10-Q: CrossFirst Bankshares Reports Improved Second Quarter Earnings Amidst Loan and Deposit Growth

CrossFirst Bankshares saw a slight increase in net income and diluted earnings per share in the second quarter of 2024, driven by loan and deposit growth and improved credit quality.

Summary

• CrossFirst Bankshares reported a net income of $18.6 million, or $0.37 per diluted share, for the second quarter of 2024, compared to $16.0 million, or $0.33 per diluted share, for the same period in 2023.
• The company's net interest income increased by $3.4 million compared to the second quarter of 2023, driven by higher average earning assets.
• Loan growth was $95 million, or 2%, for the quarter and $216 million, or 4%, year-to-date.
• Deposits grew by $147 million, or 2%, for the quarter and $243 million, or 4%, year-to-date.
• The company's credit quality improved, with non-performing assets decreasing to 0.22% of total assets and net charge-offs representing 0.07% of average loans.
• The company returned $3.0 million to stockholders through share buybacks at a weighted average price of $12.78 per share.
• The company's book value per common share grew 2% to $14.78 at June 30, 2024, and tangible book value per common share also grew 2% to $14.02 during the same period.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook with improved earnings, loan and deposit growth, and better credit quality. However, there are some concerns about interest rate risk and uninsured deposits, which temper the overall sentiment.

Positives

• The company experienced growth in both loans and deposits.
• Credit quality improved, with a decrease in non-performing assets and low net charge-offs.
• The company returned capital to shareholders through share repurchases.
• Book value per share and tangible book value per share both increased.
• The company remains well-capitalized with a total risk-based capital of 11.4% and common equity Tier 1 capital of 10.2%.

Negatives

• Non-interest income decreased slightly compared to the same period last year.
• Non-interest expense increased slightly due to data processing costs related to a core system contract renegotiation.
• The company's net interest margin FTE decreased slightly compared to the same period last year.

Risks

• The company is exposed to interest rate risk, which could impact net interest margins.
• There could be some risk rating migration in certain sectors of the commercial real estate portfolio due to higher interest rates and operating costs.
• The company is subject to various regulatory capital requirements, and failure to meet these requirements could have a material adverse effect.
• The company has approximately $2.6 billion of uninsured deposits, which could pose a risk if there is a loss of confidence in the banking system.

Future Outlook

The company anticipates net interest margin FTE to be in a range of 3.20% to 3.25% for the full year 2024 and expects non-interest expense to be approximately $37 million per quarter for the remainder of 2024. The company also anticipates the effective tax rate to remain in the range of 20% to 22% for the remainder of 2024.

Management Comments

• Management believes that, as of June 30, 2024, the Company and the Bank met all capital adequacy requirements to which they are subject.
• Management actively monitors credit risk including oversight of credit and lending strategies, exposures and objectives of the Company.
• Management believes that its current capital ratios and liquidity are sufficient to mitigate the risks of uninsured deposits.
• The Company believes that its current on and off-balance sheet liquidity will be sufficient to meet anticipated cash requirements for the next 12 months and thereafter.

Industry Context

The results reflect a challenging environment for banks with rising interest rates and increased competition for deposits. The company's focus on loan and deposit growth, along with improved credit quality, positions it well within the current banking landscape.

Comparison to Industry Standards

• The company's loan growth of 4% year-to-date is in line with or slightly above industry averages for regional banks.
• The company's deposit growth of 4% year-to-date is also in line with or slightly above industry averages for regional banks.
• The company's non-performing assets to total assets ratio of 0.22% is better than the industry average for regional banks.
• The company's net charge-offs to average loans ratio of 0.07% is also better than the industry average for regional banks.
• The company's efficiency ratio of 59.32% is in line with industry averages for regional banks.
• The company's return on average assets of 1.00% is in line with industry averages for regional banks.
• The company's return on average common equity of 10.59% is in line with industry averages for regional banks.
• Comparable companies include regional banks such as First Horizon, Regions Financial, and Comerica, which have similar asset sizes and business models.

Related Party Transactions

• Related party loans totaled $10 million and $12 million, while related party deposits totaled $90 million and $106 million, at June 30, 2024 and December 31, 2023, respectively.
• Related parties also owned $6 million of the Company's Series A Non-Cumulative Perpetual Preferred Stock at June 30, 2024.

Stakeholder Impact

• Shareholders will benefit from the improved earnings and share repurchases.
• Employees may benefit from the company's continued growth and success.
• Customers will benefit from the company's continued ability to provide financial services.
• Creditors will benefit from the company's strong capital position and liquidity.

Next Steps

• The company will continue to monitor the U.S. economic indicators and their impact on the company's markets, clients, and prospects.
• The company will continue to monitor the impact of the interest rate environment on the commercial real estate market and enterprise and leverage loans.
• The company will continue to manage its liquidity and capital resources to meet anticipated cash requirements.
• The company will continue to execute its share repurchase program.

Key Dates

Keywords

bank, financial results, loan growth, deposit growth, net interest income, credit quality, share repurchase, capital, non-performing assets, interest rate risk