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CrossFirst Bankshares, Inc. Reports Record Fourth Quarter & Full-Year 2019 Operating Revenue and Net Income

January 23, 2020 4:01 PM

LEAWOOD, Kan., Jan. 23, 2020 (GLOBE NEWSWIRE) -- CrossFirst Bankshares, Inc. (Nasdaq: CFB), the bank holding company for CrossFirst Bank, reported its results for the fourth quarter and full-year of 2019, including record net income of $11.4 million, or $0.22 per diluted share, and full-year 2019 net income of $40.6 million, or $0.83 per diluted share. CrossFirst continued to deliver growth in operating revenue and earnings while managing through a declining interest rate environment.

"We are pleased to announce our 23rd consecutive quarter of record operating revenue performance," said CrossFirst CEO and President George F. Jones, Jr. “Despite the headwinds of a declining rate environment, we were able to deliver quarterly operating revenue growth through strong balance sheet growth and by maintaining our net interest margin. Doubling our net income year over year is a tremendous success for our Company. We have built a great organization and I am proud of what we have accomplished during the year.”

2019 Fourth Quarter and Full-Year Highlights:

Quarter-to-Date Year-to-Date
December 31, December 31,
2018 201920182019
(Dollars in millions except per share data)
Operating revenue(1)$33.5 $39.4 $116.5 $150.2
Net income$10.3 $11.4 $19.6 $40.6
Diluted EPS$0.22 $0.22 $0.47 $0.83
Return on average assets 1.06% 0.94% 0.56% 0.90%
Non-GAAP core operating return on average assets(2) 0.67% 0.94% 0.57% 0.88%
Return on average common equity 9.03% 7.45% 5.34% 7.67%
Non-GAAP return on average tangible common equity(2) 9.20% 7.55% 5.47% 7.79%
Net interest margin 3.44% 3.17% 3.29% 3.26%
Net interest margin, fully tax-equivalent(3) 3.51% 3.23% 3.39% 3.31%
Efficiency ratio 60.2% 55.6% 73.6% 58.4%
Non-GAAP core operating efficiency ratio, fully tax-equivalent(2)(3) 61.4% 54.7% 67.7% 57.2%

(1) Net interest income plus non-interest income.(2) Represents a non-GAAP measure. See "Table 6. Non-GAAP Financial Measures" for a reconciliation of this measure.(3) 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 interest income of $55.2 million for the fourth quarter of 2019, an increase of 17% from the fourth quarter of 2018 and remained flat from the previous quarter due to the declining interest rate environment. Full-year interest income is up 38% year-over- year primarily as a result of continued strong growth in average earning assets. The tax-equivalent yield on earning assets declined from 5.00% to 4.76% during the fourth quarter of 2019 primarily due to the movement of variable rate assets indexed to market rates.

Interest expense for the fourth quarter of 2019 was $18.0 million, or 22% higher than the fourth quarter of 2018 and 9% lower than the third quarter of 2019. Average interest-bearing deposits in the fourth quarter of 2019 totaled $3.3 billion, an increase of $806 million or 33% from the same quarter in 2018. Compared to the third quarter of 2019, interest-bearing deposit mix changes during the quarter were a result of responding to declining rates to lower margin exposure, therefore most of the new deposit growth came from variable rate accounts. Non- deposit funding costs decreased to 1.86% from 1.95% in the third quarter of 2019 while overall cost of funds for the quarter was 1.71%, compared to 1.94% for the third quarter of 2019.

Tax-equivalent net interest margin declined to 3.23% for the quarter compared to 3.51% for the same quarter in 2018, reflecting the impact of the declining rate environment. For full-year 2019, the Company reported a tax equivalent net interest margin of 3.31%, slightly lower than full-year 2018 results. The tax-equivalent adjustment, which accounts for income taxes saved on the interest earned on nontaxable securities and loans, was $0.7 million for the fourth quarter of both 2019 and 2018, and $0.6 million for the third quarter of 2019. Net interest income totaled $37.2 million for the fourth quarter of 2019 or 4% greater than the third quarter of 2019. Full-year 2019 net interest income totaled $141.4 million or 28% 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 $1.0 million in the fourth quarter of 2019 or 83% compared to the same quarter of 2018 and decreased $1.0 million or 32% lower compared to the third quarter of 2019. While the Company continues to increase fee income commensurate with its growth, during the quarter the Company recorded $0.5 million of bond gains as well as more income from the back to back swap program than in the fourth quarter in 2018. The reduction in non-interest income from the prior quarter was due to increased activity for swap fees and a one-time $0.8 million gain related to a change in derivative valuation in the third quarter of 2019. For full-year 2019, non-interest income increased $2.6 million compared to full-year 2018 primarily due to the increased swap activity, the revaluation of the swap program, and the additional activity derived from additional balance sheet and customer growth.

Non-Interest Expense

Non-interest expense for the fourth quarter of 2019 increased $1.7 million, or 9%, compared to the fourth quarter of 2018 and increased $0.7 million, or 3%, from the third quarter of 2019. Compared to the fourth quarter of 2018, salary and employment-related expenses increased $1.4 million for additional employee headcount required to support growth and data processing costs were higher from the Company's increased volumes of activity from balance sheet growth and a larger customer base. As compared to the third quarter of 2019, salary and employment-related expenses decreased $0.4 million as a result of continuing to manage resource allocation and hiring, FDIC insurance expense increased as a result of a one-time small bank credit in the third quarter and professional fees increased $0.6 million. For full-year 2019, non-interest expense increased 2% or $1.9 million compared to full-year 2018 primarily due to salary and employment expenses to support growth and higher data processing costs.

CrossFirst’s effective tax rate for the twelve months ended December 31, 2019 was 16.6% as compared to (13.9)% for the twelve months ended December 31, 2018. The year-over-year change was due to higher earnings, state tax credits related to our new headquarters, a reduction in tax-exempt income due to average yields on tax exempt securities decreasing, and permanent tax benefits from stock-based compensation awards vested and exercised in 2018 as compared to 2019. The effective tax rate for the fourth quarter of 2019 was 19.4% compared to (16.8)% for the fourth quarter of 2018. For both of the comparable periods, the Company continued 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 fourth quarter of 2019, total assets increased by $292 million or 6% compared to September 30, 2019 with both strong loan and deposit growth. Asset growth for CrossFirst was $836 million or 20% year-over-year. During the fourth quarter of 2019, total available for sale investment securities increased $9 million to $742 million, while the overall average for the quarter was $745 million. Tax-exempt municipal securities on average increased $35 million and mortgage-backed securities decreased $19 million. Overall, the Company increased the size of the bond portfolio during 2019 by $78 million, or 12% compared to year-end 2018. The increase in investment securities was part of management's strategy to manage liquidity and optimize income.

Loan Growth Results

The Company continued to maintain a diversified loan portfolio while experiencing strong loan growth of 6% for the fourth quarter of 2019 and 26% since December 31, 2018. Loan yields declined 32 basis points in the overall portfolio commensurate with the adjustable rate loan movements in LIBOR and Prime during the quarter. The Company experienced $174 million in payoffs for the quarter, but funded $255 million in loans to new borrowers to replace and grow the overall portfolio.

(Dollars in millions)4Q18 1Q19 2Q19 3Q19 4Q19 % ofTotal QoQGrowth($) QoQGrowth(%)(1) YoYGrowth($) YoYGrowth(%)(1)
Average loans (gross)
Commercial and industrial$1,021 $1,145 $1,224 $1,284 $1,315 35% $31 2% $294 29%
Energy 349 367 383 389 400 11 11 3 51 15
Commercial real estate 810 866 946 974 1,007 27 33 3 197 24
Construction and land development 449 444 457 487 599 16 112 23 150 33
Residential real estate 240 310 342 362 384 10 22 6 144 60
Consumer & Equity Lines 42 44 46 45 45 1 — (1) 3 5
Total$2,911 $3,176 $ 3,398 $3,541 $ 3,750 100% $209 6% $839 29%
Yield on loans for the period ending 5.56% 5.75% 5.66% 5.53% 5.21%

(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 fourth quarter, which have historically adjusted with movements in Federal Funds rates. During the fourth quarter, the Company added short term wholesale funding and $62 million of brokered deposits to replace the brokered funding that previously rolled off in the third quarter of 2019.

(Dollars in millions) 4Q18 1Q19 2Q19 3Q19 4Q19 % ofTotal QoQGrowth($) QoQ Growth (%)(1) YoYGrowth($) YoYGrowth(%)(1)
Average deposits
Non-interest bearing deposits$492 $477 $513 $535 $522 14% $(13) (3)% $30 6%
Transaction deposits 63 104 144 135 200 5% 65 49 137 217
Savings and money market deposits 1,498 1,544 1,560 1,744 1,854 49% 110 6 356 24
Time deposits 913 1,165 1,305 1,277 1,226 32% (51) (4) 313 34
Total$2,966 $3,290 $3,522 $3,691 $3,802 100% $111 3% $836 28%
Cost of deposits for the period ending 1.70% 1.96% 1.99% 1.94% 1.70%
Cost of interest-bearing deposits for the period ending 2.04% 2.30% 2.33% 2.26% 1.97%

(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, recording a provision expense of $3.4 million for the fourth quarter. Net charge-offs were $5.5 million for the quarter as a result of a partial charge-off of a previously identified non-performing commercial and industrial loan, as compared to charge-offs of $0.2 million for the fourth quarter in 2018. During the quarter, non-performing assets to total assets and overall asset quality remained consistent with the previous quarters asset quality metrics.

Asset quality (Dollars in millions)4Q18 1Q19 2Q19 3Q19 4Q19
Non-accrual loans$17.8 $13.0 $50.0 $43.6 $39.7
Other real estate owned — 2.5 2.5 2.5 3.6
Non-performing assets 17.8 15.5 52.8 46.7 47.9
Loans 90+ days past due and still accruing — — 0.2 0.6 4.6
Loans 30 - 89 days past due 3.7 31.1 23.6 64.7 4.5
Net charge-offs (recoveries) 0.2 0.7 — 4.7 5.5
Asset quality metrics (%)4Q18 1Q19 2Q19 3Q19 4Q19
Non-performing assets to total assets 0.43% 0.36% 1.18% 1.00% 0.97%
Allowance for loan loss to total loans 1.23 1.22 1.24 1.18 1.06
Allowance for loan loss to non-performing loans 212 307 85 97 92
Net charge-offs (recoveries) to average loans(1) 0.03 0.09 — 0.53 0.58
Provision to average loans(1) 0.61 0.36 0.34 0.54 0.09
(1) Interim periods annualized.

Capital Position

At December 31, 2019, stockholders’ equity totaled $613 million, or $11.80 per share, compared to $602 million, or $11.59 per share, at September 30, 2019. Tangible common stockholders' equity was $606 million and tangible book value per share was $11.66 at December 31, 2019. The increase in stockholders' equity for the fourth quarter was primarily a result of quarterly earnings and modest movement in accumulated other comprehensive income for unrealized bond gains.

Period-end (Dollars in millions, except per share data)4Q18 1Q19 2Q19 3Q19 4Q19
Total Stockholders' Equity$490 $481 $499 $602 $613
Book value per share$10.21 $10.63 $11.00 $11.59 $11.80
Tangible book value per share(1)$10.04 $10.46 $10.83 $11.44 $11.66
Common equity tier 1 capital ratio 11.75% 11.23% 11.02% 12.91% 12.19%
Tier 1 capital ratio 12.53 11.23 11.04 12.93 12.21
Total capital ratio 13.51 12.20 12.04 13.90 13.08
Leverage ratio 12.43 11.15 10.87 12.57 12.08

(1) Represents a non-GAAP measure. See "Table 6. Non-GAAP Financial Measures" for a reconciliation of this measure.

During the third quarter of 2019, the Company issued 6,594,362 new shares in its initial public offering, 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 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 fourth quarter 2019 and year end results on Thursday, January 23, 2020 at 4 p.m. CST / 5 p.m. EST. 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. 5624769. 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's website. A replay of the conference call will be available two hours following the close of the call until January 30, 2020, accessible at (855) 859-2056 with conference ID no. 5624769.

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 Annual Report on Form 10-K 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) 312-6822https://investors.crossfirstbankshares.com

Unaudited Financial Tables

TABLE 1. CONSOLIDATED BALANCE SHEETS
As of December 31,
2018 2019(unaudited)
(Dollars in thousands)
Assets
Cash and cash equivalents$216,541 $187,320
Available for sale securities - taxable 296,133 298,208
Available for sale securities - tax-exempt 367,545 443,426
Premises and equipment, held for sale 3,444 —
Loans, net of allowance for loan losses of $40,896 and $37,826 at December 31,
2019 and 2018, respectively 3,022,921 3,811,348
Premises and equipment, net 74,945 70,210
Restricted equity securities 14,525 17,278
Interest receivable 14,092 15,716
Foreclosed assets held for sale — 3,619
Deferred tax asset 16,316 9,560
Goodwill and other intangible assets, net 7,796 7,694
Bank-owned life insurance 63,811 65,689
Other 9,146 12,943
Total assets$4,107,215 $4,943,011
Liabilities and stockholders’ equity
Deposits
Non-interest bearing$484,284 $521,826
Savings, NOW and money market 1,714,136 2,162,187
Time 1,009,677 1,239,746
Total deposits 3,208,097 3,923,759
Federal funds purchased and repurchase agreements 75,406 14,921
Federal Home Loan Bank advances 312,985 358,743
Other borrowings 884 921
Interest payable and other liabilities 19,507 31,245
Total liabilities 3,616,879 4,329,589
Stockholders’ equity
Redeemable preferred stock, $0.01 par value, $25 liquidation value:
authorized - 5,000,000 shares, issued - 0 and 1,200,000 shares at December 31,
2019 and 2018, respectively 12 —
Common stock, $0.01 par value:
authorized - 200,000,000 shares, issued - 51,969,203 and 45,074,322 shares at December 31, 2019 and 2018, respectively 451 520
Additional paid-in capital 454,512 519,870
Retained earnings 38,567 76,666
Other (196) (85)
Accumulated other comprehensive income (loss) (3,010) 16,451
Total stockholders’ equity 490,336 613,422
Total liabilities and stockholders’ equity$4,107,215 $4,943,011

TABLE 2. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months EndedDecember 31, Twelve Months EndedDecember 31,
2018 2019 2018 2019
(Dollars in thousands except per share data)
Interest Income
Loans, including fees Available for sale securities$40,813 $49,208 $130,075 $191,527
Available for sale securities - Taxable 2,243 1,894 7,972 8,540
Available for sale securities - Tax-exempt 3,135 3,191 14,757 12,011
Deposits with financial institutions 615 601 3,096 3,053
Dividends on bank stocks 262 286 980 1,087
Total interest income 47,068 55,180 156,880 216,218
Interest Expense
Deposits 12,733 16,247 39,372 67,668
Fed funds purchased and repurchase agreements 440 91 1,068 592
Advances from Federal Home Loan Bank 1,533 1,628 5,841 6,367
Other borrowings 47 35 231 147
Total interest expense 14,753 18,001 46,512 74,774
Net Interest Income 32,315 37,179 110,368 141,444
Provision for Loan Losses 4,500 3,350 13,500 13,900
Net Interest Income after Provision for Loan Losses 27,815 33,829 96,868 127,544
Non-Interest Income
Service charges and fees (rebates) on customer accounts (62) 163 444 604
Gain (loss) on sale of available for sale securities (70) 520 538 987
Impairment of premises and equipment held for sale — — (171) (424)
Gain on sale of loans 209 — 827 207
Income from bank-owned life insurance 458 462 1,969 1,878
Swap fee income, net (14) 338 285 2,753
Other non-interest income 674 703 2,191 2,710
Total non-interest income 1,195 2,186 6,083 8,715
Non-Interest Expense
Salaries and employee benefits 12,429 13,818 56,118 57,114
Occupancy 2,015 2,048 8,214 8,349
Professional fees 899 1,041 3,320 2,964
Deposit insurance premiums 775 767 3,186 2,787
Data processing 525 676 1,995 2,544
Advertising 709 685 2,691 2,455
Software and communication 672 910 2,630 3,317
Depreciation and amortization 482 414 1,788 1,734
Other non-interest expense 1,660 1,526 5,813 6,384
Total non-interest expense 20,166 21,885 85,755 87,648
Net Income Before Taxes 8,844 14,130 17,196 48,611
Income tax expense (benefit) (1,490) 2,746 (2,394) 8,054
Net Income$10,334 $11,384 $19,590 $40,557
Basic Earnings Per Share$0.22 $0.22 $0.48 $0.85
Diluted Earnings Per Share$0.22 $0.22 $0.47 $0.83

TABLE 3. YEAR-TO-DATE ANALYSIS OF CHANGES IN NET INTEREST INCOME(UNAUDITED)
Twelve Months EndedDecember 31,
2018 2019
AverageBalance InterestIncome /Expense AverageYield /Rate(3) AverageBalance InterestIncome /Expense AverageYield /Rate(3)
Interest-earning assets:(Dollars in thousands)
Securities - taxable$281,709 $8,952 3.18% $330,051 $9,627 2.92%
Securities - tax-exempt(1) 459,231 17,856 3.89 390,908 14,533 3.72
Federal funds sold 16,377 339 2.07 15,195 364 2.40
Interest-bearing deposits in other banks 159,279 2,757 1.73 139,538 2,689 1.93
Gross loans, net of unearned income(2) 2,435,424 130,075 5.34 3,468,079 191,527 5.52
Total interest-earning assets(1) 3,352,020 $159,979 4.77% 4,343,771 $218,740 5.04%
Allowance for loan losses (30,921) (41,971)
Other non-interest-earning assets 173,556 197,963
Total assets$3,494,655 $4,499,763
Interest-bearing liabilities
Transaction deposits$56,321 $175 0.31% $146,109 $1,742 1.19%
Savings and money market deposits 1,410,727 23,405 1.66 1,676,417 35,385 2.11
Time deposits 835,595 15,792 1.89 1,243,304 30,541 2.46
Total interest-bearing deposits 2,302,643 39,372 1.71 3,065,830 67,668 2.21
FHLB and short-term borrowings 395,825 7,004 1.77 366,577 6,959 1.90
Trust preferred securities, net of fair value adjustments 864 136 15.69 899 147 16.34
Non-interest-bearing deposits 425,243 — — 512,142 — —
Cost of funds 3,124,575 $46,512 1.49% 3,945,448 $74,774 1.90%
Other liabilities 12,634 25,708
Stockholders’ equity 357,446 528,607
Total liabilities and stockholders' equity$3,494,655 $4,499,763
Net interest income(1) $113,467 $143,966
Net interest spread(1) 3.28% 3.14%
Net interest margin(1) 3.39% 3.31%

(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)
Twelve Months EndedDecember 31, 2019 over 2018
Average Volume Yield/Rate Net Change(2)
Interest Income(Dollars in thousands)
Securities - taxable$1,449 $(774) $675
Securities - tax-exempt(1) (2,568) (755) (3,323)
Federal funds sold (26) 51 25
Interest-bearing deposits in other banks (365) 297 (68)
Gross loans, net of unearned income 56,927 4,525 61,452
Total interest income(1) 55,417 3,344 58,761
Interest Expense
Transaction deposits 564 1,003 1,567
Savings and money market deposits 4,911 7,069 11,980
Time deposits 9,115 5,634 14,749
Total interest-bearing deposits 14,590 13,706 28,296
FHLB and short-term borrowings (538) 493 (45)
Trust preferred securities, net of fair value adjustments 5 6 11
Total interest expense 14,057 14,205 28,262
Net interest income(1)$41,360 $(10,861) $30,499

(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. 2018 - 2019 QUARTERLY ANALYSIS OF CHANGES IN NET INTEREST INCOME(UNAUDITED)
Three Months EndedDecember 31,
2018 2019
AverageBalance InterestIncome /Expense AverageYield /Rate(3) AverageBalance InterestIncome /Expense AverageYield /Rate(3)
(Dollars in thousands)
Interest-earning assets:
Securities - taxable$305,995 $2,505 3.25% $317,524 $2,180 2.72%
Securities - tax-exempt(1) 385,463 3,793 3.90 427,280 3,861 3.59
Federal funds sold 9,239 58 2.49 4,750 19 1.61
Interest-bearing deposits in other banks 113,403 558 1.95 152,917 582 1.51
Gross loans, net of unearned income(2) (3) 2,911,350 40,812 5.56 3,749,865 49,208 5.21
Total interest-earning assets(1) 3,725,450 $47,726 5.08% 4,652,336 $55,850 4.76%
Allowance for loan losses (34,818) (43,877)
Other non-interest-earning assets 194,010 201,117
Total assets$3,884,642 $4,809,576
Interest-bearing liabilities
Transaction deposits$63,223 $74 0.46% $200,480 $603 1.19%
Savings and money market deposits 1,498,075 7,747 2.05 1,854,042 8,059 1.72
Time deposits 912,882 4,912 2.13 1,225,752 7,585 2.46
Total interest-bearing deposits 2,474,180 12,733 2.04 3,280,274 16,247 1.97
FHLB and short-term borrowings 439,322 1,984 1.79 366,190 1,719 1.86
Trust preferred securities, net of fair value adjustments 876 36 16.34 913 35 15.18
Non-interest-bearing deposits 491,689 — — 521,799 — —
Cost of funds 3,406,067 $14,753 1.72% 4,169,176 $18,001 1.71%
Other liabilities 17,694 34,443
Total stockholders' equity 460,881 605,957
Total liabilities and stockholders' equity$3,884,642 $4,809,576
Net interest income(1) $32,973 $37,849
Net interest spread(1) 3.36% 3.05%
Net interest margin(1) 3.51% 3.23%

(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 non-accrual 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 EndedDecember 31, 2019 over 2018
Average Volume Yield/Rate Net Change(2)
(Dollars in thousands)
Interest Income
Securities - taxable$93 $(418) $(325)
Securities - tax-exempt(1) 387 (319) 68
Federal funds sold (23) (16) (39)
Interest-bearing deposits in other banks 167 (143) 24
Gross loans, net of unearned income 11,105 (2,709) 8,396
Total interest income(1) 11,729 (3,605) 8,124
Interest Expense
Transaction deposits 305 224 529
Savings and money market deposits 1,672 (1,360) 312
Time deposits 1,841 832 2,673
Total interest-bearing deposits 3,818 (304) 3,514
FHLB and short-term borrowings (340) 75 (265)
Trust preferred securities, net of fair value adjustments 1 (2) (1)
Total interest expense 3,479 (231) 3,248
Net interest income(1)$8,250 $(3,374) $4,876

(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. LINKED QUARTERLY ANALYSIS OF CHANGES IN NET INTEREST INCOME(UNAUDITED)
Three Months Ended
September 30, 2019 December 31, 2019
AverageBalance InterestIncome /Expense AverageYield /Rate(3) AverageBalance InterestIncome /Expense AverageYield /Rate(3)
(Dollars in thousands)
Interest-earning assets:
Securities - taxable$335,045 $2,263 2.68% $317,524 $2,180 2.72%
Securities - tax-exempt(1) 392,644 3,592 3.63 427,280 3,861 3.59
Federal funds sold 16,315 89 2.16 4,750 19 1.61
Interest-bearing deposits in other banks 171,913 881 2.03 152,917 582 1.51
Gross loans, net of unearned income(2) (3) 3,540,707 49,327 5.53 3,749,865 49,208 5.21
Total interest-earning assets(1) 4,456,624 $56,152 5.00% 4,652,336 $55,850 4.76%
Allowance for loan losses (43,327) (43,877)
Other non-interest-earning assets 197,661 201,117
Total assets$4,610,958 $4,809,576
Interest-bearing liabilities
Transaction deposits$134,987 $386 1.13% $200,480 $603 1.19%
Savings and money market deposits 1,743,575 9,553 2.17 1,854,042 8,059 1.72
Time deposits 1,276,571 8,064 2.51 1,225,752 7,585 2.46
Total interest-bearing deposits 3,155,133 18,003 2.26 3,280,274 16,247 1.97
FHLB and short-term borrowings 345,794 1,703 1.95 366,190 1,719 1.86
Trust preferred securities, net of fair value
adjustments 904 37 16.06 913 35 15.18
Non-interest-bearing deposits 535,467 — — 521,799 — —
Cost of funds 4,037,298 $19,743 1.94% 4,169,176 $18,001 1.71%
Other liabilities 29,833 34,443
Total stockholders' equity 543,827 605,957
Total liabilities and stockholders' equity$4,610,958 $4,809,576
Net interest income(1) $36,409 $37,849
Net interest spread(1) 3.06% 3.05%
Net interest margin(1) 3.24% 3.23%

(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 EndedDecember 31, 2019 over September 30, 2019
Average Volume Yield/Rate Net Change(2)
(Dollars in thousands)
Interest Income
Securities - taxable$(118) $35 $(83)
Securities - tax-exempt(1) 310 (41) 269
Federal funds sold (51) (19) (70)
Interest-bearing deposits in other banks (90) (209) (299)
Gross loans, net of unearned income 2,825 (2,944) (119)
Total interest income(1) 2,876 (3,178) (302)
Interest Expense
Transaction deposits 195 22 217
Savings and money market deposits 576 (2,070) (1,494)
Time deposits (319) (160) (479)
Total interest-bearing deposits 452 (2,208) (1,756)
FHLB and short-term borrowings 97 (81) 16
Trust preferred securities, net of FV adjustments — (2) (2)
Total interest expense 549 (2,291) (1,742)
Net interest income(1)$2,327 $(887) $1,440

(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 6. 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:

The most directly comparable GAAP financial measure for non-GAAP core operating income is net income.

Quarter EndedTwelve Months Ended
12/31/201803/31/201906/30/201909/30/201912/31/201912/31/201812/31/2019
(Dollars in thousands)
Non-GAAP return on average tangible common equity:
Net income available to common stockholders$9,809 $9,175 $9,439 $10,384 $11,384 $17,490 $40,382
Average common equity 430,881 466,506 486,880 543,827 605,957 327,446 526,224
Less: average goodwill and intangibles 7,810 7,784 7,759 7,733 7,708 7,847 7,746
Average tangible common equity 423,071 458,722 479,121 536,094 598,249 319,599 518,478
Return on average common equity 9.03% 7.98% 7.78% 7.58% 7.45% 5.34% 7.67%
Non-GAAP Return on average tangible common equity 9.20% 8.11% 7.90% 7.68% 7.55% 5.47% 7.79%

Quarter Ended Twelve Months Ended
12/31/201803/31/201906/30/201909/30/201912/31/201912/31/201812/31/2019
(Dollars in thousands)
Non-GAAP core operating income:
Net Income $10,334 $9,350 $9,439$10,384$11,384$19,590 $40,557
Add: restructuring charges (815) — — — — 4,733 —
Less: tax effect(1) (210) — — — — 1,381 —
Restructuring charges, net of tax (605) — — — — 3,352 —
Add: fixed asset impairments — — 424 — — 171 424
Less: tax effect(1) — — 109 — — 44 109
Fixed asset impairments, net of tax — — 315 — — 127 315
Add: state tax credit(2) (3,129) (1,361) — — — (3,129) (1,361)
Non-GAAP core operating income$6,600 $7,989 $9,754$10,384$11,384$19,940 $39,511

(1) Represents the tax impact of the adjustments above at a tax rate of 25.73%(2) No tax effect

Quarter Ended Twelve Months Ended
12/31/201803/31/201906/30/201909/30/201912/31/201912/31/201812/31/2019
(Dollars in thousands)
Non-GAAP core operating return on average
assets:
Net income10,334 9,350 9,439 10,384 11,384 19,590 40,557
Non-GAAP core operating income6,600 7,989 9,754 10,384 11,384 19,940 39,511
Average assets3,884,642 4,168,243 4,402,002 4,610,958 4,809,576 3,494,655 4,499,763
Return on average assets1.06%0.91%0.86%0.89%0.94%0.56%0.90%
Non-GAAP core operating return on average assets0.67%0.78%0.89%0.89%0.94%0.57%0.88%

Quarter Ended Twelve Months Ended
12/31/201803/31/201906/30/201909/30/201912/31/201912/31/201812/31/2019
(Dollars in thousands)
Non-GAAP core operating return on common
equity:
Net income$10,334 $9,350 $9,439 $10,384 $11,384 $19,590 $40,557
Non-GAAP core operating income 6,600 7,989 9,754 10,384 11,384 19,940 39,511
Less: Preferred stock dividends 525 175 — — — 2,100 175
Net income available to common stockholders 9,809 9,175 9,439 10,384 11,384 17,490 40,382
Non-GAAP core operating income available to common stockholders 6,075 7,814 9,754 10,384 11,384 17,840 39,336
Average common equity$430,881 $466,506 $486,880 $543,827 $605,957 $327,446 $526,224
GAAP return on average common equity 9.03% 7.98% 7.78% 7.58% 7.45% 5.34% 7.67%
Non-GAAP core operating return on common equity 5.59% 6.79% 8.04% 7.58% 7.45% 5.45% 7.48%

Quarter Ended
12/31/2018 03/31/2019 06/30/2019 09/30/2019 12/31/2019
(Dollars in thousands except per share data)
Tangible common stockholders' equity:
Total stockholders' equity$490,336 $ 480,514 $ 499,195 $ 602,435 $ 613,422
Less: goodwill and other intangible
assets 7,796 7,770 7,745 7,7207,694
Less: preferred stock 30,000 — — ——
Tangible common stockholders' equity$452,540 $472,744 $491,450 $594,715 $605,728
Tangible book value per share:
Tangible common stockholders' equity$452,540 $472,744 $491,450 $594,715605,728
Shares outstanding at end of period 45,074,322 45,202,370 45,367,641 51,969,20351,969,203
Book value per share$10.21 $10.63 $11.00 $11.5911.80
Tangible book value per share$10.04 $10.46 $10.83 $11.4411.66

Quarter Ended Twelve Months Ended
12/31/201803/31/201906/30/201909/30/201912/31/201912/31/201812/31/2019
(Dollars in thousands)
Non-GAAP Core Operating Efficiency Ratio -
Fully Tax Equivalent
Non-interest expense$20,166 $22,631 $21,960 $21,172 $21,885 $85,755 $87,648
Less: restructuring charge$(815)$— $— $— $— $4,733 $—
Non-GAAP non-interest expense
(numerator) 20,981 22,631 21,960 21,172 $21,885 $81,022 $87,648
Net interest income 32,315 33,605 34,874 35,786 37,179 110,368 141,444
Tax equivalent interest income 658 616 612 624 670 3,099 2,522
Non-interest income 1,195 1,645 1,672 3,212 2,186 6,083 8,715
Add: fixed asset impairments$— $— $424 $— $— $171 $424
Total tax-equivalent income (denominator)$34,168 $35,866 $37,582 $39,622 $40,035 $119,721 $153,105
Efficiency Ratio 60.18% 64.20% 60.09% 54.29% 55.60% 73.64% 58.37%
Non-GAAP Core Operating Efficiency Ratio -
Fully Tax Equivalent 61.41% 63.10% 58.43% 53.43% 54.66% 67.68% 57.25%

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Source: CrossFirst Bankshares, Inc.

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