09/30/2019

12/31/2019

03/31/2020

06/30/2020

06/30/2019

06/30/2020

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













Net income (loss)
$
9,439


$
10,384


$
(700
)

$
3,857


$
(7,356
)

$
18,789


$
(3,499
)
Non-GAAP core operating income (loss)
9,754


10,384


(700
)

3,857


41


17,743


3,898

Less: Preferred stock dividends
—


—


—


—


—


175


—

Net income (loss) available to common stockholders
9,439


10,384


(700
)

3,857


(7,356
)

18,614


(3,499
)
Non-GAAP core operating income (loss) available to common stockholders
9,754


10,384


(700
)

3,857


41


17,568


3,898

Average common equity
$
486,880


$
543,827


$
605,960


$
612,959


$
611,466


$
476,749


$
612,208

Return on average common equity
7.78
%

7.58
%

(0.46
)%

2.53
%

(4.84
)%

7.87
%

(1.15
)%
Non-GAAP core operating return on common equity
8.04
%

7.58
%

(0.46
)%

2.53
%

0.03
%

7.43
%

1.28
%


Quarter Ended

06/30/2019

09/30/2019

12/31/2019

03/31/2020

06/30/2020

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









Total stockholders' equity
$
499,195


$
602,435


$
601,644


$
611,946


$
608,092

Less: goodwill and other intangible assets
7,745


7,720


7,694


7,669


247

Tangible common stockholders' equity
$
491,450


$
594,715


$
593,950


$
604,277


$
607,845

Tangible book value per share:









Tangible common stockholders' equity
$
491,450


$
594,715


$
593,950


$
604,277


$
607,845

Shares outstanding at end of period
45,367,641


51,969,203


51,969,203


52,098,062


52,167,573

Book value per share
$
11.00


$
11.59


$
11.58


$
11.75


$
11.66

Tangible book value per share
$
10.83


$
11.44


$
11.43


$
11.60


$
11.65


Quarter Ended

Six Months Ended

06/30/2019

09/30/2019

12/31/2019

03/31/2020

06/30/2020

06/30/2019

06/30/2020

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













Non-interest expense
$
21,960


$
21,172


$
21,885


$
22,223


$
31,010


$
44,591


$
53,233

Less: goodwill impairment
—


—


—


—


7,397


—


7,397

Adjusted Non-interest expense (numerator)
$
21,960


$
21,172


$
21,885


$
22,223


$
23,613


$
44,591


$
45,836

Net interest income
34,874


35,786


37,179


38,228


41,157


68,479


79,385

Tax equivalent interest income⁽¹⁾
613


624


670


695


685


1,229


1,380

Non-interest income
1,672


3,212


2,186


2,095


2,634


3,317


4,729

Add: fixed asset impairments
424


—


—


—


—


424


—

Total tax-equivalent income (denominator)
$
37,582


$
39,622


$
40,035


$
41,018


$
44,476


$
73,449


$
85,494

Efficiency Ratio
60.09
%

54.29
%

55.60
%

55.11
%

70.81
%

62.11
%

63.29
%
Non-GAAP Core Operating Efficiency Ratio - Fully Tax Equivalent
58.43
%

53.43
%

54.66
%

54.18
%

53.09
%

60.71
%

53.61
%
⁽¹⁾ ^{Tax exempt income (tax-free municipal securities) is calculated on a tax equivalent basis. The incremental tax rate used is 21.0%}


Quarter Ended

Six Months Ended

06/30/2019

09/30/2019

12/31/2019

03/31/2020

06/30/2020

06/30/2019

06/30/2020

(Dollars in thousands)
Non-GAAP Pre-Tax Pre-Provision Profit













Net income (loss) before taxes
$
11,736

$
12,976

$
(1,870
)

$
4,150

$
(8,219
)

$
21,505

$
(4,069
)
Add: Provision for loan losses
2,850

4,850

19,350


13,950

21,000


5,700

34,950

Non-GAAP Pre-Tax Pre-Provision Profit
$
14,586

$
17,826

$
17,480


$
18,100

$
12,781


$
27,205

$
30,881

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

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