CFB - Earnings call transcript Q2 2024 | CrossFirst Bankshares, Inc.

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Operator

Good day and welcome to the CrossFirst Bankshares, Inc., Second Quarter 2024 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. Please go ahead.

Michael Daley

Good morning and welcome to CrossFirst Bankshares second quarter earnings conference call.

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

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

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

Michael Maddox

Springs for hosting joining Cory Colorado like today President, thank team to Springs Good I'd our Colorado to the quarter call. us and you morning thanking results. our for Leppert, for CrossFirst's by and us discuss second start financial market

earnings, in nonperforming operating diluted quality to increased levels good improved expense earnings In only solid I longer-term verticals, and our classified quarter, manageable shareholders. income returning strategically we fee and continue capital maintaining despite credit also leverage in about per did as we we increase to scale quarter base. Not income evidenced million, share. want by a company of and over income. the the and X% but and feel strong assets our We a balances. the cost growth, The reserve we've against Our result continue earnings operating in focused $XX.X $X.XX in in credit lower to turn, great net resulting markets is of across of net to progress revenue delivering highlight drive our increased or to to our strategy year-to-date expansion had to a growth quarter, interest earnings growth made, growth ago, the year solid deposits. adjusted compared and quality,

are with in service see credit combined steady the XX% card year first performance through growing X lines fee months. to our revenues and pleased year and charge over We

investments drive and to by have to billion, new on to of Arizona initiatives made leverage led and growth continue quarter, an focus assets dynamic the grew technology, our markets, in We X% we $X.X growth the from profitable previous from and Texas, markets. loan Colorado, increase talent. Total

see selective opportunities. business We continue to new

pricing focused underwriting remain strictly relationships and on credit We adhering growth strategically have quality to guidelines. loan our and moderated while

a Building We in growth are we which scaling density continue to be to strong with located fortunate will allow markets priority. believe produce to great our markets high-quality be with to continues us economies, steady customers. and

assets, across our to country. I that quality to market borrowers assets credit We nonaccruals, As Past classified the quarter. to are pressure all we continue with conditions and apply the improved nonperforming metrics. mentioned, dues, acknowledge continue in be pleased

make area in will Randy validate regular monitoring of our third We on of progress in risks to regular parties number reviews, risk lines an growth portfolio a through moment. Deposit across deposit of continue be and independent in reviews to are to quarterly assessment actively initiatives. a the cover credit dives continues our all of deep we detail more which by business, focus, portfolio, and

always second as growth by group. make headwind, led challenging growth Texas client and The deposits in is that our for drove our in deposit quarter we customers net April. tax Despite energy payments

focus meaningful made negotiation our also progress our We efficiency completed we contract, his report remarks. details services will expect pleased core quarter this Ben cover will we to on I'm a to result our improve that successful during the ratio. of which in savings.

also our earnings program. allowed through build us our shareholders the share returning growth strong while both to Our in capital to quarter buyback capital

accretive reflect company. believe the of and we true at an much average plan took highly value price stock a We back our the earnings not to to power bought leverage build well value of also with is our fairly capital to which book the our of remaining while buyback. shareholders. below continue to quarter, opportunity value, stock advantage opportunistic that was does We price our price that For was trading at that

commitment their strong their our shareholders, continued their communities. work, for employees our expertise, thank to and like hard I'd to clients, Finally, and

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

W. Rapp

the relationships primarily C&I commercial improved in QX, solid and that million, and was fee for real growth growth estate. In growth late facilities Thanks, in The space. on increased good existing metrics. quarter everyone. Mike, growth we to income X% significant fundings were multifamily team a able $XX an Primary rate energy, loan was the morning, C&I, experienced the we construction in in report CRE the a of to move industrial deposit continue In market QX and in and credit contributors annualized basis. Dallas was Total an of quarter quarter. hired on and loan resulting in the number to growth, long-term

was historical rate C&I We XX%. which on and on the percentage end, loan XX%, utilization strong continue to above quarter yields production loan line in the a focus quarter average At of yield new the increasing is was X.XX%. average usage

slightly a quarter now at the churn is and expected, average increased during As level. historical portfolio

estate the We churn increase portfolio. primarily several to real expect continue to the this next over commercial quarters, in

portfolio within XX% loan remain XX% X% X there in and Energy of to largest of owner-occupied see portfolio. On with C&I of real restaurants each continues and total real XX% those estate C&I portfolios diversity you of being for with CRE of segment estate. or highest can million, in industrial, total good loans. the accounting the remains balanced type, $XXX in exposure and Slide outstandings at exposure C&I were X% commercial total XX% Our and property CRE industry

and of good brand the In QX space remains of office XX%, CRE loans. average size granularity is proven majority in million, is to and exposure multiple in The set the this years. portfolio, the of down portfolio. slightly quick-service of suburban and $XXX in loan-to-value and portfolio million. primarily X total portfolio the average restaurant The is XX% Class to decreased $X.X is Our slightly next the locations end loan $XX Approximately mature A office the B from which is X.X% exposure to and is is million operators largest total with there the is the office. now

throughout loans with this repricing floating rates, XX% been of are which these However, up rate maturities cycle. have

has has in support Special office office Mention, of Texas, We a centered a Colorado. the grade. exposure graded footprint continue and which is Kansas strong to the of majority one have transaction Pass the $XX.X the our City, in and remainder guarantor, million The North portfolio of

at During CRE end to billion. QX, remained $XXX at of QX unfunded and remained relatively at of from flat flat $X.XX the total end exposure billion million $XXX million commitments the Total increased $X.X outstandings QX. CRE CRE at relatively

we in mentioned, anticipate reducing the of the CRE CRE next total which and CRE will total back below exposure portfolio, focus exposure several quarters. on capital previously churn As lower in increased XXX% our our

XX. Moving to slide credit highlights on

million balances of plus QX For Classified XX.X% a XX.X% and due transactions some of market. of quarter primarily a decrease from QX past the includes charge-offs. we to points lots residential Austin XX residences capital ratio the end the nonperforming transactions, $X.X QX, $X reserves the basis end at at the XX to nonperforming in the at decreased decrease to combined loans at million. The at ORE total and points XX% The At the of partial QX, end remaining real in end our loans remaining was ended to due primarily of assets Classified the The in estate, space, XX totals from basis exposure estate. XX% real reported QX. QX. are are to commercial and classified payments, assets owner-occupied energy C&I client largest C&I under negligible. were portfolio XX% with in reduction and the end the comprised in

a is off transaction at million the due July. historical past in late reported XX levels. to to past total XX pay we anticipated, end decrease scheduled of due that to credit back transactions largest QX, a the in The As is in $X

rate allowance the total basis X charge-offs an end, trailing points C&I we loan for quarter prior million, quarter. X.X% our credit. of With credit to total reported of points for net in basis a commitments charge-off both for attributable $X Charge-offs ratio with At for the million, of a provision and ratio on XX-month ratio XXX%. a quarter, loss quarter are resulting of a on annualized the X $XX.X For reported and X.XX%, $X.X of basis. reserve of primarily were to basis loan X ACL Provision is to in resulting totaled a and loss we nonperforming an to of credit unfunded combined charge-off which ratio allowance current consistent million, expense XXX%. loss ACL

with maintaining the quality credit credit on We the highly moving pleased good and improvements during metrics our remain are focused in quarter forward.

and activities portfolio reviews annual our reminder, approach our practices ongoing of a As monitoring basis. XX% that credit our validate to third-party to include continue risk an Those cover credit reviews on rates. monitoring

Turning to Slide XX.

to provided and we quarter, previous QX XX% in income highly charge and deposits. X% $X.X to total increased fees million Tax deposit market slightly during service increased pressure bearing card QX X.X% the $X.X credit grew April million while grew million deposits increased deposits income and QX, fee to QX, deposits from remains in XX% market historically billion of billion. the billion, X% payments deposits the X.X% $X.X time with In Noninterest deposits $X.X QX over on the to $XXX million. quarter. increasing $X.X $XXX have to to competitive. In over money quarter up increased For represent

these the are in programs, in previously which investments have now made market. traction gaining significant We

of past are reported Ben? the the income in for now remains portfolio the and charge-offs, dues with loan, of the financial assets, to remainder a for We quarter. second nonperforming fee the Ben more given call focus year, over classified our decrease quarter. I detail. the turn cover growth the key and proud the to in uncertainty, will pleased overall economic in and Strong management deposit, assets, are results we

Benjamin Clouse

everyone. morning, Thanks, good Randy, and

$XXX was than interest also mix quarter Operating expected going was approximately modestly X% income would to per earn X.XX%. back diluted generate yield year X EPS. The on to already outlines this contract the on continued income run GAAP included to core was return an and Better for balance rate for income yields growth reserved. Noninterest quarter. of prior also resulting quarter. of Adjusting assets consisting restructuring expected X.X% common due quarter see the a million slightly, investment this funding Randy Interest yield XX was to return asset commitment on quarter's Average up growth, core $X.XX this in of expected net that our expense a was expanded net loan average increased increase on average on incremental $XX.X margin an an we X% This realized loans yields Provision revenue X.XX% primarily months for prior and less million, basis. system somewhat said, This average significant $X of an compared our backloaded volumes. this net quarter. the last was noninterest profitability underlying quarter expanded another both improvement quarter. or savings of was interest on driven our of to increased quarterly the current higher or Mike portfolio assets which We in annual changes new million X per $X.XX toward was income securities and As outlined, really pleased end cost higher equity the this with earning and by restructuring is the in $X.XX and the quarter the contributed. higher XX.X%. and share about X%, quarter, quarter, as EPS. contract. higher in sheet of Yield on forward of Average points, expense are included from the restructuring results. as add earning was basis quarter, loans balances. Slide savings

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

against beta the remained at continued increase cycle rate deposit the non-maturity last falling line our quarter deposits a quarter. with second expectations. And of total point XX%, Our increase through entire basis the the cost from to of moderate, in in pace XX

Our in and deposit quarter prior terms base remained of consistent by client with deposits composition, the and quarter end. grew diversification

X% range. prior wholesale Fully XX% margin X.XX%, to some quarter at tax resolved client was by quarter with seasonal flat XX%. We of Our the utilized quarter, leaving outflows, within And our due interest quarter. slightly line up was assets. balance down last funding the equivalent to of which slightly to the loan-to-deposit by moved the with expected ratio to cash in end consistent the ending borrowing net

any year. rate this expect with some cuts our improvement NIM We to

pace For increase in with the on kept funds. assets the cost quarter, of yield

Our the XXXX. the rate second to rate worked sheet position current X.XXs We've the of higher-for-longer preparing NIM quarter has while diligently remained our since perform low for to stable potential cuts. balance environment in in

primarily months. Our reprice continue or earning variable to assets XX% next mature as the in XX be

XXXX was and for we loan the this X% expected in on are moderating our X% end to of to our outlined, Randy loan of growth lower our As estimated range year. quarter, a the range growth

variability we any On automatically are side, the rate as good client Fed movements. move down XX% of have our indexed liability will and well. deposits with

we of short-duration addition, deposits have XX%. In broker

as and has have X- move that months. clients $XXX XX we mature in of Our continued we to into million products, CD portfolio X-month CDs shorten and next the client duration to incentivize

to our our As CDs, to continue and narrow spreads very continues potential on to somewhat margin cut for margin we for in only is XXXX. be expected being X this driver lower expected lower expanding us, we renewal in significant of The Noninterest last noninterest margin including and rates. The Based of renew was to for expansion a the with will previously credit and leave at quarter. end priority absence year. $X.X the a cuts X.XX% growth, strategic continued of key continues dynamic, assume growth a the for income was XXXX. a revenues. assumption biggest million to would this to environment income areas range quarter, range. X% September card the service as and These impact that is X.XX% pressure with declining new Growing outlook cut rate rate of from that mentioned, still the rate be year, charges loan of the focus

expense the Noninterest due declined declined XX. slightly would with this due Expenses partially line Slide been in core to compared to otherwise driven and to our quarter contract restructuring, seasonality. and mentioned. as I Moving benefits, quarter, increased prior lower to the have Compensation guidance. taxes by

level was to quarter we and year headcount talent from the as toward at continue production Our unchanged some ago, as the prior scale same remixing of remains with roles. a

million focused $XX of our operating including XXXX, leverage contract renegotiation this XXXX, revenue and on quarter savings. outpacing highly the additional core expense growth to be We quarter. expense for to efficiencies noninterest operating drive in evidenced gain around as remain by expect per growth rest efforts We the

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

saw of sources. as We growth and XX, continued advance continue approximately strong quarter of and goal earnings. have off-balance capital liquidity this on- our sheet building asset to from Slide we On $X.X billion we

on return. focus capital shareholder We balance to continue building and

of We compared value earnings, of of call. advancement building of first took the pressure and stock are of share question-and-answer of the weighted can increased strong Operator, we we happy we a earnings at $XX.XX advantage our portion the level dedicating book on capital our are We our of continued with XXX,XXX organic and shares summary, quarter with tangible while of return. In buybacks. a achieve portion very some we to cost continue ready half goal begin at end. our average strategy. growth, shareholder to Mike now to As our to $XX.XX repurchased price mentioned, believe XXXX of per

Operator

The question Michael today first Raymond from Rose James. comes [Operator with Instructions]

Michael Rose

NIB Maybe and I I the think we pace is really we we into growth energy The deposits. we but could also only think growth. you next I not as know Nimbus. was growth Do next the think you level? but also cost, in and see strong. year? about start signed And cited would complexion about essentially you to on just just of at deposit wanted should on believe, move recently know comment should through How continued Texas, a you that quarters the how that how up mix deposit X stabilized with

Michael Maddox

Thanks, Michael.

of our obviously on groups mix our we by we're continue did across nice our couple had grow mix in focus a little in think do and great but our I growth is deposits outperformed growing markets is to feel a highlight markets, to bearing. We footprint. Nimbus stabilized. dynamic so that bit, footprint. I like we continue our to opportunity our improving We in still and see process. noninterest that

launched have the launch expect fourth yet, and quarter. will We we that in not that

growth from So, core was second our markets. quarter just deposit in the the growth

Michael Rose

we it? the way loan then little hopefully potential growth Is growth, So move growth the if next accelerate? for that could into actually outpace on loan should think about clarity more as we the a there's we should there's assume bit year that deposit to and economy that

Michael Maddox

model trying which want so to to focused Yes, CRE thoughtful loan said, way we we're and credit as Randy well. And concentration stick allow standards. that's volume. our as thoughtful think XXX% it, to to on us be I to increase expect a our We to that up to we to look also trying we're area at we're to a pricing reducing our churn our about and under on bit, And fair as pick mark, down growth. that ought think and little loan new loan be

W. Rapp

to deposits. I markets, Randy. we're model we out with they're might deposit add, I gain our incentive all highlighted, asking for traction is in this what as made to making growth, relationship as we've well. deposits And well that Michael, our our we sure to starting so highlight think about and as comes and business we're tweaks as think in, some that managers have and no line a full relationship we they're new asking, matter loans, of see

Michael Rose

And then for Okay. just me, finally maybe all to just this tie together.

limited to grow it's X dynamics. NIM, like the assuming So, sounds thoughtful going stronger the that the would given securities just year to next we am potential missing very being you only I whatever add on you're this for bit be, we those to little somewhat me think about Maybe to it it But loan incrementally get ability or growth. Is seem is to look fair actual into that as deposit growth, book. a it something? cuts year,

Michael Maddox

in have income the we'll our Michael, year, in the stronger. in mean. a opportunity we some to second hopefully continue to third rate still late think And ought interest in or a sooner, with to growth NIM quarter quarter Otherwise, have think if going September, not solid rest the A tailwind that, think the of would growth our see and have I our I the to of headwind you're grow cut been NIM. expansion get a net No, little I with the We lot we loan quarter. interest of and net income. was

Benjamin Clouse

our add, it's XX%, a and for a those Ben. more it's than of cut, positioned really were think would quarter rate talked bearing, and XX% we little we're have but moved in bit, of Michael, noninterest off note haven't sensitivity will a while. little important bit Mike and balanced grown from that that. a about level to on Randy they've but ago, moved I the sheet we're benefit a while I growth with balance we

Operator

Lay question The KBW. Woody next with from comes

Wood Lay

just really drove classified what give the quarter. strong us hoping a some credit. for on that the Yes, quarter I color was so you in improvement it's could

W. Rapp

had is in Woody, and -- the was in across really really it CRE, We had drove so was allowed which it restructured we We this portfolio Randy. decrease that thing decreases really additional portfolio. equity, refinanced. Yes, during that was some just no C&I, transactions the us upgrade were some and one with saw was that quarter. whole to performance. no There it it,

Wood Lay

it percentage as on just Makes the was it sense. basis, then relates flat. reserve, And to a

Given factors did percentage some metric the we of quarter tweak flat? to keep credit that in the the you of improvement some qualitative saw, that

Benjamin Clouse

economic We it. else those. is every quarter. anyone look at significant We're those made I any think don't qualitative than in optimistic about factors the moves not think obviously would cautiously which probably We've outlook, different about

maintain Our underlying is reserve that the and level, math appropriate, change is to how loan the which level, works. charge-offs, at continue goal by obviously, really that think at driven to we and a X.XX is growth is primarily

Operator

The question Andrew next Piper Liesch with from Sandler. comes

Andrew Liesch

capital, real you is to Do percentage of estate goal that below a at the commercial as mentioned was have XXX%. it of you get couple quarter? the times end where now, your a The

W. Rapp

historically we range. were market to about conditions decision opportunities given and we've seeing. Andrew, it's X.XX%. Yes, a been increase We made in that the And X.XX% strategic

and finished about but that back X.XX%. down at X.XX%, now And we then about peaked to so that below we're work starting at X.XX%,

Michael Maddox

we're percentage heavier the trying the back so changed in and has estate, a that Colorado to that methodically Well, Arizona just real also we and X made acquisitions work little with down. were

Andrew Liesch

going get expense from on you sense that's And like of back lot savings be franchise. reinvested there. It a into the Makes sounds the the renegotiation. contract the to then front here,

include the team you this some spending be. Just new curious where hired? might this of that Does

Benjamin Clouse

Andrew. biggest probably the is It's portion. That morning, Ben. Good

As factors a flat which, course, sheet efficiencies of toward really significant inflation holding would expense goal. be Mike as we, production finding we're continue to to tilt remix it our experience continue more base, other long-term of continued a while lesser the growing, to of it regulatory the would marketing but amount as said, our base driver our production we've our toward to leverage in bit the is as our tilt headcount primary is on I have roles bit piece investment half the grow, or cost to half our last the year, development business said, our in little particular second a in talent. spends balance of little then the we second the and continues year, in be of assessment a is

W. Rapp

to add talent markets, seeing to presenting Andrew, we're nice for in really opportunities that, which some is disruption our some us.

And the so we're trying of to be add degree generating high in but very selective that in a interest how talent, CrossFirst. is disruption we market

Michael Maddox

we were Yes. were add we to quarter employee more normal our headcount and through But budgeted. that people really production And X keep the base, able able attrition flat. in total the just to weren't

we to some So, a position that. we to make said, as and are are opportunities, take want Randy we advantage of seeing sure in

Operator

The Olney Instructions] next [Operator question comes with from Matt Stephens.

Matt Olney

trade's over capital out the quarter I I little move these some lower. restructuring. the guess in We've moves second the recent buyback and the so you last like I around and capital late you move last ask working the via seen and given and few bank the over want think curious around potential weeks. deployment seen updated for we've capital I'm I these few more some from here about rates deployed last deployed higher. weeks, thoughts more capital valuations well via that deployment, to And think capital year looks far.

Benjamin Clouse

Ben. it's Matt,

July. earlier it's course, through quarter. said in And of is the the through of in As buyback flexibility. we about, nowhere today, quarter That, harder the and seen the of a particular lot second you as which a is math on we're improvement near desirable price hit buyback, happy deliberately as we've beauty

a to moved quarter build and goal As ratios year. year They have nicely they over from our bit Mike all said, are. little where we over quarter continue a long-term to up

because around redeployed We trade, capital risk-weighted our are You million some realizing we although of we that correct. capital a to to how in ratio the quarter NIM way fourth did as funds, that improvement. was actually as in bond positive a utilized of $X well do

Mike remains ratios. opportunistic about capital to So, our goal as be continue, continue to and to deployment that build those said,

Michael Maddox

and high-quality really in pleased capital our in look, our it And markets. to price, probably more little growth sense Matt, Yes. stock that we're today movement in makes deploy the the a with

put And continue Ben to to as to of on high-quality capital, going but build so, want as said, well. us worried we to provide are growth plenty opportunity markets

Matt Olney

that. sheet Yes, here? then, migrated And than little you the what about balance drove bit this Ben, Any mentioned color what I and from more more rate-neutral, expectations and the we move, think, quarter. okay. Appreciate more movements saw that commentary any a on being so towards previous

Benjamin Clouse

variable Sure, Matt. Really, QX drivers of we level to higher our a QX. loans rate as small assets X main repricing that the in produced the of change One, mix added from increased quarter.

now spread time in quarter. We they a little the out cash. Then, first also more bit carried out bit were deposit our a They're little shifted further. bit a more on we've the side, maturities liability than

X a a we more position we've way those that in neutral, between but cut. from bit shifted things, such continue will So, to benefit a little will rate

Operator

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

Michael Maddox

and continue on the believe growth everyone all to we're we'll continue want seeing that Again, the improving of our dynamic opportunities we I really to strong, advantage markets. of continue to I want our to rest to and the and take focus and for in be really year thank today. the profitable should we're our their to quarter, call just joining we and see thank continue conditions, with hard teams pleased for work,

us, thank So, a again great day. you you joining have and for

Operator

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

may now You disconnect.

CrossFirst Bankshares (CFB) 16 Jul 242024 Q2 Earnings call transcript