8-K: CrossFirst Bankshares Reports Record Full Year Earnings for 2023

CrossFirst Bankshares announced record full-year net income of $66.7 million for 2023, alongside fourth-quarter net income of $17.7 million.

Summary

• CrossFirst Bankshares reported a net income of $17.7 million, or $0.35 per diluted share, for the fourth quarter of 2023.
• The full year net income reached a record $66.7 million, or $1.34 per diluted share.
• Adjusted net income for the fourth quarter was $19.6 million, or $0.39 per diluted share, and $72.8 million, or $1.47 per diluted share, for the full year.
• Operating revenue grew by 16% for the full year compared to the prior year.
• Loans increased by $182 million, or 3%, in the fourth quarter and by 14% for the full year.
• Deposits grew by $159 million, or 3%, in the fourth quarter and by 15% for the full year.
• Non-performing assets decreased to 0.34% of total assets from the prior quarter.
• Net charge-offs for the full year were 0.09% of average loans.
• Book value per common share grew 14% to $14.35 at the end of 2023.
• Tangible book value per common share also grew 13% to $13.56.
• Total risk-based capital increased to 11.2%, and common equity Tier 1 capital increased to 10.0%.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to record earnings, strong growth metrics, and improved asset quality. While there are challenges noted, the overall tone is optimistic and forward-looking.

Positives

• The company experienced improved profitability with increased operating revenue and diluted earnings per share compared to the prior quarter and the prior year fourth quarter.
• Non-interest expense decreased compared to the prior quarter and the same quarter in the prior year.
• The company successfully executed a bond portfolio repositioning expected to benefit future earnings, liquidity, and regulatory capital ratios.
• CrossFirst completed the integration of Canyon Bancorporation, Inc. and its subsidiary, Canyon Community Bank.
• The company's net interest margin expanded by 4 basis points to 3.23% in the fourth quarter.
• The company's efficiency ratio improved to 57.05% from 62.40% in the same quarter of the prior year.

Negatives

• Non-interest income decreased by $1.5 million compared to the third quarter of 2023 due to losses on the sale of available-for-sale securities.
• The net interest margin FTE decreased 38 basis points compared to the fourth quarter of 2022.
• The company incurred a $1.1 million pre-tax loss on the sale of bonds.
• Full year non-interest expense increased by $25.2 million compared to 2022.

Risks

• The company faces risks related to uncertain economic conditions, including potential recessionary pressures and inflation.
• Changes in market interest rates could affect the pricing of the company's products and net interest income.
• The company's ability to manage credit risk, particularly in commercial real estate, energy, and commercial-based loan portfolios, is a concern.
• There are risks associated with borrower and depositor concentration.
• The company is dependent on its management team and faces risks in attracting and retaining key employees.
• The company faces competition from other financial institutions and FinTech companies.
• The company is subject to risks related to cyber incidents and system failures.
• The company is subject to compliance with laws, rules, and regulations relating to financial institutions.

Future Outlook

The company anticipates 8-10% core loan growth, a net interest margin between 3.20% and 3.25%, adjusted non-interest expense between $36-37 million quarterly, a combined ACL/Loans between 1.25% and 1.35%, and an effective tax rate between 20-22% for 2024.

Management Comments

• Mike Maddox stated that despite a challenging macro-economic environment, CrossFirst had an incredible year.
• He highlighted the acquisition of Canyon Community Bank, the opening of two Texas locations, the launch of a new digital banking platform, and 6% adjusted earnings growth.

Industry Context

The results reflect a challenging macroeconomic environment with rising interest rates impacting margins, which is a common theme in the banking industry. The company's focus on growth through acquisitions and new locations is a strategy employed by many regional banks to expand their footprint and market share.

Comparison to Industry Standards

• CrossFirst's net interest margin of 3.23% is within the range of regional banks, but the decrease of 38 basis points year-over-year indicates pressure from rising funding costs.
• The company's loan growth of 14% is strong compared to the industry average, suggesting effective market penetration and loan origination.
• The non-performing asset ratio of 0.34% is favorable, indicating sound credit risk management compared to peers.
• The company's capital ratios, with a total risk-based capital of 11.2% and common equity Tier 1 capital of 10.0%, are above regulatory requirements and comparable to well-capitalized banks.
• Compared to other regional banks like First Republic Bank (prior to its acquisition) and Silicon Valley Bank (prior to its collapse), CrossFirst has maintained a more stable deposit base and has not experienced the same level of deposit flight.

Stakeholder Impact

• Shareholders will benefit from the record earnings and increased book value per share.
• Employees may benefit from the company's growth and success.
• Customers will benefit from the company's expanded services and locations.
• Creditors will be reassured by the company's strong capital position and asset quality.

Next Steps

• The company will hold a conference call on January 23, 2024, to discuss the financial results.
• The company will continue to focus on executing its growth strategy and managing expenses.

Key Dates

Keywords

bank, financial results, net income, earnings, loans, deposits, asset quality, capital, interest margin, non-interest expense, book value, CrossFirst Bankshares