CFB - Earnings call 3 2023 | CrossFirst Bankshares, Inc.

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Operator

Good morning, and welcome to the CrossFirst Bankshares, Inc. Q3 2023 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Mike Daley, Chief Accounting Officer and Head of Investor Relations. ahead. go Please

Michael Daley

welcome Conference and Bankshares Quarter Third Good to Earnings Call. XXXX morning, CrossFirst

begin, current this expansion Before forward-looking be of please we aware strategies allocation statements expense to statements. risks financial that initiatives, and performance. and our our liquidity, could are opportunities, differ capital and these statements, assumptions cause based comments call about future business and are results growth plans, and control sources including include will materially uncertainties from our on actual These expectations subject to

adjusted we the release date on Our made not may forward-looking financial risk factors our of financial be be update financial financial as for to to as obligation measures GAAP to and statements except today's filings with the financial of or or other accordance with GAAP. a Statements earnings law. this any prepared SEC. These A identified are in call of refer our required the non-GAAP this revise can or by them, meant should call, with We superior and be to earnings assume to reconciliation are together in do considered not release. measures non-GAAP measures substitute also in measures. measures found non-GAAP

CFO available website would filed to Our operator, to Clouse, who Slide release. Mike, our earnings Bankshares; X the facilitate on of session. and remarks remarks, will time, on CrossFirst and the Randy turn will a Q&A conclusion our over presentation will At our call our this presentation like Bank; with from CrossFirst prepared Mike? At begin I of Ben include Bankshares. President CEO Rapp, CrossFirst of prepared Mike Maddox, and President of Anthony, of the

Michael Maddox

very Thank doing. team you, great and that job morning, and our the is I'm proud of quarter everyone. this good

We XX the made the last benefits investments months. the seeing of have over we are

with our difficult and diligent We improving despite markets base deposits to strategic in our all execute macro remain plans focused in million while driving our expense core quarter earnings $XX.X and for with in revenue, of by due banking. our share. adjusted per credit X% dynamic net We $X.XX continue pricing and delivered environment efficiency, this operating income a growth optimizing margin growth verticals, franchise quality. Pressure our adjusted deposits. quarter We or for on to this remaining profitability normalization high-growth slowed on has some on of on scaling earnings

to our loan also benefit from variable highly portfolio. We continue

this company improved less growth ratio deposits funding as our focus increased and quarter. for to profitability as sheet Our a Despite strong. so efficiency while improve loan-to-deposit as declined operating continues and composition and is to we earnings on drive our deposits however, on balance improved borrowings that, Competition growth and be wholesale continues core leverage. past

modestly portfolio As and mix. this continue loan quarter, our nice expected, loan to our we in see grew balance

the to pleased be is especially of number quality to external I'm lending of share across our that Credit accelerating platform a Additionally, noninterest growth. continues our in the markets and gain continues to focus, factors. income our primary challenging traction face SBA

client and that let but at in approach. a in I high-quality remain me detail just portfolio acceptable Our that are cover importantly, quality confident norms. standards, more in more our will manageable remains credit levels overall Randy moment, well-diversified credit our well say credit within our relationship-based

shareholders, which team and clients cost provides and Arizona our lower our complements Tucson During and and forward of to excited additional to welcome franchise quarter, our existing we Tucson supporting new members this We liquidity were acquisition, the look past the deposits. completed needs community.

mid-November. to our onboarded fully by clients Tucson our have to expect We systems

focus to position on with and our scaling existing levers, expenses are a increase ahead, in profitability a investments, optimizing multiple unique we the maintaining Looking opportunity credit through quality.

by profitability gaining increase verticals. the high-growth have our density markets to dynamic in We and metro opportunity

addition, technology an including leveraging infrastructure ongoing intend on focus manage investments. optimizing to key operations, expenses, prudently and In we to continue

credit solid quality maintaining we the is Finally, at do. center of everything

Our for future like franchise now over our of believe to enhancing CrossFirst team turn the the on priorities, value. CrossFirst Randy And these Rapp. position while our which is we call Bank, to President I'd focused

W. Rapp

$XXX Thanks, generation QX, In Mike, for metrics. the We growth and everyone. closely the quarter in we rate estate attributable total moderate the intentionally and and of we guaranteed lines existing from million, Tucson annualized in XX% exposure, Legacy $XXX C&I portfolio reported due acquisition, good increase slight on focused loan morning, continued In a to growth CRE of our remain QX, primarily relationships. growth. loan to to largely pace highly monitored million X.X% or on in of resulting on The million, an and led grew are markets $XX by credits. approximately increase which loans fundings USDA SBA a basis. was deposit real primarily commercial and

and quarter above prior new yields below the yield average historical level. average in slightly now quarter focus line on a the the C&I to Average for continue strong was and We the decreased portfolio XX%, churn is utilization loan production and increasing is which loan X.XX%. quarter the on was slightly

We several expect slightly portfolio next over churn decrease quarters. to the

is estate. now for On diversity the real office $XXX at and and total Class is the B of real million. office remains office. million of from QX the there end A and XX% being the of average and total CRE is $XX suburban the million $X $XXX Slide segment Class see Our million of loan size X% each C&I continues and property exposure loans. average industry largest XX% C&I in and total loan to accounting of slightly largest Total C&I and The owner-occupied remains majority the now XX% is manufacturing industrial, down exposure. portfolio balanced is $XXX million, The commercial exposure loan-to-value at XX% the portfolios portfolio remain exposure with CRE Energy good highest is X% estate portfolio. or in within of these XX% you can of type, with X, in

As our North in will we we our Texas, to exposure and majority other Kansas follow City markets, previously centered the strongest sponsors footprint but stated, Colorado. is of this have in

Moving X. Slide to credit on highlights

relationship. QX, our balance reported assets. one remaining C&I in to to end, estate The with with real million, million due Classified line the at estate are ORE $XX XX This secured The and expect we are increase ended to our asset of one guarantees. is end downgrades X is and primarily due to million up well I'm asset classified and raised and secured pleased current transaction. is current valuations credits million credits of $XX.X at remaining total plans basis and report nonperforming. days bring material fresh the The past or week. X.X% each not lower XX%, SBA low remains assets real over proactively in $XX.X of loss increase and credits. reserves with X. We managing XX a back period or in quarter CRE was C&I assets but at For loans of from to ratio was this C&I C&I assets USDA total we the CRE due primarily points. of that increase ratio moving which to QX at in $XX.X a nonperforming level. nonperforming $X will nonperforming a to has balance points combined that XXXX, XX has an credit This X NPAs capital NPA million these do XX basis same the several to loans, of basis of any to action the fully points increase equity by credit at in remains plus QX, from was commercial resulting

was million $X acquired quarter. which in addition, increase due loans, mark-to-market the in were In of to the Classifieds

points allowance for basis. quarter, basis for QX. the basis end, totaled up The unfunded the allowance loss quarter an total on of X.XX% X.XX%. on we at and reserve end from million, reported resulting which combined loss of reported charge-off commitments a of to credit in of X rate $X.X and a X.X%, is trailing loan XX-month we ratio For credit for annualized net At points an charge-offs X basis

credit For due higher charge-off Provision provision the the quarter, CECL for and reserves provision a reported a of XXX%. in to in QX With We ACL X nearly of is loans was on ratio highly of we $XX loan metrics day $X.X Tucson resulting nonperforming to during maintaining million, forward. to acquired total the than XXX%. metrics expense focused quarter. ACL moving rate million, changes credit our remain current good

deposit of increased portfolio to to total of million Deposits at now the remarks. $XXX previous billion, deposits, quarter. Ben X.X% $X.X the billion his Slide the to quarter. quarter cover increased deposits the up XX% will additional XX% end represents during and X. Noninterest-bearing second from statistics from $X in up Turning the

the portfolio see short treasury focus management fee We mature to grade standards, deposit remain performance as new some in in negative products, loan generation, on our in existing expanding with and card facilities equity monitoring could continue credit proven include sponsors heavily the term. originations with improving issues. underwriting and and portfolio which and continue confident but to income for contributions, We we movement the significant yields

to loan a a the but XXXX. new XXXX, actively heading growth call turn will more into cover continue financial healthy rate our in in clients of now we to moderate the continue over pipeline to at the be Ben detail. generate to to of last We on quarter expect call to transactions level results Ben? I

Benjamin Clouse

good quarter Thanks, $XX.X $X.XX was million income Randy, or this everyone. net and share. morning, GAAP per

resulting slowing was higher net toward on day impact increase million The are adjusted on the was and of proactively points These from We points yielding loans income quarter million nonaccrual per modest yield addressing and primarily balance X to acquisition. due offset growth, share. gains the with management yields partially lower net average impacted $X.X increased a assets the increase basis Randy $X.XX X Tucson third sheet portfolio. from were an profitability from income higher repricing margin higher the included noninterest improved as said, basis yields prior interest noninterest new adjusted through and of from return offset on any and on we of acquisition-related increased weakness return in in assets income cost quarter progress net and signs by and due adjusted million, saw the $XXX which to higher average GAAP benefit fully Both income of The adjusted compared pressure, in expenses. provision. quarter with $XX.X were net higher quarter. CECL income, the partially continued loan of acquisition increased X XX.X%. prior by driving in expense the equivalent the the of quarter, equity assets, Quarterly our net a additional provision charges interest higher or $X.X Net million X.XX% basis most million $X.X slightly funds. of second earning average a day, earning Average X to by as to the as well on tax loans negatively loans and was due expanded as of

X. Page to Turning

yields was loan Our X.XX% total the of cost for against X.XX%. quarter of deposits

deposit Our of in funds. was beta through total slowed the we quarter and with in expectations, have third entire nonmaturity line rate cost against the XX%, growth our the cycle our

base well which and consistent the impact noninterest-bearing borrowings as diversification the quarter composition. net wholesale decrease deposits, deposit as deposit to of prior during and FHLB Our remained the pleased us very in growth quarter. We funding in with beyond see to growth were allowed terms acquisition

clients concentration deposit interest remained to uninsured the equivalent effective our X Our compared and across consistent basis to XX points this narrowed tax the net X.XX%. quarter. quarter prior percentage margin top Fully deposits

May. Our has core from out range impacts stable of a in noise NIM, to accrual $X.XX since $X.XX remained adjusting

through With anticipated margin lower $X.XX higher to is this expect potential basis sensitive in balance loan we only add QX. we $X.XX going deposits a to additional point be a move and to range don't of growth, sheet Our expect cost as rate great in slightly need yet XX year, a of continued forward.

by we move we quarter, from we back lower of treasury the primary an of we Noninterest allowing to While deposit defend the second originate to were we card some model. loan quarter NIM peak for second believe and and revenues. will increasing demand persist, quarter. These forward sales in near credit as for X% The pricing, after million from sell deposits us improvements the to partially offset here. transitioned drivers SBA are competition was $X as pent-up income our the growth acknowledge continue were

Moving to XX. Slide

discretionary from the acquisition-related operating expenses. XX% and gain leverage additional compared our $X.X to the severance advanced expenses intangible efficiencies cost in control to and Excluding to second 'XX We adjusted quarter, due focus improving to QX, will QX quarter and both with expense core X% million compensation this quarter. the drive we our noninterest of deposit efficiency lower efforts continue and and on decreased

quarter and despite the rest Tucson headcount to Our the in remained for it acquisition, the stable the flat we year. remain of anticipate

unrealized Our for the the in excluding losses, impacts and due XX%. we remain tax a to was the expect per loss tangible XX% the compared share on rate was value quarter, to per rate Tangible lower book tax the securities. XX% year-to-date the X%. to value On unrealized basis, prior range we have the share to quarter of of grown book by available-for-sale X%

end, As capital are all of we ratios. well quarter under capitalized

building growth, and our capital moderating strong goal continued in earnings commitments. advance decline to quarter asset continue of a We saw this we as unfunded

XX% ratios goals work total focus Slide building on XX, year-end of toward strong, capital by risk-based consistent from to and CETX our remains continue the at to capital to with prior continuing here. XX% quarter We are liquidity assets. On of XX% intend and our

significant billion from approximately of have sources. We on liquidity off-balance $X.X and sheet

pledged to the addition AFS securities million XXX% an at FHLB, portfolio we have balance and sell on can million gain. net additional be our to today of In could cash includes $XX investment a sheet, our $XXX that we the

We also FHLB, billion. liquidity, Reserve, other Fed sources wholesale Federal approximately and funding of additional off-balance have sources sheet $X.X funds multiple totaling including

with We of our in investment continued shift the have ongoing increase liquidity ratio in moderate to portfolio munis. the an

yields options assets, potential to We the on evaluating including all are of scenarios. earning restructuring our our improve

closed we the core million million our in both $X.X marks, diligence in in intangibles day consistent resulting acquisition mentioned, X As quarter, and Tucson $X.X the in loan modeling. Mike deposit with

of than full of track acquisition cost savings. are expected realization immediately and years. with held accretive Operator, for dilution we question-and-answer earnback client We we the the short less on modest This quarter NIM a the a to call. and expanded are of portion for integration and a now fourth to system very X our ready summary, constant quarter, profitability, continue in In grow deposits our competitive environment. very begin was

Operator

Instructions]. [Operator

question KBW. will first Our come Brady with Gailey from

Brady Gailey

So your was X.XX% interest third the margin in quarter. net

you're look $X.XX you at to it's be $X.XX. to If saying XQ, going

on quarter? margin in could here you you next a it are basically on the calling any So the then bottom trend margin think how 'XX? with And going thoughts up year next

Benjamin Clouse

just from the remarks, have QX or especially do I stability X we're at or We accrual points mentioned think pickup X as changes. X Ben. the it's Brady, bottom, X a basis of my had really had reindex. of as we good But little from but basis and We're ahead expansion to portfolio of given QX accrual seen, in bit, points changes. the we midst see year-end. right the in the margin to through continue for we've very stability a in thinking think continues some XXXX, that seen stability and our that planning loan to expect expect headwind I

Brady Gailey

thresholds, beyond to is the of to X this that Will hit trying able XX%. which those just I'm X the you'd do. like is back it just then value. next year, well the to looks the be right. out guys All continue to the I'm tangible targets table indirectly the and at even year, And if given talk heard on the figure stock buyback still you'll about below book like XX% we've capital you build capital end

Benjamin Clouse

Brady. Yes,

targets. year-end our were those think I

hit to expect We those.

to We returning I stock capital, capital opportunistic and to will where but continue our continues at also to look it's think to some be will build look we some shareholders. at trade if

Operator

with come Raymond will from Michael next question James. Rose Our

Michael Rose

impact to this wanted accounting the the purchase quarter. Ben, of what I accretion back margin, go to was

get accounting the wanted ended million. prior from up of remaining back deals, try marks the NIM what is? third total reported just just at And can versus or sense for so is to core being yield into quarter, I I accretable accretion the what think purchase a $X.X I just the end

Benjamin Clouse

Michael. to Sure, quarter the particular Accretion for about $XX,XXX. in Canyon was

last was year's impact. well an the accretion lot about Total as quarter. $XXX,XXX So whole not of contemplating in a deal

Michael Rose

you do And amount total you kind have or come over remaining time? accretion of then through Okay. expect schedule of the to accretion

Benjamin Clouse

the numbers. you give quarterly I'll

$XXX,XXX on expect deals. per we those in is forward and in $XXX,XXX deposit accretion amortization $XXX,XXX $XXX,XXX go X to quarter per Our the range intangible the based to range quarter

Michael Rose

customers? helpful. color on criticized the there's just going then this of and kind next quality. things overall of to general think of That's like an being that. a into potential to I guys all NPAs to moves Okay. just And Or impact you maybe a get Is you what classified where in the here? of not as trying day, reserve economy your how appreciate credit proactive the for year. guys you see switching of identify driving, in credit -- to you're conservative expectation more indicative a at this the and we on of you What are forward? just what's expect really end slowing about seeing slowing Just issues thinking the just is building high loss, trying sense be about economy are

W. Rapp

is to Michael, Randy. Happy this that. take

expense. look rates much you're what's multifamily rates and those insurance of some can interest industrial, I the think, then from any book, in In to costs that cost probably absorption but lately that slowdown the economy one underwritten, rental you everything where kind here be to related interest and impact that seeing Michael, movement systemic see of sort -- higher operating one-off, as the when of are And some factor. we are interesting of rates the not CRE on you're more seen impacts you is finally, you've pretty anticipated. general, more some starting starting than of higher is is our in expenses portfolios. across the to to And to see seeing the and borrowers,

of systemic on putting book. in definitely not But CRE pressure seeing is some the any within the summary, more being on issues that the cautious, but portfolio. margins -- clients some so really So

Benjamin Clouse

a on pricing would conservative, trying trying and They talk we especially but in industries their we have are not really about our And portfolio. side, I Michael, of lot the we're lot to be they is When slowing, proactive. a to demand power. C&I interesting. be are I'm still customers, talking add, tremendous seeing anything just it's how to in for products systemic

high, margins still and in demand. up the fairly are their that's So slowing covering

still are of So customers right now, well. a lot doing pretty our

Michael Rose

loan just into Maybe Okay. quarters. about couple sounds driven. kind that's as Great. slowing obviously congenially next some of customer the It to think growth of related that we like of

probably that's of Some credit-driven decision-making.

As know we year, more think of year? kind expecting kind growth but what of it's you're about early, I rate is versus low you're next to expecting single-digit mid-single-digit the high a this rate growth

Benjamin Clouse

that's to relates as continue to and selective We're prudent be conservative fairly think credit. and fair, going I Michael. it be to

direction And year, to so I we assuming kind a it that as look to economy the move is is, of the fair. continues think, in mid-single-digit number next

Operator

from will Piper Our next with question Liesch come Andrew Sandler.

Andrew Liesch

sounds base, Canyon Just the quarter. of good your good fourth next to then conversion I expense the this the and got on what's on the expense here the into and quarter you controlling guess look at like the coming part early up deal going it really here year? job costs for run rate

Benjamin Clouse

guidance Ben. We it's Andrew, left unchanged. our

next see we will heard and footprint, continuing to upper range, will planning include the in year, talk you our end of significant believe be don't toward the million expense the if our now, we optimize focused expense regard a million -- on CDI in noninterest $XX change So in as especially base. really about. that QX. we We're of Folding our that right Mike in the I think for midst push obviously amortization. to be that $XX In you will Canyon rate to expenses

W. Rapp

to continue continue grow. leverage without Andrew, we made company I drive of great looking to we headcount committed efficiency months. to And I through try person we a grow the things to a believe help opportunity the of levels have the in operating mean our last expense and we've over lot XX continue the is a a can to more keeping us lot to contracts to additions and as stable. efficiency, And have to hiring at base. Ben our that really midst organization, we're we're drive we other procurement investments

ratio environment, more well noninterest to continue continue we to expense to just our efficiently So drive X. this operate XX% ratio to down to have closer our and average efficiency below in down get and asset

Andrew Liesch

interchange. the on Got a at a side, volatility other income some I be then should the from like this items kind could Or recognizing million charges little number. Is could helpful. you I it. And if noninterest high on send looking here? on watermark? how But $X at sale there be service the That's the fee and gain guess, of we bit lower. core look income

So good that quarter. was a fee pretty

Benjamin Clouse

will Andrew, there. we clearly think it build from

bit in of amount moderation gain in fairly This sale $XXX,XXX to quarter that expect QX. sales of a a had a to for of rate. more gain our on little similar I range normalized loan on $XXX,XXX

very, across We continue team And going to continuing to markets. treasury platform credit in leverage don't SBA anything add. I card if you you rest growth expanding focus else know we our that is on I of focused Randy's know as 'XX. have want into on the and very our

W. Rapp

the we and Andrew, really last as feel can would scale Yes, made is card that significant XX in our treasury up we that in just platforms forward. like move months to we've credit investment I add we

there's there. think we so opportunity And good

Operator

Instructions]. [Operator

will next from Our question Matt with Stephens. Olney come

Matt Olney

ask the portfolio guys updated this so Slide of strategy I kind of just year. undertaken securities some XX appreciate deck, want the and have highlighting to about the in you far

see the how part what you some what level in us restructuring, I kind I for unrealized second under recognizing appreciate appreciate is I the are see? of of would inning do transition? in, us of you that that do help near cash tolerance losses this kind a in way, and guess your some the is of we flows And And help scenario Or Just much of term? losses recognize. what another transition say you guess, can more

Benjamin Clouse

want very, very successful principles and the prior in with X-year the to ensure the after events sixth much mix we're off previously muni by for start earn some we're present we in see emphasis as beyond the I work of case, more of we environment. environment portfolio in significantly March had bit. much to really that potential there fifth our we so our more compromising changed thinking and One, regard both emphasis we expect and in our challenges has a The a significant on the And us we that make capital with to X- or to toward In can ratios restructuring, you not a we're up Matt. on out in back, by shifting think on X, and saying little loss a inning somewhere slide, and focus of what managed. guiding we was would really. continue adjusting capital, mix to That about two the munis. are taking say, range. with probably liquidity sustain those Sure. short

can a we of a rate. as there. of even lower improves with restructuring potential we is that, we our believe improving in our other just The neutral thing -- risk for guiding restructure given principle way higher the we that that munis, or portfolio that will Underlying the we weight other believe have redeploy a we -- into something portfolio we trajectory all proceeds such that yield into perhaps ratio products can continue from it's restructure risk can

been the volatile. has year you X-plus curve I'm very the the appreciate As portion particularly of in interest environment, can rate sure

the so think about of kind the we're to to And using executing prudent restructuring can. we're way make But in parameters sure about thinking against a going best it just we do that are those to be about that. we

Matt Olney

just And didn't the sounds relative That's statement? all the Is it's of portfolio. size it the it. mix Ben. about like a I Okay. securities helpful, commentary of changing just that fair within any clarify that, to hear

Benjamin Clouse

That Yes. is fair a statement.

a size balance percentage of our We consistent. to continue sheet expect the remain to as

Matt Olney

And deposit as follow-up That's Okay. then the side. I guess a on helpful. just

this the here and showed build I looking to balance? balances as are now Tucson as deal time, far DDA DDA just we're comfortable mentioned over forward, I some outside those bottomed growth. think from going that you you modest even saying the guess has

Benjamin Clouse

I try of goal, focused growth mix. our deposit core important very to lower really change mean, and want continuing we're funds Matt. believe and to and the to continue deposit That's to building We on franchise our -- that's cost value.

goal to all setting and incentive core it, everything mean I you plans name on deposits. to focused noninterest-bearing is growing from So deposits

Operator

This concludes our conference would question-and-answer [indiscernible] remarks. I to like session. for any to back turn the closing over

W. Rapp

progress making call want of just I to done have Again, the really and I'm for proud everybody job team a and the joining quarter. they thank in our third today. the we're as company the

that and which trying think to a think are is see some opportunity benefits of we started drive big measures of we existing us. took operating on I we leverage, for this really and earlier the to very continuing markets the market focused year, cost-cutting we to drive our share in

continue will very thank and hard, you to joining much we us So today. all work for again

Operator

now has conference presentation. today's attending concluded. The you Thank for

You may disconnect. now

CrossFirst Bankshares (CFB) 17 Oct 232023 Q3 Earnings call transcript