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CrossFirst Bankshares, Inc. Reports Record Third Quarter Net Interest Income and Net Income

October 21, 2019 4:02 PM

LEAWOOD, Kan., Oct. 21, 2019 (GLOBE NEWSWIRE) -- CrossFirst Bankshares, Inc. (Nasdaq: CFB), the bank holding company for CrossFirst Bank, today reported its results for the third quarter of 2019, including record net income of $10.4 million, or $0.21 per diluted share and year-to-date 2019 net income of $29.2 million or $0.61 per diluted share. CrossFirst continues to deliver growth to drive net interest income, earnings and operating leverage while managing through a declining interest rate environment.

"We are pleased with our third quarter results and first quarter reported as a public company," said CrossFirst’s CEO and President George F. Jones, Jr. “While our organization experienced interest margin compression from declining rates, we were still able to deliver net interest income growth in the third quarter. Our teams delivered strong balance sheet growth and we had another quarter of record net income. I am very proud of our employees and what they were able to accomplish.”

2019 Third Quarter Highlights*:

*All share and per share information provided in this release has been adjusted to reflect a 2-for-1 stock split effected in the form of a dividend on December 21, 2018.

Quarter-to-Date Year-to-Date
September 30, September 30,
2018 2019 2018 2019
(Dollars in millions except per share data)
Net income $6.4 $10.4 $9.3 $29.2
Diluted EPS $0.15 $0.21 $0.22 $0.61
Return on average assets 0.70% 0.89% 0.37% 0.89%
Return on average common equity 6.68% 7.58% 3.51% 7.76%
Non-GAAP return on average tangible common equity(1) 6.84% 7.68% 3.61% 7.89%
Net interest margin 3.35% 3.19% 3.23% 3.29%
Net interest margin, fully tax-equivalent(2) 3.44% 3.24% 3.34% 3.35%
Efficiency ratio 65.9% 54.3% 79.1% 59.4%
Non-GAAP efficiency ratio, fully tax-equivalent(1)(2) 64.3% 53.4% 76.8% 58.4%
(1) Represents a non-GAAP measure. See "Table 7. Non-GAAP Financial Measures" for a reconciliation of this measure.
(2) Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal taxes. The incremental federal tax rate used is 21.0%.

Income from Operations

Net Interest Income

The Company produced record interest income of $55.5 million for the third quarter of 2019, an increase of 36% from the third quarter of 2018 and 2% greater than the second quarter of 2019. Interest income growth was primarily a result of continued strong growth in average outstanding earning assets. The tax-equivalent yield on earning assets declined from 5.18% to 5.00% during the third quarter of 2019 primarily due to the movement of variable rate assets indexed to market rates and changes in the investment portfolio yields resulting from higher prepayment speeds on the Company's mortgage backed portfolio. Year-to-date interest income is up 47% over the same period in 2018.

Interest expense for the third quarter of 2019 was $19.7 million, or 67% higher than the third quarter of 2018 and 2% higher than the second quarter of 2019. Average interest-bearing deposits in the third quarter of 2019 totaled $3.2 billion, an increase of $847 million or 37% from $2.3 billion in the same quarter in 2018. The interest-bearing deposit mix changes during the quarter were focused on lowering margin exposure to declining rates, however this offset some of the impact of the lower deposit rates during the quarter. Non-deposit funding costs increased to 1.95% from 1.93% in the second quarter of 2019 while overall cost of funds for the quarter was 1.94%, compared to 1.99% for the second quarter of 2019.

Tax-equivalent net interest margin declined to 3.24% for the quarter compared to 3.44% for the same quarter in 2018, reflecting the impact of the declining rate environment. For the nine months ended September 30, 2019, the Company reported a net interest margin of 3.35%, slightly higher than the same period for 2018. The tax-equivalent adjustment, which accounts for income taxes saved on the interest earned on nontaxable securities and loans, was $0.6 million for the third quarter of 2019 and $0.8 million for the third quarter of 2018, and $0.6 million for the second quarter of 2019. Net interest income totaled $35.8 million for the third quarter of 2019 or 3% greater than the second quarter of 2019. Year-to-date net interest income was 34% higher than the same period of 2018 reflecting the Company's strong balance sheet growth and maintenance of net interest margin.

Non-Interest Income

Non-interest income increased $2.0 million in the third quarter of 2019 or 171% compared to the same quarter of 2018 and $1.5 million or 92% compared to the second quarter of 2019. While the Company continues to increase fee income commensurate with its growth, the back-to-back swap program generated strong fee income with $1.1 million of new fees recorded during the quarter. During the third quarter of 2019, the Company also recorded a one-time $0.8 million gain related to a changed in derivative valuation. Historically, the company used a peer group in order to value the counter-party risk to assess potential credit default. As the program has matured, the Company reviewed the valuation methodology and implemented a more sophisticated view of risk as back-to-back swaps are cross collateralized with the loans being hedged.

Non-Interest Expense

Non-interest expense for the third quarter of 2019 increased $1.3 million, or 7%, compared to the third quarter of 2018 and decreased $0.8 million, or 4% from the second quarter of 2019. Compared to the third quarter of 2018, salary and employment-related expenses increased $1.6 million for additional employee headcount required to support growth and data processing costs were higher from the Company's increased volumes of activity, partially offset by a $0.5 million decrease in FDIC insurance expense. As compared to the second quarter of 2019, salary and employment-related expenses decreased $0.2 million as a result of continuing to manage resource allocation and hiring and FDIC insurance expense decreased $0.6 million as a result of a one-time small bank credit. Year-to-date non-interest expense increased by less than 1% compared to the same period in 2018.

CrossFirst’s effective tax rate for the nine months ended September 30, 2019 was 15.4% as compared to (10.8)% for the nine months ended September 30, 2018. The year-over-year change was primarily due to higher earnings, a reduction in tax-exempt income due to average yields on tax exempt securities decreasing, and permanent tax benefits from a stock-based compensation award in 2018 as compared to 2019. The effective tax rate for the third quarter of 2019 was 20.0% compared to 19.6% for the second quarter of 2019. For both of the comparable periods, the Company continues to benefit from the tax-exempt municipal bond portfolio creating an effective tax rate lower than the statutory tax rates.

Balance Sheet Performance & Analysis

During the third quarter of 2019, total assets increased by $178 million or 4% compared to June 30, 2019 with both strong loan and deposit growth. Asset growth for CrossFirst was $935 million or 25% over the last twelve months. While both loans and deposits grew for the quarter, loan volumes outpaced deposit growth increasing the loan to deposit ratio from 96.7% to 99.2%. During the third quarter of 2019, total available for sale investment securities increased $28 million to $733 million, while the overall average for the quarter was $728 million. Tax- exempt municipal securities on average increased $18 million and mortgage backed securities decreased $10 million. The increase in investment securities was part of management's strategy to manage liquidity and optimize income.

Loan Growth Results

The Company continues to maintain a diversified loan portfolio while experiencing strong loan growth of 5% for the third quarter of 2019 and 33% since September 30, 2018. Loan yields declined 13 basis points in the overall portfolio commensurate with the adjustable rate loan movements with Libor and Prime over the course of the quarter. The Company experienced $204 million in payoffs for the quarter, but was able to fund $367 million in loans to replace and grow the overall portfolio.

(Dollars in millions)3Q18 4Q18 1Q19 2Q19 3Q19 % of
Total		 QoQ Growth
($)		 QoQ Growth
(%)(1)		 YoY Growth
($)		 YoY Growth
(%)(1)
Period-end loans (gross)
Commercial and industrial$958 $1,134 $1,163 $1,254 $1,313 36.1% $59 5% $355 37%
Energy312 358 376 386 396 10.9 10 3 84 27
Commercial real estate770 847 948 968 993 27.3 25 3 223 29
Construction and land development436 440 427 463 528 14.5 65 14 92 21
Residential real estate226 246 331 359 365 10.0 6 2 139 62
Equity lines of credit22 20 20 21 22 0.6 1 3 — —
Consumer installment20 24 22 25 22 0.6 (3) (14) 2 6
Total$2,744 $3,069 $3,287 $3,476 $3,639 100.0% $163 5% $895 33%
Average loans, net of unearned income$2,523 $2,911 $3,176 $3,398 $3,541 $143 4% $1,018 40%
Yield on loans for the period ending5.35% 5.56% 5.75% 5.66% 5.53%
(1) Actual unrounded values are used to calculate the reported percent disclosed. Accordingly, recalculations using the amounts in millions as disclosed in this release may not produce the same amounts.

Deposit Growth Results

The Company continues to maintain a traditional deposit mix, with the goal of keeping pace with growth in the loan portfolio. Deposit growth was primarily funded with money market accounts during the quarter, which have historically adjusted with movements in fed funds rates. To continue lowering the duration of its deposit base, the Company did not renew $67 million of brokered deposits that matured during the quarter.

(Dollars in millions)3Q18 4Q18 1Q19 2Q19 3Q19 % of
Total		 QoQ Growth
($)		 QoQ Growth
(%)(1)		 YoY Growth
($)		 YoY Growth
(%)(1)
Period-end deposits
Non-interest bearing deposits$505 $484 $488 $512 $514 14.1% $2 —% $9 2%
Transaction deposits56 82 119 137 146 4.0% 9 7 90 163
Savings and money market deposits1,448 1,632 1,511 1,634 1,776 48.5% 142 9 328 23
Time deposits < $100,000338 440 554 535 469 12.8% (66) (12) 131 39
Time deposits > $100,000460 570 728 766 753 20.6% (13) (2) 293 64
Total$2,807 $3,208 $3,400 $3,584 $3,658 100.0% $74 2% $851 30%
Brokered deposits$262 $343 $424 $397 $330 9.0% $(67) (17)% $68 26%
Average deposits
Non-interest bearing deposits$492 $492 $477 $513 $535 14.5% $22 4% $43 9%
Transaction deposits56 63 104 144 135 3.7% (9) (6) 79 141
Savings and money market deposits1,450 1,498 1,544 1,560 1,744 47.2% 184 12 294 20
Time deposits801 913 1,165 1,305 1,277 34.6% (28) (2) 476 59
Total$2,799 $2,966 $3,290 $3,522 $3,691 100.0% $169 5% $892 32%
Cost of deposits for the period ending1.42% 1.70% 1.96% 1.99% 1.94%
Cost of interest-bearing deposits for
the period ending		1.72% 2.04% 2.30% 2.33% 2.26%
(1) Actual unrounded values are used to calculate the reported percent disclosed. Accordingly, recalculations using the amounts in millions as disclosed in this release may not produce the same amounts.

Asset Quality Position

The Company continued to add to the allowance for loan loss in order to support loan growth and changes in relative risk for the overall portfolio, including with respect to one previously disclosed non-performing loan, recording a provision expense of $4.9 million for the quarter. Net charge-offs were $4.7 million for the quarter as a result of liquidating two other previously identified non-performing loans, as compared to net recoveries of $0.3 million for the third quarter in 2018. During the quarter, non-performing assets to assets declined from 1.18% in the second quarter to 1.00% in the third quarter and classified assets to capital continued to trend down.

Asset quality (Dollars in millions)3Q18 4Q18 1Q19 2Q19 3Q19 QoQ Growth
($)		 YoY Growth
($)
Non-accrual loans$12.6 $17.8 $13.0 $50.0 $43.6 $(6.4) $31.0
Other real estate owned— — 2.5 2.5 2.5 — 2.5
Non-performing assets13.1 17.8 15.5 52.8 46.7 (6.1) 33.6
Loans 90+ days past due and still accruing0.4 — — 0.2 0.6 0.4 0.2
Loans 30 - 89 days past due26.3 3.7 31.1 23.6 64.7 41.1 38.4
Classified loans54.3 101.4 97.5 88.3 85.2 (3.1) 30.9
Net charge-offs (recoveries)(0.3) 0.2 0.7 — 4.7 4.7 5.0
Provision for loan loss3.0 4.5 2.9 2.9 4.9 2.0 1.9
Allowance for loan loss33.5 37.8 40.0 42.9 43.0 0.1 9.5


Asset quality metrics3Q18 4Q18 1Q19 2Q19 3Q19
Non-performing assets to total assets0.35% 0.43% 0.36% 1.18% 1.00%
Allowance for loan loss to total loans1.22 1.23 1.22 1.24 1.18
Allowance for loan loss to non-performing loans257 212 307 85 97
Net charge-offs (recoveries) to average loans(1)(0.05) 0.03 0.09 — 0.53
Loans 30 - 89 days past due to loans0.96 0.12 0.95 0.68 1.78
Provision to average loans(1)0.47 0.61 0.36 0.34 0.54
Classified Loans / (Total Capital + ALLL)12.3 19.2 18.7 16.3 13.2
(1) Interim periods annualized.

Capital Position After Initial Public Offering

At September 30, 2019, stockholders’ equity totaled $602 million, or $11.59 per share, compared to $499 million, or $11.00 per share, at June 30, 2019. Tangible common stockholders' equity was $595 million and tangible book value per share was $11.44 at September 30, 2019. The increase in stockholders’ equity was a result of quarterly earnings, an increase in accumulated other comprehensive income for unrealized bond gains, and proceeds received from the initial public offering.

Period-end (Dollars in millions, except per share data)3Q18 4Q18 1Q19 2Q19 3Q19
Total Stockholders' Equity$410 $490 $481 $499 $602
Book value per share$9.43 $10.21 $10.63 $11.00 $11.59
Tangible book value per share(1)$9.24 $10.04 $10.46 $10.83 $11.44
Common equity tier 1 capital ratio10.55% 11.75% 11.23% 11.02% 12.91%
Tier 1 capital ratio11.38 12.53 11.23 11.04 12.93
Total capital ratio12.32 13.51 12.20 12.04 13.90
Leverage ratio11.39 12.43 11.15 10.87 12.57
(1) Represents a non-GAAP measure. See "Table 7. Non-GAAP Financial Measures" for a reconciliation of this measure.

On September 17, 2019 the underwriters for the initial public offering, acquired an additional 844,362 shares of CrossFirst's common stock pursuant to the partial exercise of the underwriters’ over- allotment option granted in connection with the initial public offering. The additional shares were sold at the IPO price of $14.50 per share, less underwriting discounts and commissions. Net proceeds from the sale of the additional shares were approximately $11.4 million, after deducting underwriting discounts and commissions. During the third quarter of 2019, the Company issued 6,594,362 new shares, including the over-allotment, bringing its total net proceeds from the offering to approximately $87.0 million. The Company intends to use the net proceeds from the offering to support our growth, organically or through mergers and acquisitions, and for general corporate purposes. As previously disclosed, the Company is currently considering using a portion of the net proceeds for the opening of a second smaller full-service branch in the Dallas MSA, in addition to consistently evaluating other strategic opportunities.

Conference Call and Webcast

CrossFirst will hold a conference call and webcast to discuss third quarter 2019 results on Monday, October 21, 2019 at 4 p.m. CDT / 5 p.m. EDT. The conference call and webcast may also include discussion of Company developments, forward-looking statements and other material information about business and financial matters. Investors, news media, and other participants should register for the call or audio webcast at https://investors.CrossFirstbankshares.com. Participants may dial into the call toll-free at (877) 621- 5851 from anywhere in the U.S. or (470) 495-9492 internationally, using conference ID no. 6057529. Participants are encouraged to dial into the call or access the webcast approximately 10 minutes prior to the start time.

A replay of the webcast will be available on the Company website. A replay of the conference call will be available two hours following the close of the call until October 28, 2019, accessible at (855) 859-2056 with conference ID no. 6057529.

Cautionary Notice about Forward-Looking Statements

The financial results in this press release reflect preliminary, unaudited results, which are not final until the Company’s Form 10-Q is filed. This earnings release contains forward-looking statements. These forward-looking statements reflect the Company's current views with respect to, among other things, future events and its financial performance. Any statements about management’s expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. Any or all of the forward-looking statements in this earnings release may turn out to be inaccurate. The inclusion of forward-looking information in this earnings release should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. The Company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect our financial condition, results of operations, business strategy and financial needs. Our actual results could differ materially from those anticipated in such forward-looking statements.

Accordingly, the Company cautions you that any such forward-looking statements are not a guarantee of future performance and that actual results may prove to be materially different from the results expressed or implied by the forward-looking statements due to a number of factors. Such factors include, without limitation, those listed from time to time in reports that the Company files with the Securities and Exchange Commission. These forward-looking statements are made as of the date of this communication, and the Company does not intend, and assumes no obligation, to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events or circumstances, except as required by law.

About CrossFirst

CrossFirst Bankshares, Inc., is a Kansas corporation and a registered bank holding company for its wholly-owned subsidiary CrossFirst Bank, which is headquartered in Leawood, Kansas. CrossFirst Bank has seven full-service banking offices primarily along the I-35 corridor in Kansas, Missouri, Oklahoma and Texas.

CROSSFIRST BANKSHARES, INC. CONTACT:
Matt Needham, Director of Investor Relations
(913) 312-6822
https://investors.crossfirstbankshares.com


Unaudited Financial Tables

TABLE 1. SELECTED FINANCIAL HIGHLIGHTS (UNAUDITED)
(Dollars in thousands, except per share data)

CrossFirst Bankshares, Inc.
Quarterly Selected Financials (Unaudited)
3Q18 4Q18 1Q19 2Q19 3Q19
Income Statement Data
Interest income $40,775 $47,068 $51,317 $54,192 $55,529
Interest expense 11,807 14,753 17,712 19,318 19,743
Net interest income 28,968 32,315 33,605 34,874 35,786
Provision for loan losses 3,000 4,500 2,850 2,850 4,850
Non-interest income 1,185 1,195 1,645 1,672 3,212
Non-interest expense 19,875 20,166 22,631 21,960 21,172
Net income before taxes 7,278 8,844 9,769 11,736 12,976
Income tax expense (benefit) 924 (1,490) 419 2,297 2,592
Net income 6,354 10,334 9,350 9,439 10,384
Preferred stock dividends 525 525 175 — —
Net income available to common stockholders 5,829 9,809 9,175 9,439 10,384
Non-GAAP core operating income(1) $6,481 $6,600 $7,989 $9,754 $10,384
Balance Sheet Data
Cash and cash equivalents $118,323 $216,541 $117,317 $141,373 $128,126
Securities 690,580 663,678 707,430 704,776 733,093
Gross loans (net of unearned income) 2,736,262 3,060,747 3,277,598 3,467,204 3,629,792
Allowance for loan losses 33,540 37,826 40,001 42,852 42,995
Goodwill and intangibles 7,821 7,796 7,770 7,745 7,720
Non-interest bearing deposits 504,794 484,284 488,375 511,837 513,832
Total deposits 2,806,580 3,208,097 3,399,899 3,584,136 3,658,108
Borrowings and repurchase agreements 483,145 388,391 368,597 364,246 357,614
Trust preferred securities, net of fair value adjustment 875 884 893 902 912
Preferred stock 30,000 30,000 — — —
Common stock(2) 359,725 424,975 428,864 430,800 519,336
Total stockholders' equity 409,780 490,336 480,514 499,195 602,435
Tangible common stockholders' equity(1) $371,959 $452,540 $472,744 $491,450 $594,715
Share and Per Share Data
Basic earnings per common share(2) $0.15 $0.22 $0.20 $0.21 $0.22
Diluted earning per common share(2) 0.15 0.22 0.20 0.20 0.21
Book value per share(2) 9.43 10.21 10.63 11.00 11.59
Tangible book value per share(1)(2) $9.24 $10.04 $10.46 $10.83 $11.44
Basic weighted average common shares outstanding(2) 37,790,614 43,853,170 45,093,442 45,236,264 48,351,553
Diluted weighted average common shares outstanding(2) 38,778,624 44,920,448 45,960,267 46,211,780 49,164,549
Shares outstanding at end of period(2) 40,261,480 45,074,322 45,202,370 45,367,641 51,969,203
Selected Ratios
Return on average assets 0.70% 1.06% 0.91% 0.86% 0.89%
Return on average common equity 6.68 9.03 7.98 7.78 7.58
Yield on earning assets 4.72 5.01 5.18 5.12 4.94
Yield on earning assets - tax equivalent(3) 4.81 5.08 5.25 5.18 5.00
Yield on securities 3.18 3.24 3.23 3.08 2.85
Yield on securities - tax equivalent(3) 3.58 3.61 3.59 3.42 3.19
Yield on loans 5.35 5.56 5.75 5.66 5.53
Cost of interest-bearing liabilities 1.73 2.01 2.25 2.29 2.24
Cost of interest-bearing deposits 1.72 2.04 2.30 2.33 2.26
Cost of funds 1.46 1.72 1.96 1.99 1.94
Cost of deposits 1.42 1.70 1.96 1.99 1.94
Cost of other borrowings 1.77 1.79 1.86 1.93 1.95
Net interest margin - tax equivalent(3) 3.44 3.51 3.46 3.35 3.24
Non-interest expense to average assets 2.20 2.06 2.20 2.00 1.82
Efficiency ratio(4) 65.91 60.18 64.20 60.09 54.29
Non-interest bearing deposits to total deposits 17.99 15.10 14.36 14.28 14.05
Loans to deposits 97.49% 95.41% 96.40% 96.74% 99.23%
Credit Quality Ratios
Allowance for loan losses to total loans 1.22% 1.23% 1.22% 1.24% 1.18%
Nonperforming assets to total assets 0.35 0.43 0.36 1.18 1.00
Nonperforming loans to total loans 0.48 0.58 0.40 1.45 1.22
Allowance for loan losses to nonperforming loans 256.65 212.30 307.27 85.20 97.12
Net charge-offs (recoveries) to average loans(5) (0.05)% 0.03% 0.09% —% 0.53%
Capital Ratios
Total stockholders' equity to total assets 11.03% 11.94% 11.26% 11.16% 12.95%
Common equity tier 1 capital ratio 10.55 11.75 11.23 11.02 12.91
Tier 1 risk-based capital ratio 11.38 12.53 11.23 11.04 12.93
Total risk-based capital ratio 12.32 13.51 12.20 12.04 13.90
Tier 1 leverage ratio 11.39% 12.43% 11.15% 10.87% 12.57%
(1) Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" for a reconciliation of this measure.
(2) Share data has been adjusted to reflect a 2-for-1 stock split effected in the form of a dividend on December 21, 2018.
(3) Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal taxes. The incremental tax rate used is 21.0%.
(4) We calculate efficiency ratio as non-interest expense divided by the sum of net interest income and non-interest income.
(5) Interim periods are annualized.


TABLE 2. YEAR-TO-DATE ANALYSIS OF CHANGES IN NET INTEREST INCOME (UNAUDITED)

Nine Months Ended
September 30,
2018 2019
Average
Balance		 Interest
Income /
Expense		 Average
Yield /
Rate(3)		 Average
Balance		 Interest
Income /
Expense		 Average
Yield /
Rate(3)
(Dollars in thousands)
Interest-earning assets:
Securities - taxable$273,525 $6,447 3.15% $334,272 $7,447 2.98%
Securities - tax-exempt(1)484,090 14,062 3.88 378,651 10,672 3.77
Federal funds sold18,782 281 2.00 18,714 345 2.46
Interest-bearing deposits in other banks174,740 2,200 1.68 135,030 2,107 2.09
Gross loans, net of unearned income(2)2,275,039 89,262 5.25 3,373,118 142,319 5.64
Total interest-earning assets(1)3,226,176 $112,252 4.65% 4,239,785 $162,890 5.14%
Allowance for loan losses(29,607) (41,329)
Other non-interest-earning assets166,661 196,900
Total assets$3,363,230 $4,395,356
Interest-bearing liabilities
Transaction deposits$53,995 $101 0.25% $127,785 $1,139 1.19%
Savings and money market deposits1,381,291 15,658 1.52 1,616,558 27,326 2.26
Time deposits809,550 10,880 1.80 1,249,219 22,956 2.46
Total interest-bearing deposits2,244,836 26,639 1.59 2,993,562 51,421 2.30
FHLB and short-term borrowings381,166 5,020 1.76 366,708 5,240 1.91
Trust preferred securities, net of fair value
adjustments		860 100 15.47 895 112 16.74
Non-interest bearing deposits402,850 — — 508,888 — —
Cost of funds3,029,712 $31,759 1.40% 3,870,053 $56,773 1.96%
Other liabilities10,929 22,762
Stockholders' equity322,589 502,541
Total liabilities and stockholders' equity$3,363,230 $4,395,356
Net interest income(1) $80,493 $106,117
Net interest spread(1) 3.25% 3.18%
Net interest margin(1) 3.34% 3.35%
(1) Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal taxes. The incremental tax rate used is 21.0%.
(2) Average loan balances include nonaccrual loans.
(3) Actual unrounded values are used to calculate the reported yield or rate disclosed. Accordingly, recalculations using the amounts in thousands as disclosed in this release may not produce the same amounts.


YEAR-TO-DATE VOLUME & RATE VARIANCE TO NET INTEREST INCOME (UNAUDITED)
Nine Months Ended
September 30, 2019 over 2018

Average Volume		 Yield/Rate Net Change(2)
(Dollars in thousands)
Interest Income
Securities - taxable$1,364 $(364) $1,000
Securities - tax-exempt(1)(3,000) (390) (3,390)
Federal funds sold(1) 65 64
Interest-bearing deposits in other banks(562) 469 (93)
Gross loans, net of unearned income45,980 7,077 53,057
Total interest income(1)43,781 6,857 50,638
Interest Expense
Transaction deposits277 761 1,038
Savings and money market deposits3,024 8,644 11,668
Time deposits7,209 4,867 12,076
Total interest-bearing deposits10,510 14,272 24,782
FHLB and short-term borrowings(195) 415 220
Trust preferred securities, net of fair value adjustments4 8 12
Total interest expense10,319 14,695 25,014
Net interest income(1)$33,462 $(7,838) $25,624
(1) Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal taxes. The incremental tax rate used is 21.0%.
(2) The change in interest not due solely to volume or rate has been allocated in proportion to the respective absolute dollar amounts of the change in volume or rate.


TABLE 3. 2018 - 2019 QUARTERLY ANALYSIS OF CHANGES IN NET INTEREST INCOME
(UNAUDITED)

Three Months Ended
September 30,
2018 2019
Average
Balance		 Interest
Income /
Expense		 Average
Yield /
Rate(3)		 Average
Balance		 Interest
Income /
Expense		 Average
Yield /
Rate(3)
(Dollars in thousands)
Interest-earning assets:
Securities - taxable$304,937 $2,454 3.19% $335,045 $2,264 2.68%
Securities - tax-exempt(1)447,333 4,338 3.85 392,644 3,592 3.63
Federal funds sold20,674 110 2.10 16,315 89 2.16
Interest-bearing deposits in other banks132,585 614 1.84 171,913 881 2.03
Gross loans, net of unearned income(2) (3)2,523,107 34,012 5.35 3,540,707 49,327 5.53
Total interest-earning assets(1)3,428,636 $41,528 4.81% 4,456,624 $56,153 5.00%
Allowance for loan losses(31,716) (43,327)
Other non-interest-earning assets191,956 197,661
Total assets$3,588,876 $4,610,958
Interest-bearing liabilities
Transaction deposits$56,072 $33 0.24% $134,987 $386 1.13%
Savings and money market deposits1,450,397 6,139 1.68 1,743,575 9,553 2.17
Time deposits801,416 3,827 1.89 1,276,571 8,064 2.51
Total interest-bearing deposits2,307,885 9,999 1.72 3,155,133 18,003 2.26
FHLB and short-term borrowings397,252 1,772 1.77 345,794 1,703 1.95
Trust preferred securities, net of fair value
adjustments		868 36 16.21 904 37 16.06
Non-interest bearing deposits491,942 — — 535,467 — —
Cost of funds3,197,947 $11,807 1.46% 4,037,298 $19,743 1.94%
Other liabilities14,904 29,833
Total stockholders' equity376,025 543,827
Total liabilities and stockholders' equity$3,588,876 $4,610,958
Net interest income(1) $29,721 $36,410
Net interest spread(1) 3.35% 3.06%
Net interest margin(1) 3.44% 3.24%
(1) Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal taxes. The incremental tax rate used is 21.0%.
(2) Average loan balances include nonaccrual loans.
(3) Actual unrounded values are used to calculate the reported yield or rate disclosed. Accordingly, recalculations using the amounts in thousands as disclosed in this release may not produce the same amounts.


QUARTER TO DATE VOLUME & RATE VARIANCE TO NET INTEREST INCOME (UNAUDITED)
Three Months Ended
September 30, 2019 over 2018
Average Volume Yield/Rate Net Change(2)
(Dollars in thousands)
Interest Income
Securities - taxable$227 $(417) $(190)
Securities - tax-exempt(1)(509) (237) (746)
Federal funds sold(24) 3 (21)
Interest-bearing deposits in other banks198 69 267
Gross loans, net of unearned income14,136 1,179 15,315
Total interest income(1)14,028 597 14,625
Interest Expense
Transaction deposits97 256 353
Savings and money market deposits1,397 2,017 3,414
Time deposits2,728 1,509 4,237
Total interest-bearing deposits4,222 3,782 8,004
FHLB and short-term borrowings(241) 172 (69)
Trust preferred securities, net of fair value adjustments1 — 1
Total interest expense3,982 3,954 7,936
Net interest income(1)$10,046 $(3,357) $6,689
(1) Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal taxes. The incremental tax rate used is 21.0%
(2) The change in interest not due solely to volume or rate has been allocated in proportion to the respective absolute dollar amounts of the change in volume or rate.


TABLE 4. LINKED QUARTERLY ANALYSIS OF CHANGES IN NET INTEREST INCOME
(UNAUDITED)

Three Months Ended
June 30, 2019 September 30, 2019
Average
Balance		 Interest
Income /
Expense		 Average
Yield /
Rate(3)		 Average
Balance		 Interest
Income /
Expense		 Average
Yield /
Rate(3)
(Dollars in thousands)
Interest-earning assets:
Securities - taxable$345,005 $2,611 3.04% $335,045 $2,264 2.68%
Securities - tax-exempt(1)374,750 3,529 3.78 392,644 3,592 3.63
Federal funds sold15,165 96 2.55 16,315 89 2.16
Interest-bearing deposits in other banks110,460 580 2.10 171,913 881 2.03
Gross loans, net of unearned income(2) (3)3,398,297 47,989 5.66 3,540,707 49,327 5.53
Total interest-earning assets(1)4,243,677 $54,805 5.18% 4,456,624 $56,153 5.00%
Allowance for loan losses(41,277) (43,327)
Other non-interest-earning assets199,603 197,661
Total assets$4,402,003 $4,610,958
Interest-bearing liabilities
Transaction deposits$144,020 $477 1.33% $134,987 $386 1.13%
Savings and money market deposits1,559,979 8,955 2.30 1,743,575 9,553 2.17
Time deposits1,305,244 8,065 2.48 1,276,571 8,064 2.51
Total interest-bearing deposits3,009,243 17,497 2.33 3,155,133 18,003 2.26
FHLB and short-term borrowings371,624 1,784 1.93 345,794 1,703 1.95
Trust preferred securities, net of fair value
adjustments		895 37 16.79 904 37 16.06
Non-interest bearing deposits513,320 — — 535,467 — —
Cost of funds3,895,082 $19,318 1.99% 4,037,298 $19,743 1.94%
Other liabilities20,041 29,833
Total stockholders' equity486,880 543,827
Total liabilities and stockholders' equity$4,402,003 $4,610,958
Net interest income(1) $35,487 $36,410
Net interest spread(1) 3.19% 3.06%
Net interest margin(1) 3.35% 3.24%
(1) Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal taxes. The incremental tax rate used is 21.0%.
(2) Average loan balances include nonaccrual loans.
(3) Actual unrounded values are used to calculate the reported yield or rate disclosed. Accordingly, recalculations using the amounts in thousands as disclosed in this release may not produce the same amounts.


LINKED QUARTER VOLUME & RATE VARIANCE TO NET INTEREST INCOME (UNAUDITED)
Three Months Ended
September 30, 2019 over June 30, 2019
Average Volume Yield/Rate Net Change(2)
(Dollars in thousands)
Interest Income
Securities - taxable$(68) $(279) $(347)
Securities - tax-exempt(1)189 (126) 63
Federal funds sold8 (15) (7)
Interest-bearing deposits in other banks321 (20) 301
Gross loans, net of unearned income2,303 (965) 1,338
Total interest income(1)2,753 (1,405) 1,348
Interest Expense
Transaction deposits(27) (64) (91)
Savings and money market deposits1,095 (497) 598
Time deposits(128) 127 (1)
Total interest-bearing deposits940 (434) 506
FHLB and short-term borrowings(103) 22 (81)
Trust preferred securities, net of FV adjustments— — —
Total interest expense837 (412) 425
Net interest income(1)$1,916 $(993) $923
(1) Tax exempt income is calculated on a tax equivalent basis. Tax-free municipal securities are exempt from Federal taxes. The incremental tax rate used is 21.0%.
(2) The change in interest not due solely to volume or rate has been allocated in proportion to the respective absolute dollar amounts of the change in volume or rate.


TABLE 5. CONSOLIDATED BALANCE SHEETS

December 31, 2018 September 30, 2019
(Unaudited)
(Dollars in thousands)
Assets
Cash and cash equivalents$216,541 $128,126
Available for sale securities - taxable296,133 323,531
Available for sale securities - tax-exempt367,545 409,562
Premises and equipment, held for sale3,444 —
Loans, net of allowance for loan losses of $37,826 and
$42,995 at December 31, 2018 and September 30, 2019, respectively3,022,921 3,586,797
Premises and equipment, net74,945 71,314
Restricted equity securities14,525 16,053
Interest receivable14,092 15,909
Foreclosed assets held for sale— 2,471
Deferred tax asset16,316 7,429
Goodwill and other intangible assets, net7,796 7,720
Bank-owned life insurance63,811 65,228
Other9,146 17,173
Total assets$4,107,215 $4,651,313
Liabilities and stockholders' equity
Deposits
Non-interest bearing$484,284 $513,832
Savings, NOW and money market1,714,136 1,922,522
Time1,009,677 1,221,754
Total deposits3,208,097 3,658,108
Federal funds purchased and repurchase agreements75,406 49,810
Federal Home Loan Bank advances312,985 307,804
Other borrowings884 912
Interest payable and other liabilities19,507 32,244
Total liabilities3,616,879 4,048,878
Stockholders' equity
Redeemable preferred stock, $0.01 par value, $25 liquidation value:
authorized - 5,000,000 shares
issued - 1,200,000 and 0 shares at December 31, 2018
and September 30, 2019, respectively12 —
Common stock, $0.01 par value:
authorized - 200,000,000 shares
issued - 45,074,322 and 51,969,203 shares at December 31, 2018
and September 30, 2019, respectively451 520
Additional paid-in capital454,512 518,816
Retained earnings38,567 65,282
Other(196) (84)
Accumulated other comprehensive income (loss)(3,010) 17,901
Total stockholders' equity490,336 602,435
Total liabilities and stockholders' equity$4,107,215 $4,651,313


TABLE 6. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Three months ended Nine months ended
September 30, September 30,
2018 2019 2018 2019
(Dollars in thousands except per share data)
Interest Income
Loans, including fees34,012 49,327 89,262 142,319
Available for sale securities
Taxable2,200 1,991 5,729 6,646
Tax-exempt3,586 2,969 11,622 8,820
Deposits with financial institutions723 970 2,481 2,452
Dividends on bank stocks254 272 718 801
Total interest income40,775 55,529 109,812 161,038
Interest Expense
Deposits9,999 18,003 26,639 51,421
Fed funds purchased and repurchase agreements287 74 628 501
Advances from Federal Home Loan Bank1,468 1,629 4,308 4,739
Other borrowings53 37 184 112
Total interest expense11,807 19,743 31,759 56,773
Net Interest Income28,968 35,786 78,053 104,265
Provision for Loan Losses3,000 4,850 9,000 10,550
Net Interest Income after Provision for Loan Losses25,968 30,936 69,053 93,715
Non-Interest Income
Service charges and fees (rebates) on customer accounts(100) 72 506 441
Gain on sale of available for sale securities195 34 608 467
Impairment of premises and equipment held for sale(171) — (171) (424)
Gain on sale of loans25 49 618 207
Income from bank-owned life insurance513 476 1,511 1,416
Swap fee income, net253 1,879 299 2,415
Other non-interest income470 702 1,517 2,007
Total non-interest income1,185 3,212 4,888 6,529
Non-Interest Expense
Salaries and employee benefits12,652 14,256 43,689 43,296
Occupancy2,132 2,080 6,199 6,301
Professional fees766 427 2,421 1,923
Deposit insurance premiums823 302 2,411 2,020
Data processing528 649 1,470 1,868
Advertising527 580 1,982 1,770
Software and communication630 900 1,958 2,407
Depreciation and amortization516 413 1,306 1,320
Other non-interest expense1,301 1,565 4,153 4,858
Total non-interest expense19,875 21,172 65,589 65,763
Net Income Before Taxes7,278 12,976 8,352 34,481
Income tax expense (benefit)924 2,592 (904) 5,308
Net Income$6,354 $10,384 $9,256 $29,173
Basic Earnings Per Share(1)$0.15 $0.22 $0.23 $0.63
Diluted Earnings Per Share(1)$0.15 $0.21 $0.22 $0.61
(1) Share data has been adjusted to reflect a 2-for-1 stock split effected in the form of a dividend on December 21, 2018.


TABLE 7. NON-GAAP FINANCIAL MEASURES

Non-GAAP Financial Measures
In addition to disclosing financial measures determined in accordance with GAAP the Company discloses non-GAAP financial measures in this release. The Company believes that the non-GAAP financial measures presented in this release reflect industry conventions, or standard measures within the industry, and provide useful information to the Company's management, investors and other parties interested in the Company's operating performance. These measurements should be considered in addition to, but not as a substitute for, financial information prepared in accordance with GAAP. We have defined below each of the non-GAAP measures we use in this release, but these measures may not be synonymous to similar measurement terms used by other companies.

CrossFirst provides reconciliations of these non-GAAP measures below. The measures used in this release include the following:

Quarter Ended Nine Months Ended
09/30/2018 12/31/2018 03/31/2019 06/30/2019 09/30/2019 09/30/2018 09/30/2019
(Dollars in thousands)
Return on average tangible common equity:
Net income available to common
stockholders		$5,829 $9,809 $9,175 $9,439 $10,384 $7,681 $28,998
Average common equity346,025 430,881 466,506 486,880 543,827 292,589 499,354
Less: average goodwill and intangibles7,835 7,810 7,784 7,759 7,733 7,860 7,759
Average tangible common equity338,190 423,071 458,722 479,121 536,094 284,729 491,595
Return on average common equity6.68% 9.03% 7.98% 7.78% 7.58% 3.51% 7.76%
Return on average tangible common equity6.84% 9.20% 8.11% 7.90% 7.68% 3.61% 7.89%


Quarter Ended
09/30/18 12/31/18 03/31/19 06/30/19 09/30/19
(Dollars in thousands)
Non-GAAP core operating income:
Net Income$6,354 $10,334 $9,350 $9,439 $10,384
Add: restructuring charges— (815) — — —
Less: tax effect(1)— (210) — — —
Restructuring charges, net of tax— (605) — — —
Add: fixed asset impairments171 — — 424 —
Less: tax effect(1)44 — — 109 —
Fixed asset impairments, net of tax127 — — 315 —
Add: state tax credit(2)— (3,129) (1,361) — —
Non-GAAP core operating income$6,481 $6,600 $7,989 $9,754 $10,384
(1) Represents the tax impact of the adjustments above at a tax rate of 25.73%
(2) No tax effect


Quarter Ended
09/30/2018 12/31/2018 03/31/2019 06/30/2019 09/30/2019
(Dollars in thousands except per share data)
Tangible common stockholders' equity:
Total Stockholders' equity$409,780 $490,336 $480,514 $499,195 $602,435
Less: goodwill and other intangible assets7,821 7,796 7,770 7,745 7,720
Less: preferred stock30,000 30,000 — — —
Tangible common stockholders' equity$371,959 $452,540 $472,744 $491,450 $594,715
Tangible book value per share:
Tangible common stockholders' equity$371,959 $452,540 $472,744 $491,450 $594,715
Shares outstanding at end of period40,261,480 45,074,322 45,202,370 45,367,641 51,969,203
Book value per share$9.43 $10.21 $10.63 $11.00 $11.59
Tangible book value per share$9.24 $10.04 $10.46 $10.83 $11.44


Quarter Ended Nine Months Ended
09/30/2018 12/31/2018 03/31/2019 06/30/2019 09/30/2019 09/30/2018 09/30/2019
(Dollars in thousands)
Non-GAAP Tax Equivalent Efficiency
Ratio
Non-interest expense (Numerator) $19,875 $20,166 $22,631 $21,960 $21,172 $65,589 $65,763
Net interest income 28,968 32,315 33,605 34,874 35,786 78,053 104,265
Tax equivalent interest income 753 658 616 612 624 2,440 1,852
Net interest income - tax equivalent 29,721 32,973 34,221 35,486 36,410 80,493 106,117
Non-interest income 1,185 1,195 1,645 1,672 3,212 4,888 6,529
Total tax-equivalent income (Denominator) $30,906 $34,168 $35,866 $37,158 $39,622 $85,381 $112,646
Efficiency Ratio 65.91% 60.18% 64.20% 60.09% 54.29% 79.08% 59.36%
Non-GAAP Tax Equivalent Efficiency
Ratio		 64.31% 59.02% 63.10% 59.10% 53.43% 76.82% 58.38%

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