10-Q: CrossFirst Bankshares Reports Third Quarter 2024 Results Amidst Proposed Merger with First Busey Corporation

CrossFirst Bankshares announced its third quarter 2024 results, highlighting improved profitability and capital ratios while also detailing its proposed merger with First Busey Corporation.

Summary

• CrossFirst Bankshares reported a net income of $19.7 million, or $0.39 per diluted share, for the third quarter of 2024, compared to $16.9 million, or $0.34 per diluted share, in the same period of 2023.
• For the nine months ended September 30, 2024, net income totaled $56.5 million, or $1.12 per diluted share, compared to $49.0 million, or $0.99 per diluted share, for the same period in 2023.
• The company's net interest margin FTE grew to 3.29%, benefiting from the repricing lag between assets and liabilities.
• Loans remained flat at $6.3 billion for the quarter, but grew by $203 million year-to-date.
• Deposits decreased by $100 million to $6.6 billion for the quarter, but grew by $143 million year-to-date.
• Non-performing assets were 0.34% of total assets, and annualized net charge-offs represented 0.10% of average loans.
• Provision expense was $3.5 million, higher than the previous quarter due to increased net charge-offs and economic factors.
• Non-interest expense totaled $38.6 million, including $2.4 million of merger-related 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: 7

Explanation: The document presents a generally positive outlook with improved profitability and capital ratios, but also acknowledges challenges such as decreased deposits and increased expenses. The proposed merger adds a layer of uncertainty, but the overall tone is optimistic.

Positives

• The company's net interest margin FTE grew to 3.29%, indicating improved profitability.
• The company's capital ratios improved, 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%.
• Non-interest expense decreased by $1.5 million compared to the previous quarter, excluding merger-related costs.
• The company's loan portfolio remains balanced with 44% of loans in commercial and industrial and owner-occupied commercial real estate and 44% of loans in non-owner-occupied commercial real estate.

Negatives

• Deposits decreased by $100 million for the quarter.
• Provision expense increased by $1.1 million compared to the previous quarter.
• Non-interest expense increased by $0.9 million from the prior quarter, including $2.4 million of merger-related costs.
• Non-performing assets increased by $9.1 million during the quarter.

Risks

• The proposed merger with First Busey Corporation may not close when expected or at all due to regulatory or stockholder approvals.
• The anticipated benefits of the merger may not be realized, and the integration process may be more difficult or costly than expected.
• The company may face challenges in retaining key employees and maintaining client relationships during the merger process.
• Changes in market interest rates could affect the pricing of products and net interest income.
• The company faces credit risk, particularly in commercial real estate, energy, and commercial-based loan portfolios.
• The company is subject to competition from banks, credit unions, FinTech companies, and other financial service providers.
• The company is exposed to risks related to system failures, cyber incidents, and other security breaches.

Future Outlook

The company expects the full-year 2024 net interest margin FTE to be at the high end of the prior guidance range of 3.20% to 3.25%. Non-interest expenses are currently expected to be in a range of $36-37 million for the fourth quarter of 2024 excluding merger-related costs. The company 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 September 30, 2024, the Company and the Bank met all capital adequacy requirements to which they are subject.
• Management 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.
• Management believes that it has several on and off-balance sheet options to address reductions in cash and cash equivalents in order to maintain appropriate liquidity.

Industry Context

The announcement of the proposed merger with First Busey Corporation reflects a trend of consolidation in the banking industry, as institutions seek to expand their market reach and improve operational efficiencies. The company's focus on high-growth metro markets aligns with broader industry trends of targeting areas with strong economic potential.

Comparison to Industry Standards

• CrossFirst's net interest margin of 3.29% is within the range of regional banks, but specific comparisons would require more detailed peer analysis.
• The company's non-performing assets ratio of 0.34% is relatively low compared to some peers, indicating strong credit quality.
• The company's capital ratios are above regulatory requirements, which is consistent with industry standards for well-capitalized banks.
• The company's efficiency ratio of 57.52% is within the range of regional banks, but specific comparisons would require more detailed peer analysis.
• The company's loan portfolio is diversified across various sectors, which is a common practice among regional banks to mitigate risk.

Legal Proceedings

• The company is subject to various lawsuits in the normal course of business, but management does not expect any material adverse effects from these matters.

Related Party Transactions

• The Bank extends credit and receives deposits from related parties. Related party loans totaled $10 million and related party deposits totaled $90 million at September 30, 2024. Related parties also owned $6 million of the Company's Series A Preferred Stock at September 30, 2024.

Stakeholder Impact

• Shareholders will be impacted by the proposed merger with First Busey Corporation, which will result in a change in ownership and voting rights.
• Employees may experience uncertainty about their future roles due to the merger.
• Clients may experience uncertainty about their future relationships with the company due to the merger.
• The company's financial performance and capital ratios will impact its ability to provide services to clients and meet its obligations to creditors.

Next Steps

• The company will seek regulatory and stockholder approvals for the proposed merger with First Busey Corporation.
• The company will continue to monitor the interest rate environment and evaluate available derivative strategies to protect net interest margin.
• The company will continue to monitor the U.S. economic indicators and their potential impact on the company's markets, clients, and prospects.

Key Dates

Keywords

merger, bank, financial results, net interest margin, capital ratios, loans, deposits, non-performing assets, credit losses, operating expenses