CFB - CrossFirst Bankshares Inc. Reports Second Quarter 2022 Results

Second Quarter 2022 Key Financial Performance Metrics

LEAWOOD, Kan, July 18, 2022 (GLOBE NEWSWIRE) -- CrossFirst Bankshares, Inc. (Nasdaq: CFB), the bank holding company for CrossFirst Bank, today reported operating results for the second quarter of 2022, with second quarter net income of $15.5 million, or $0.31 per diluted share, and year-to-date net income of $32.4 million, or $0.64 per diluted share.

"In addition to our announcement about our planned acquisition of Central, we produced a very strong quarter of organic loan growth. We also invested in talent to support our continued success by filling key roles with both internal promotions and adding high-caliber talent from the outside,” said CrossFirst’s CEO and President, Mike Maddox. “We remain highly focused on credit quality, and we are committed to managing through a challenging economy while delivering for our clients and stockholders.”

• Announced on June 13, 2022, an agreement under which CrossFirst Bank will acquire Central Bancorp, Inc.’s bank subsidiary, Farmers & Stockmens Bank (“Central”), in an all-cash transaction
• $5.7 billion of assets with 6% operating revenue growth compared to the second quarter of 2021
• $179 million or 4% of total loan growth from the previous quarter and $290 million or 7% loan growth from the same quarter last year; excluding PPP loans ^{( 2 )} , loan growth was $195 million from the previous quarter or 5% and was $473 million or 12% from the same quarter last year
• Continued improvement in credit quality during the second quarter of 2022 as evidenced by the decrease in non-performing assets to total assets ratio from 1.09% at June 30, 2021 to 0.54% at June 30, 2022
• Return on Average Assets of 1.12% and a Return on Equity of 10.15% for the quarter ended June 30, 2022
• Net Interest Margin (Fully Tax-Equivalent) ⁽¹⁾ of 3.52% for the quarter ended June 30, 2022, compared to 3.14% for the same quarter last year

(1)  The Company changed the annualization method on the available-for-sale securities portfolio from Actual/Actual to 30/360 and moved the unrealized gain (loss) on available-for-sale securities from an interest-earning asset to a non-interest earning asset. All periods presented reflect this change.
(2)  Represents a non-GAAP measure. See "Table 5. Non-GAAP Financial Measures" for a reconciliation of these measures.
(3)  Net interest income plus non-interest income.
(4)  Tax exempt income is calculated on a tax-equivalent basis. Tax-free municipal securities are exempt from federal income taxes. The incremental federal income tax rate used is 21.0%.

Income from Operations

Net Interest Income

Interest income was $52.8 million for the second quarter of 2022, an increase of 9% from the second quarter of 2021 and an increase of 11% from the previous quarter due to higher average loans outstanding and higher interest rates. Average earning assets totaled $5.4 billion for the second quarter of 2022, a decrease of $92 million or 2% from the same quarter in 2021. This decline in average earning assets was largely driven by a decrease of $210 million in average interest-bearing deposits in other banks, the impact of which was outweighed by the increase of $29 million in average loans and the associated loan yield increase.

Interest expense for the second quarter of 2022 was $6.1 million, slightly lower than the second quarter of 2021 and 32% higher than the previous quarter. Average interest-bearing deposits decreased to $3.4 billion in the second quarter of 2022, a 13% decrease from the same prior year period. The cost of funds increased from the previous quarter to 0.50%, compared to 0.39% for the first quarter of 2022, driven by the higher interest rate environment.

Net interest income totaled $46.7 million for the second quarter of 2022, which was 8% higher than the first quarter of 2022, and 10% higher than the second quarter of 2021. Tax-equivalent net interest margin increased to 3.52% in the current quarter from 3.29% in the previous quarter and 3.14% in the second quarter of 2021. The tax-equivalent adjustment, which accounts for income taxes saved on the interest earned on non-taxable securities and loans, was $0.8 million for the second quarter of 2022.

Non-Interest Income

Non-interest income decreased $1.6 million in the second quarter of 2022 or 28% compared to the same quarter of 2021 and decreased $0.7 million compared to the first quarter of 2022. The decrease in non-interest income compared to the previous quarter was due to a $1.1 million decrease in credit card fees and $0.1 million decrease in swap fee income, partly offset by a $0.3 million increase in letter of credit fees and $0.1 million increase in service charge income. The decrease in non-interest income compared to the same quarter of 2021, was primarily due to $1.8 million in income from bank-owned life insurance proceeds received last year.

Non-Interest Expense

Non-interest expense for the second quarter of 2022 was $29.2 million, which increased 13% compared to the second quarter of 2021 and increased 6% from the first quarter of 2022. Salaries and benefit costs were lower in the current quarter by $0.8 million compared to the prior quarter. Furthermore, professional fees increased $0.3 million and data processing expenses increased $0.3 million, partly offset by a slight decrease in software and communication expenses. Compared to the same quarter in the prior year, salaries and benefit costs were $1.4 million higher mainly due to increased hiring for market expansion and increased incentive expenses. Additionally, software and communication expenses increased $0.2 million, and data processing expenses increased $0.4 million, offset by a $0.7 million decrease in foreclosed assets. The other non-interest expense increase for the second quarter of 2022 was primarily due to increases in travel and meeting expenses and employee separation expense of $1.1 million.

CrossFirst’s effective tax rate for the second quarter of 2022 was 21%, as compared to 17% for the second quarter of 2021 and 20% in the first quarter of 2022. The 4% effective tax rate increase compared to the same quarter in the prior year was primarily due to the $1.8 million in income from bank-owned life insurance proceeds received last year, which was not subject to tax. For both comparable periods, the Company continued to benefit from its tax-exempt municipal bond portfolio and bank-owned life insurance. The tax-exempt benefit diminishes as the Company’s ratio of taxable income to tax-exempt income increases.

Balance Sheet Performance & Analysis

During the second quarter of 2022, total assets increased by $190 million or 3% compared to March 31, 2022, and increased $397 million or 7% compared to June 30, 2021. Total assets increased on a linked quarter basis primarily due to a $179 million increase in loans. The year-over-year increase was due to increases in loans of $310 million and cash and cash equivalents of $57 million. Non-interest-bearing deposits increased $53 million compared to March 31, 2022, and increased $345 million from June 30, 2021. During the second quarter of 2022, available-for-sale investment securities decreased $27 million to $696 million compared to March 31, 2022 primarily due to unrealized losses from interest rate increases. The securities yields increased 7 basis points to a tax equivalent yield of 3.07% for the second quarter of 2022 compared to the prior quarter.

Loan Results

During the second quarter of 2022, the Company produced an increase in average loans of $105 million compared to the first quarter of 2022, and an increase of $29 million or 1% compared to the second quarter of 2021. The linked quarter increase in average loans was primarily a result of growth in the commercial and commercial real estate portfolios. Net of PPP loans, average loans grew 3% compared to the quarter ended March 31, 2022. Loan yields increased 28 basis points to 4.28% during the second quarter of 2022 and increased 29 basis points compared to the same prior year quarter.

Deposit & Other Borrowing Results

During the second quarter of 2022, the Company experienced a decrease in average deposits of 2% compared to the previous quarter, and a 4% decline in average deposits compared to the second quarter of 2021. The deposit reduction for the quarter was driven by decreases in transaction deposits and time deposits. As a result of the increasing interest rate environment, the Company had an increase of 11 basis points in the overall cost of deposits during the second quarter of 2022, and the cost of interest-bearing deposits has increased 6 basis points over the last twelve months.

At June 30, 2022, other borrowings totaled $298 million, as compared to $228 million at March 31, 2022, and $284 million at June 30, 2021.

Asset Quality Position

Non-performing assets decreased to $30.8 million due to a $5.4 million decrease in non-accrual loans. The decline is attributable to decreases in non-accrual commercial and industrial and energy loans. The non-performing assets to total assets ratio decreased from 1.09% at June 30, 2021 to 0.54% at June 30, 2022. Classified loans increased slightly during the second quarter due to some grade changes in the commercial and industrial portfolio, but remained in an acceptable range at 12.1% of total capital plus the allowance for credit losses.

The allowance for credit losses was $56 million or 1.23% of outstanding loans and 202% of non-accruing loans at June 30, 2022. The combined allowance for credit losses and accrual for off-balance sheet credit risk from unfunded commitments (“RUC”) was $61 million or 1.35% of outstanding loans and 221% of non-accruing loans at June 30, 2022.

The allowance for credit losses to total loans decreased to 1.23% at June 30, 2022 from 1.27% at March 31, 2022. The improvements in credit metrics compared to June 30, 2021 were primarily driven by upgrades in COVID-19 impacted segments and the Energy portfolio. Net charge-offs were $1.1 million for the second quarter of 2022 and were consistent with the prior quarter. The charge-offs for the current quarter were primarily related to commercial and industrial and energy credits. The following table provides information regarding asset quality.

Capital Position

At June 30, 2022, stockholders' equity totaled $608 million, or $12.27 per share, compared to $668 million, or $13.23 per share, at December 31, 2021. During the second quarter of 2022, CrossFirst continued its share repurchase program by purchasing 237,993 shares of common stock outstanding. In addition, accumulated other comprehensive income (loss) declined by $71 million between December 31, 2021 and June 30, 2022; driven by a $74 million decrease in the unrealized gain (loss) on available-for-sale securities, net of tax.

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, 2022. The Company remains well-capitalized.

Conference Call and Webcast

CrossFirst will host a conference call to review second quarter 2022 financial results on Tuesday, July 19, 2022, at 10 a.m. CT / 11 a.m. ET. The conference call and webcast may also include discussion of Company developments, forward-looking statements and other material information about business and financial matters. To access the event by telephone, please dial (877) 270-2148 at least fifteen minutes prior to the start of the call and request access to the CrossFirst Bankshares, Inc. call. International callers should dial +1 (412) 902-6510 and request access as directed above.

The call will also be broadcast live over the internet and can be accessed via the following link: https://edge.media-server.com/mmc/p/px7sxoby . Please visit the site at least 15 minutes prior to the call to allow time for registration.

For those unable to join the presentation, a replay of the call will be available two hours after the conclusion of the live call. To access the replay, dial (877) 344-7529 and enter the replay access code 4987463. International callers should dial +1 (412) 317-0088 and enter the same access code. A replay of the webcast will also be available for 90 days on the company’s website https://investors.crossfirstbankshares.com/ .

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 regarding, among other things, our business plans, the acquisition of Central, and future 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,” “planned,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. 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 its 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, credit quality and risk, ongoing impact of the COVID-19 pandemic, industry and technological changes, cyber incidents or other failures, disruptions or security breaches, interest rates, commercial and residential real estate values, economic and market conditions in the United States or internationally, funding availability, accounting estimates and risk management processes, the transition away from the London Interbank Offered Rate (LIBOR), legislative and regulatory changes, business strategy execution, hiring and retention of key personnel, competition, mortgage markets, fraud committed against the Company, environmental liability and severe weather, natural disasters, acts of war or terrorism or other external events. These and other factors that could cause results to differ materially from those described in the forward-looking statements, as well as a discussion of the risks and uncertainties that may affect our business, can be found in our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and in other filings we make with the Securities and Exchange Commission. These forward-looking statements are made as of the date of this communication, and we disclaim any obligation to update any forward-looking statement or to publicly announce the results of any revisions to any of the forward-looking statements included herein, except as required by law.

About CrossFirst Bankshares, Inc.

CrossFirst Bankshares, Inc. (Nasdaq: CFB) 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 nine full-service banking locations in Kansas, Missouri, Oklahoma, Texas, and Arizona that offer products and services to businesses, professionals, individuals, and families.

TABLE 1. CONSOLIDATED BALANCE SHEETS

⁽¹⁾ A s of December 31, 2021, this line represents the allowance for loan and lease losses.
⁽²⁾ The year-end Condensed Consolidated Balance Sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

TABLE 2. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

⁽¹⁾ For the three and six-months ended June 30, 2021, this line represents the provision for loan and lease losses.

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

⁽¹⁾ The Company changed the annualization method on the available-for-sale securities portfolio from Actual/Actual to 30/360 and moved the unrealized gain (loss) on available-for-sale securities from an interest-earning asset to a non-interest-earning asset. All periods presented reflect this change.
⁽²⁾ Tax exempt income is calculated on a tax-equivalent basis. Tax-free municipal securities are exempt from federal income taxes. The incremental income tax rate used is 21.0%.
⁽³⁾ Average gross loan balances include non-accrual loans.
⁽⁴⁾ 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)

⁽¹⁾ Tax exempt income is calculated on a tax-equivalent basis. Tax-free municipal securities are exempt from federal income taxes. The incremental income 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. 2021 - 2022 QUARTERLY ANALYSIS OF CHANGES IN NET INTEREST INCOME (UNAUDITED)

⁽¹⁾ The Company changed the annualization method on the available-for-sale securities portfolio from Actual/Actual to 30/360 and moved the unrealized gain (loss) on available-for-sale securities from an interest-earning asset to a non-interest-earning asset. All periods presented reflect this change.
⁽²⁾ Tax exempt income is calculated on a tax-equivalent basis. Tax-free municipal securities are exempt from federal income taxes. The incremental income tax rate used is 21.0%.
⁽³⁾ Average loan balances include non-accrual loans.
⁽⁴⁾ 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)