425: CrossFirst Bankshares Reports Strong Third Quarter 2024 Results Amidst Proposed Busey Merger

CrossFirst Bankshares, Inc. announced a solid third quarter with increased profitability and progress on its merger with First Busey Corporation.

Summary

• CrossFirst Bankshares, Inc. reported a net income of $19.6 million, or $0.39 per diluted common share, for the third quarter of 2024.
• Adjusted net income was $21.9 million, or $0.43 per diluted common share, excluding merger costs.
• The company's net interest margin (FTE) grew to 3.29%.
• Loans remained flat for the quarter at $6.3 billion but grew 3% year-to-date.
• Deposits decreased slightly to $6.6 billion, a 1% decrease for the quarter, but grew 2% year-to-date.
• Non-performing assets were 0.34% of total assets, and annualized net charge-offs were 0.10% of average loans.
• The company's total risk-based capital was 11.8%, and common equity Tier 1 capital was 10.6%.
• Book value per common share grew 6% to $15.65.
• The company expects non-interest expenses to be in the range of $36-37 million for the fourth quarter of 2024, excluding merger-related costs.
• The merger with Busey is expected to close in the first or second quarter of 2025, pending approvals.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results and progress on a strategic merger. While there are some challenges noted, the overall tone is optimistic and forward-looking.

Positives

• Improved profitability with increases in operating revenue, adjusted net income, adjusted diluted earnings per common share, and adjusted return on average common equity compared to the prior quarter and the prior year third quarter.
• Net interest margin (FTE) grew to 3.29%, benefiting from the repricing lag between assets and liabilities from the September interest rate cut.
• Non-interest expense was lower when adjusted for merger-related costs, due to savings from core processing contract renegotiation.
• Capital ratios increased, and the company remained well-capitalized.
• Book value per common share and tangible book value per common share both grew 6%.

Negatives

• Deposits decreased by $100 million, or 1%, for the quarter.
• Provision expense was $3.5 million, higher than the second quarter due to increased net charge-offs, economic factors, and specific reserves for commercial and industrial credits.
• Non-performing assets increased to $25.8 million, or 0.34% of total assets.
• Loan demand slowed in the quarter temporarily as clients awaited actions by the Federal Reserve.

Risks

• The proposed transaction with Busey may not close or may be subject to unanticipated conditions.
• The anticipated benefits of the proposed transaction may not be realized.
• The company may be unable to achieve expected synergies and operating efficiencies in the merger.
• Uncertain or unfavorable business or economic conditions could impact financial performance.
• Changes in market interest rates could affect the pricing of 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 risk.
• Competition from other financial institutions and FinTech companies poses a risk.
• System failures, cyber incidents, or security breaches could disrupt business operations.

Future Outlook

The company expects full-year net interest margin (FTE) to be at the high end of the prior guidance range of 3.20% to 3.25% and full-year loan growth to moderate to 3-5%. Non-interest expenses are expected to be in a range of $36-37 million for the fourth quarter of 2024, excluding merger-related costs. The merger with Busey is expected to close in the first or second quarter of 2025.

Management Comments

• With expanded earnings and continued advancement of our operating leverage while maintaining strong credit quality, CrossFirst delivered another great quarter, said Mike Maddox, President and CEO of CrossFirst Bankshares, Inc.
• We remained focused on scaling our markets and verticals, continuing to reduce our CRE concentration and driving operating leverage with the trough in our NIM behind us.
• We are advancing toward our transformative partnership with Busey while continuing to gain momentum.

Industry Context

The announcement comes amid a trend of consolidation in the banking industry, as institutions seek to expand their market presence and achieve greater economies of scale. The proposed merger with Busey reflects this trend, aiming to extend Busey's regional operating model into high-growth metro markets where CrossFirst operates.

Comparison to Industry Standards

• Comparing CrossFirst's ROAA of 1.02% to peers like Commerce Bancshares (ROAA ~1.2%) and UMB Financial Corporation (ROAA ~0.9%), CrossFirst is performing within a similar range.
• Their net interest margin of 3.29% is also comparable to regional banks of similar size, such as Bank OZK (NIM ~3.5%) and Prosperity Bancshares (NIM ~3.1%).
• The efficiency ratio of 57.52% is slightly higher than some of the more efficient banks like SVB Financial Group (prior to its collapse, efficiency ratio ~45%), indicating room for improvement in operational efficiency.

Stakeholder Impact

• Shareholders will benefit from the increased value and potential synergies resulting from the merger with Busey.
• Employees may experience changes in roles and responsibilities as the two companies integrate.
• Customers will have access to a broader range of products and services from the combined entity.
• Suppliers may see changes in procurement processes and relationships.
• Creditors will be impacted by the financial strength and stability of the merged organization.

Next Steps

• Obtain stockholder and regulatory approvals for the proposed merger with Busey.
• Close the holding company merger in the first or second quarter of 2025.
• Focus on integrating CrossFirst's operations with those of Busey.
• Continue to execute the company's growth strategy and manage credit risk.

Key Dates