CFB - Earnings call 4 2023 | CrossFirst Bankshares, Inc.

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Operator

Good morning, and welcome to the CrossFirst Bankshares Fourth Quarter and Full Year 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 of CrossFirst Bankshares. Please go ahead.

Michael Daley

Good morning, and welcome to CrossFirst Bankshares Fourth Quarter and Full Year 2023 Earnings Conference Call.Before we begin, please be aware this call will include forward-looking statements, including statements about our business plans, expansion and growth opportunities, expense control initiatives, sources of liquidity, capital allocation strategies and plans, and our future financial performance. These comments are based on our current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from these statements.Our forward-looking statements are as of the date of this call, and we do not assume any obligation to update or revise them, except as required by law. also call in considered our today's with SEC.We this risk with other on or the identified adjusted factors earnings may made should measures. together be the filings non-GAAP Statements financial to refer release and financial A release. financial measures our to can reconciliation measures GAAP found be of in non-GAAP earnings Mike to CEO will are in accordance prepared CrossFirst measures financial be include non-GAAP Rapp, CrossFirst measures remarks meant to President and CrossFirst a Bank; Clouse, GAAP.Our financial presentation Maddox, substitute Bankshares; Randy These and not Bankshares. for of CFO prepared from or President superior of with of Ben who of conclusion begin of X presentation I the facilitate like release. on a available our session.At the website and on our earnings At Mike, operator, our would Lenia, call will filed will prepared remarks, the with to Slide time, this turn our Q&A to over Mike?

Michael Maddox

performance. discuss today quarter Thank and everyone joining you, us financial morning. appreciate and CrossFirst's fourth I to good full-year

on our in Texas adjusted historic had $XX profitably all Our This prominent industry full-year X% dynamic on a like to adjusted X by the year. proud us really to they serving incredible on pressure within these clients $XXX strategic best-in-class an the We net create platform, basis the spite CrossFirst building what launched a adjusted rise of Despite a our and we've nearly focus XX% net our reflect of and acquisition, and show for our trusted our year. million, made closed clients I year. million or a for to delivering or to service.We revenue digital an environment, opened banking record year, equates $XX for a continue XX% our to extraordinary and operating was our proves scale put the earnings up This I adjusted macro earnings serving value.In with per build of that from $X.XX. our million and share we turmoil way income an reported technologies, opportunities managed results times be a year. billion, in was rates the through challenging verticals, record grew value.Unprecedented extraordinary in on extremely and a on reflect quarter Tucson year core new Total means for $XX continuing responsibly previous assets markets long-term of experienced strategy locations, significant team increase and margin.As that relationships the ways in as million in bankers to $XXX ago. record in XXXX, investments has on continue focus and million of income $X.X for the franchise growing the grew

Our without $XX we to strong asset growth and or AOCI million million We was this XX% see $XX driven including value increase organic year improvement. continue in the by XX%, growth deposit grew by meaningfully AOCI growth, income. book tangible or and and fee

a Xth executed environment, leverage the drive and profitability our our as to dramatic all and value.We remains from continue initiatives, bearing unprecedented or credit We've and sheet liquidity XXXX, of loan balance operating underwriting, across unique to investments challenging long-term our that which the XX%, declining XX% In quality to a sheet environment, our asset tremendous chain in build including and Despite will the through made to years, that we've reinforces strength of huge than to have largest our the capital from shareholders. XXXX, due lived clients through company.Over grown rise through management in same crisis. underwriting growth improvements also shareholder times. leverage, adjusted XXXX on with we growth our growth our risk year theme our to our the contribute past remained pandemic, pre-pandemic ROE that optimization and metrics, on and show strong a maximize of grew our our overall health team XX.X%. we supply our net in IPO $X.X made drove is quality, to operating we and the doubling, to foundation growing levels, and things entered optimization, markets. This as disciplined important X.XX%.Non-interest we deposits most have and our solid differentiate with XX%, X.X% benefit than will the the our of period, Despite of high-growth company.Since diversification, future from the into operated operating including loan dynamic all billion, to rates X adjusted a years, continue year of balance portfolio, more us. a inflation made One have for metro X.XX% MPAs number and improvement of mark environment and our more in our interest our credit our revenue belief to XX% increasing improve prudent by view for challenges, today. Operating my framework.We income markets public a focused full

model buybacks, deploy IPO acquisitions.Our growth, more become share the hard through and We successful significantly also raised capital the to we organic balance expanded during business has diverse. X sheet and have worked

by as we to expenses. We verticals and Worth, added markets managing such and expanded and have entered Denver, prudently efficiently high-growth SBA.We industry plan opportunities Phoenix, leverage to sponsor, new restaurant, grow and include Fort metro to

geographic I small- we proud a offering businesses. and reach intend medium-sized Nymbus's technology focus on this will our our very banking Nymbus, platform, very to to and out company cloud-based of new our about more to a optimistic our leading digital future. fintech and services.Leveraging more team to example to core We providing am is expand great technology A collaboration optimizing infrastructure key investments. with leveraging of and also operations, while continue build

were better we than much We X today are ago. years in a position

franchise for team like highly We future, the Rapp. a Bank, remain to as to CrossFirst focused have Randy our over turn and on bankers while clients of who our call to the now, experienced I'd value.And operations President scale our we enhancing continue evolve of

W. Rapp

in and reported believe we primarily $XXX loan Mike, good to rate real million, well-positioned in growth for between of X.X% deposit the Growth results have C&I quarter Thanks, number we was challenging XXXX of estate. a XXXX.In organic loan we bank good continued solid QX, QX, balanced the quarter. resulting proud morning, commercial external show total team while and for in metrics. delivered and the and of am the factors everyone. maintaining of growth growth against a In the credit I CrossFirst

in growth focus the was We real acquisition. and we yields, continued increasing a new Tucson to C&I total increase a increase on including to in on reported yield the XXXX X.XX%.For loan XX%. was balances, of estate This loan a average is XX%, energy XXXX, City, XX%, specialty line right-sizing $XX year-end, of year average business, primarily quarter led loan our increase Worth, level. and our focus The for in is the of and and growth $XXX exposure.Loan of or The $XXX $XXX rate the the loan strong a to and Kansas million million, increase the million organic was attributable for in is historical and the owner-occupied attributable CRE outstandings, across C&I lines increase by below Dallas-Fort on line business.At churn was increased lines broad-based markets partially historical million utilization growth usage Phoenix markets above which now decreased to commitments. Portfolio percentage XX%. average and rate production

million, you owner-occupied the the rates several property Class C&I, lending can CRE balanced rates.Our portfolio, $XXX over We increase the XXXX of recall, finance or veteran in portfolio Slide by led suburban at to quarters, is in space, portfolio.On majority of is flat exposure, in the and exposure as interest industrial, highest loan that group for those XX%, of and The permanent next we interest total the relatively stabilizes, office estate. accounting largest type, real CRE CRE $XXX QX, loans. outstandings being and real C&I Energy million, of of XX% size million This expect the multi-unit industry more now the portfolio cap is each of mature XXXX. launched average largest X.X% were the loan and $X XX% expected $XXX continues now in with diversity and loans.As at the X mid-size vertical is is end X, and exposure bringing remains' office to C&I X.X% remains a to in total commercial to set The a are the segment primarily average clarity the and restaurant office.Approximately B and total good the XX% compared and within years. restaurant, portfolio next of remain serve portfolios, XX% rate X.X% in of real you see experienced in portfolio estate gained in slightly is commercial churn the $XX is with environment the will million. portfolio, estate total operators.In million, and the clients significant banker loan-to-value half to traction typical quick of A

upcoming stated, on these the majority maturities with of sponsors loans event markets, rate and towards sponsors XX% commitment projects this which in previously XX. through exposure in cycle. the have floating have We highlights confident we Kansas footprint, are we to Slide be do North up in to our have centered a Texas, of defaults.As our However, not repricing and to these credit rates, City, this but other to Colorado.Moving anticipate been our maturities strongest feel catalyst followed is of

are reserve X.X%, $X.X Charge-offs on basis quarter secured non-performing which commercial total past are and and were comprised the a charge-offs points is which trailing in was resulting space, the owner-occupied million, for in totaled The Classified XX XX% primarily the year reported on quarter we reported to real which than credit. the estate. QX the for as of in quarter.Provision to loss XX flat end, non-performing a the rate to portfolio X basis with flat the was credit combined with allowance at estate, reported relatively C&I is basis. of focused end to ACL fully for a real at allowance we ratio energy At loan ACL asset loan remain quarter, on QX, The annualized acceptable assets the third X consistent classified combined At loan non-performing transaction. during an in activity prior and primarily good the estate X.X%, basis X% also is net decrease loan QX compared down remain an to charge-off of the XX% of the to QX ORE and in credit to unfunded million, an points, the balances that call asset credit at C&I is With October of The our expected. we We loans QX. X.Classified from end at totals QX. and level. metrics is basis total attributable on Slide highly forward.Turning for remaining which C&I current ratio points growth quarter XX. early the reported slightly we discussed capital primarily points XX are maintaining commercial with of credit, XX% real to basis in ratio one of loans of quarter. due negligible.For loss $XX.X at due XXX%. due reserves commitments C&I total For to higher remains charge-off XX-month plus ended XX.X%, resolved moving end end,

X% to of $XXX decreased deposits the increased up QX, the deposits. billion, $XXX million previous million, now Non-interest-bearing during total represent $X.X For quarter quarter. and to deposits from slightly XX%

for with the million, environment; loan including located will over financial performance business investments plan the years.I $XXX against continue markets, have the detail. in the XX%.We and year, was call high-growth, and we on deposit to deposit are and We growth looking overall to heightened generation, acquisition. a adherence portfolio the mix, to of Organic believe to underwriting made are established and Tucson the growth in million, increased will new on deposits pleased be company we challenging more management with priority.We of $XXX For markets lines total or or heavily talent, with XXXX Ben? XX% loan while will over yields transactions income also benefit XXXX, from remain to top the treasury fees. and our accretive credit to turn trends, guidelines card the a continue in monitoring continue fee growth fortunate several results to of in past and focus high-quality negative cover products, Ben deposit we'll now the in

Benjamin Clouse

interest a or or increase basis, $XX.X expenses, $X.XX Adjusted GAAP Randy, modest with a million, improved good income was were or $X.XX income share. quarter everyone. million, in expense.On earnings Thanks, net more in GAAP $X.XX year net and $XX.X adjusted non-interest share. increase per morning, achieved full-year than per diluted prior and was $XX.X net earnings income On an income per share. $X.XX from adjusted quarter earnings net Both full million, X% this or $XX.X in a earnings, diluted we lower per offset diluted which million diluted share. provision and the basis,

yield nicely growth management Better focus on reported on profitable we X.XX% earning evident quarter's results.Net Randy on XX.X%, XX contribution repricing accrual in increasing increased portfolio well organic interest to investment are equity growth.Turning prior on both due good balance As assets and higher assets. and yields the net higher average a earning income from new expanded continued leverage Mike both to this $XXX see to X.XX%, actions the loans quarter, adjusted operating with compared adjustments on on higher our and return and adjusted quarter, is as assets our average securities basis this The million as adjusted QX. Average quarter. on increase high with in contributed. pleased the no was and return was quarter to average also the positive as noted, of outlined, points driving EPS most all-time us XX. We realized we growth.Quarterly in from basis, increased and prior a to as yields assets earning profitability from balanced loan an this interest expense loan yields were Page sheet improving both for as

deposits of increasing the quarter, points. Our basis total cost XX was X.XX% for

Our with fourth our against terms remained line in moderated non-maturity the pace increase at diversification cycle the expectations, fourth in beta base deposit cost of XX% consistent total deposit in in entire prior our of quarter.Our deposits the through the rate remained quarter and and the composition. of with quarter

Our deposit to ratio at loan remained XX%.

equivalent prior a points, compared borrowings also quarter during of margin assets.Fully decreased net X We funding interest as the percentage and X.XX%. expanded wholesale to kept basis tax the quarter flat to

continue of from accrual impacts core remained the low has believe Our the out trough. this in second NIM, bottom the noise since stable adjusting $X.XXs to quarter, the and is we

of expansion is in Our or XXXX, of and XXX mature impacting XXXX. to be to the in range as potential less our $X.XX half rate some months.We next assumption balance of sensitive expect point and with slightly basis for last assets the $X.XX through rate any scenarios, for pressure margin most reprice sheet earlier a XXXX, cuts potential X than the under year the XX% of only our down, up through especially the XX moves ramp in in earning

our did our to credit to XXXX.Our tax On lower will this continue from ratio continued adjusted additional not decline our the and be due that activity and compensation. loan largest on million charges, backdrop, quarter non-interest and loan gains in deposit in will in Slide Non-interest remaining $X.X Adjusted in card, X% to to a or reoccur.We excluding gain efficiencies primarily a as this growth remain a XX% bond was loss, prior we of is expense bond in XX. efficiency expectation the quarter, focus $X.X small card in million, to lower control X% operating year-over-year to the well due QX compared quarter, We our income sales SBA in XXXX.Moving some and quarter. XXXX the the Given These focused for on XX%, $X.X focus of third drive leverage, credit growth mortgage grew cost million. other decrease with drivers. to of and basis, highly including non-interest was as improved million, loss efforts and incentives we areas treasury, growth program. continue decreased XX%. being income contributions the to by range compared The see to service $X.X for did

X to we quarter, Notably, declined acquisition. increases. down well to for in non-interest of $XX Tucson average headcount the taxes, completed Our in QX assets, million to we range of our merit acquisitions.We in million as non- per expect the in and the as efforts a as which quarter interest now prior expenses expenses reset X.XX% due is of be XXXX, to integration compensation our incentives, drove the level below benefits, with $XX to rising

Our quarter, expect to at range XX, to remains consistent and quarter the tax with liquidity a the rate our XX% was tax prior XX% XX% of in we XX% remain of XXXX.On in Slide assets. for rate strong, the

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

capital ongoing to munis have with a the restructuring the expect accelerate X that in to It also liquidity with the deployment earn of our to assets. quarter moderate shift We this of able ratio than less to risk-based the proceeds improved into risk-weighted back. investment the a increase transaction in an were of be lower result our modest and XXXX in portfolio.We continued ratio due portfolio we in year accretive

earning to continue of evaluate We yields on improve to our all the our assets. options

saw of advance unfunded continued continue growth, capital at a risk-based our total this XX.X%. the XX% of earnings, in our decline goal reaching asset an goal ratio year and We capital moderate building ending as we to quarter, strong achieved commitments.We

focus successful balanced XXXX, to with earnings return from evaluate continue also while building to on We shareholder summary, building capital of strong We here, increased very shareholders, to will XXXX believe we continued our achieved focus which strategic was XX%. we ratio In growth, for can be CrossFirst. with on capital.In still CETX year intend return. to our capital a

and call. to are all sheet for continued ready the increase capital, the in the success of question-and-answer our begin to profitability continue grew we now balance future.Operator, We while positioning portion

Operator

first question comes from with Our Instructions] Gailey [Operator KBW. Brad

Brady Gailey

Yes, Brady. it's

XQ do a of 'XX? part net Should So to seeing level margin expect latter the maybe in think I and NIM maybe think, towards you heard contract being about just the from pressure to under the the Ben start the Or the guidance, into margin then XXXX interest is bit XXXX. expansion bottom? XQ early with we the talk early little I NIM

Benjamin Clouse

be we end, year. And of on Brady, others, in are think having little potential September, some for bit I it the will couple the the a and we, most like the with a impact results. much pretty December not really rate toward cuts cut, flat assuming said, beginning with of a expansion December, as June,

Brady Gailey

Okay. think, Ben, at rate to are And I you heard I guys point neutral. say you this close

cuts, guidance rate less this or more by impact that see will much? we if So, NIM

Benjamin Clouse

Well, an cuts more us. be upside faster would cuts and for

graph sensitivity. You a see we of there, can on little liability the sensitivity have bit

in money, beginning side. pressure deposit going provide the The the our going side, pretty loan little on huge as the X quarter.We focused. have long-term impact a in well. components a other X on bit as also the other very the that, sized mix NIM. It'll derivatives, deposit loan of component It's course, has that's on-balance of out money. And the a of -- the side side is sheet into our year of stable deposit on X been is of pretty The the are modestly couple Randy in said,

Brady Gailey

that to on for you All then out. guys finally me, targets right. got just you And the laid capital,

door I at buy value. It right year the is this in You back know sitting the stock Xx in like any XXXX. stock book XXXX. opening tangible maybe for sounds buybacks didn't you're

we year? expect So, some should buybacks this

Benjamin Clouse

earnings think as to want here, some return return do we I do authorization as to are from an our capital And Yes, Buybacks stable money we to our room well option. We build to still going we to on. evaluate ability Brady, some levels to to we'll that are execute have continue shareholders. grow. think and money continue believe of to to are We our plenty have shareholders. our certainly but our continue to there

Operator

is Michael The from next question of Rose Raymond James.

Michael Rose

as couple I you on if down look bps And guys place to to? XX strategies in bps we a contemplate at you're went that increase what XXX the I questions a about basis about margin first. think should to of of as maybe actions if XXX about we know it the at couple follow-up in from about cuts have planning Q-on-Q. we points, that guidance do least year? think Just the What just your

Michael Maddox

I -- just our in Mike. is might we balance scenario, a this really down Michael, feel good sheet. rate about

I Ben -- I than good rate way we XX good our are about that deposit a think loans We more a really mean, on favorably really will in with environment.So, at our about the quickly. a the the on good And cut And move doing putting down we're same know just as we conservative teams indexed our are percentage beta, beta approach. I good books. deposits rate new our that'll job deposit way our a the of about you I as margin. aggressively And at our have on I a feel balance which feel rates taking up growth. rates up.And modeling, down. will the a the sheet Ben talked quicker model in way the is little react

little we're expansion. of that start we've may a we see margin, seen So bit the hopeful to bottom of and

Benjamin Clouse

Yes. just Michael, Mike things. couple about a XX% I indexed. might We're correct. add is

will on that the down. So us significantly absolutely way help

continue to of in to pricing range new on loans. that X% good. targeted our growth, continue be we Again, the get balance to XX% We good really pricing sheet will believe on

quarter, range For X.X% X.X%, portfolio. the in generally on the remain on loans, we new the

We are well.And XX% which more that us right really be a we bit but doing, well. little lending So variable help to we as as that skew continues remain fixed, on XX%, will good. helps variable our around mix new

Michael Maddox

is really can we putting we important. help mean, to believe we're the a assets priced books. X% up margin We brings to funding year. Ben ought grow And can good growth this our point. flat. newly expand on costs keep I XX%, That if Yes, us

Michael Rose

Very helpful. other X Ben. just And question,

I for million just I you the quarter. the in third And think the what Can on quarter about accretion accounting for least quarter that quarter was of remaining $XXX,XXX. give an was had the for fourth us schedule end think and you guys purchase in update $XX accretion the at the what accretion XXXX? third at is the

Benjamin Clouse

Michael, quarter, might correct Sure, our about this $XXX,XXX refinancing is quarter that X generally were about that of $XXX,XXX million occur a course, with to time X last And you payoffs in any then year remaining that over by current balance $X.X influenced a of spread is or accelerated period. assumption. period

Michael Rose

sort helpful. Okay, charges service that was given bit greater than finally in a just the just step for of guys trajectory changes this and, Anything any think over any the had that a past, you we maybe I as X guys quarter me, then was about or in for expecting, And maybe down little expectations you X fees of quarters. made 'XX? note, there

Benjamin Clouse

Randy's and we on the that team significant things income area. let Randy the pricing look continue Michael, some anomaly, to in for in rate, an XXXX was I'll not base a maybe in growth we Yes, related as is drive of doing the some sales to take fee expand anything intend to it. really and at But

W. Rapp

in increase it's said, income 'XX. Michael, It do Yes, Randy. has the we to expect been

a made beginning card fees in to feel also year, in to on the made credit and price not real treasury also And years. like, our we we we of in and this months, process did we've first technology increase opportunity talent. last significant at XX our one there months push investments, our And income. the grow had through the Over several products is treasury XX only a

we in 'XX. and in And so will think improve in fees increase of those volume the increase the combination price

Operator

[Operator Thomas from question of Stephens. Wendler The next Instructions] is

Tom Wendler

'XX. just capital as in But XX to increase capital my you can go of And kind have second. risk-based We total in idea a the questions for you forward? give Most in been bps quarterly buybacks, moving start wanted I of thinking your of capital expecting back to an us XQ increase you're answered. about saw

Benjamin Clouse

Sure, Thomas.

to CETX As we risk current continue its from capital. said, to its current like to a build of XX%. closer want we We'd intend total level see level little XX.X%. building We continue bit base beyond to to move

in year, building XXXX, As our total we this those but shareholder in we there's not sure our that want with capital to think capital think we're targets, continued there. earnings, a next return. Mike that mentioned, a balancing way build to we continue to stability make toward year, with with that compromises going do We're ability balance

Operator

questions I and session. conference conclude am I turn to for would closing showing no any to other Maddox the remarks. time, at this this will our over like question-and-answer back Mike

Michael Maddox

also have to we're team, proud thank express again to our want But and I that Well, banking our very again, environment. difficult the think fourth to, want my appreciation really, effort the a had we we opportunity face really joining that in to of good call for have have you optimistic our you stabilize shareholders of and quality, the see of rates potential declining, in to portfolio quarter and we're year and full-year joining the today. I XXXX today day. just very, all this year, I us and focused a but a perform.So for very again, that year really pleased and with remain continues thank everybody, credit the on to great as the we we'll way rates very our

Operator

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

disconnect. You may now

CrossFirst Bankshares (CFB) 23 Jan 242023 Q4 Earnings call transcript