8-K: CrossFirst Bankshares Reports Strong Third Quarter Earnings, Advances Toward Busey Merger

CrossFirst Bankshares announced solid third-quarter results with increased profitability and progress on its merger with First Busey Corporation.

Summary

• CrossFirst Bankshares reported a net income of $19.6 million, or $0.39 per diluted share, for the third quarter of 2024.
• Adjusted net income was $21.9 million, or $0.43 per diluted share, excluding merger-related costs.
• The company's net interest margin (FTE) grew to 3.29%, benefiting from the timing of interest rate changes.
• Loans remained flat at $6.3 billion compared to the previous quarter, 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.
• Non-interest expenses are expected to be between $36-37 million for the fourth quarter of 2024, excluding merger costs.
• 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, and tangible book value per common share also grew 6% to $14.92.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to strong financial results, progress on the Busey merger, and positive management commentary. While there are some challenges, the overall tone is optimistic and confident.

Positives

• The company experienced improved profitability with increases in operating revenue, adjusted net income, and adjusted diluted earnings per share 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.
• The company's capital ratios increased and remained well capitalized with a total risk-based capital of 11.8% and common equity Tier 1 capital of 10.6%.
• Book value per common share and tangible book value per common share both grew by 6% in the quarter.
• Non-interest expenses decreased by $1.5 million compared to the second quarter of 2024, excluding merger-related costs, due to savings from a core processing contract renegotiation.

Negatives

• Deposits decreased by $100 million, or 1%, for the quarter, primarily due to outflows from two large clients.
• Provision expense increased to $3.5 million, $1.1 million higher than the second quarter, due to an increase in net charge-offs, economic factors and an increase in specific reserves for several smaller commercial and industrial credits.
• Loan demand slowed in the quarter as clients awaited actions by the Federal Reserve.
• Non-interest expense increased $0.9 million from the prior quarter, but included $2.4 million of merger-related costs.

Risks

• The proposed merger with Busey is subject to regulatory and shareholder approvals, and there is a risk that the transaction may not close or may be delayed.
• The company faces risks related to the integration of operations with Busey and the realization of expected synergies.
• Uncertain economic conditions, including potential recessionary conditions and inflation, could impact the company's performance.
• Changes in market interest rates could affect the pricing of the company's products and its net interest income.
• The company is exposed to credit risk, particularly in its commercial real estate, energy, and commercial-based loan portfolios.
• The company is subject to various operational risks, including system failures, cyber incidents, and employee misconduct.

Future Outlook

The company expects full-year net interest margin 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

• Mike Maddox, President and CEO of CrossFirst Bankshares, Inc., stated that CrossFirst delivered another great quarter with expanded earnings and continued advancement of operating leverage while maintaining strong credit quality.
• He also mentioned that the company remained focused on scaling its markets and verticals, reducing CRE concentration, and driving operating leverage.
• Maddox noted that the company is advancing toward its transformative partnership with Busey while continuing to gain momentum.

Industry Context

This announcement comes as the banking industry is navigating a period of interest rate uncertainty and potential economic slowdown. The proposed merger with Busey reflects a trend of consolidation in the financial sector, as banks seek to expand their reach and improve efficiency. CrossFirst's focus on maintaining strong credit quality and improving operating leverage aligns with industry best practices.

Comparison to Industry Standards

• CrossFirst's net interest margin of 3.29% is within the range of regional banks, but the company's focus on commercial lending may lead to higher yields compared to banks with a larger focus on consumer lending.
• The company's non-performing asset ratio of 0.34% is relatively low, indicating strong credit quality compared to some peers.
• The company's capital ratios of 11.8% total risk-based capital and 10.6% common equity Tier 1 capital are above regulatory minimums and comparable to other well-capitalized banks.
• The proposed merger with Busey is similar to other recent bank mergers, such as the merger of First Horizon and TD Bank, where the goal is to create a larger, more efficient institution with a broader geographic footprint.
• Compared to other banks, CrossFirst's loan growth of 3% year-to-date is moderate, reflecting the company's cautious approach to lending in the current economic environment.

Stakeholder Impact

• Shareholders will benefit from the increased profitability and growth in book value per share.
• Employees may experience changes due to the merger with Busey, but the company is focused on retaining key personnel.
• Customers will have access to a broader range of products and services through the combined entity.
• Suppliers may see changes in their relationships with the company due to the merger.
• Creditors will be impacted by the company's financial performance and capital position.

Next Steps

• The company will continue to work towards closing the merger with Busey, expected in the first or second quarter of 2025.
• CrossFirst will focus on scaling its markets and verticals, reducing CRE concentration, and driving operating leverage.
• The company will continue to monitor loan demand and manage its credit risk.
• CrossFirst will manage non-interest expenses to be in the range of $36-37 million for the fourth quarter of 2024, excluding merger-related costs.

Key Dates

Keywords

CrossFirst Bankshares, CFB, Busey, merger, net income, earnings, net interest margin, loans, deposits, financial results, bank, capital, non-performing assets