CrossFirst Bankshares, Inc. Reports Second Quarter 2022 Results

Source: Nasdaq GlobeNewswire / 18 Jul 2022 15:02:01 America/Chicago

Second Quarter 2022 Key Financial Performance Metrics

Net Income	ROAA	Net Interest Margin (FTE)	Diluted EPS	ROE
$15.5 million	1.12%	3.52%⁽¹⁾	$0.31	10.15%

LEAWOOD, Kan, July 18, 2022 (GLOBE NEWSWIRE) -- CrossFirst Bankshares, Inc. (Nasdaq: CFB), the bank holding company for CrossFirst Bank, today reported operating results for the second quarter of 2022, with second quarter net income of $15.5 million, or $0.31 per diluted share, and year-to-date net income of $32.4 million, or $0.64 per diluted share.

CEO Commentary:

"In addition to our announcement about our planned acquisition of Central, we produced a very strong quarter of organic loan growth. We also invested in talent to support our continued success by filling key roles with both internal promotions and adding high-caliber talent from the outside,” said CrossFirst’s CEO and President, Mike Maddox. “We remain highly focused on credit quality, and we are committed to managing through a challenging economy while delivering for our clients and stockholders.”

2022 Second Quarter Highlights:

Announced on June 13, 2022, an agreement under which CrossFirst Bank will acquire Central Bancorp, Inc.’s bank subsidiary, Farmers & Stockmens Bank (“Central”), in an all-cash transaction
$5.7 billion of assets with 6% operating revenue growth compared to the second quarter of 2021
$179 million or 4% of total loan growth from the previous quarter and $290 million or 7% loan growth from the same quarter last year; excluding PPP loans⁽²⁾, loan growth was $195 million from the previous quarter or 5% and was $473 million or 12% from the same quarter last year
Continued improvement in credit quality during the second quarter of 2022 as evidenced by the decrease in non-performing assets to total assets ratio from 1.09% at June 30, 2021 to 0.54% at June 30, 2022
Return on Average Assets of 1.12% and a Return on Equity of 10.15% for the quarter ended June 30, 2022
Net Interest Margin (Fully Tax-Equivalent)⁽¹⁾ of 3.52% for the quarter ended June 30, 2022, compared to 3.14% for the same quarter last year


		Quarter-to-Date						Year-to-Date
		June 30,						June 30,
(Dollars in millions except per share data)		2022			2021			2022			2021
Operating revenue⁽³⁾	$	50.9		$	48.2		$	99.0		$	93.4
Net income	$	15.5		$	15.6		$	32.4		$	27.6
Diluted earnings per share	$	0.31		$	0.30		$	0.64		$	0.53
Return on average assets		1.12	%		1.10	%		1.18	%		0.97	%
Return on average common equity		10.15	%		9.86	%		10.30	%		8.84	%
Net interest margin⁽¹⁾		3.46	%		3.08	%		3.35	%		3.02	%
Net interest margin, fully tax-equivalent⁽¹⁾⁽⁴⁾		3.52	%		3.14	%		3.41	%		3.07	%
Efficiency ratio		57.36	%		53.61	%		57.46	%		52.06	%
Non-GAAP core operating efficiency ratio, fully tax-equivalent⁽²⁾⁽⁴⁾		55.08	%		53.34	%		55.83	%		51.51	%

(1)  The Company changed the annualization method on the available-for-sale securities portfolio from Actual/Actual to 30/360 and moved the unrealized gain (loss) on available-for-sale securities from an interest-earning asset to a non-interest earning asset. All periods presented reflect this change.
(2)  Represents a non-GAAP measure. See "Table 5. Non-GAAP Financial Measures" for a reconciliation of these measures.
(3)  Net interest income plus non-interest income.
(4)  Tax exempt income is calculated on a tax-equivalent basis. Tax-free municipal securities are exempt from federal income taxes. The incremental federal income tax rate used is 21.0%.

Income from Operations

Net Interest Income

Interest income was $52.8 million for the second quarter of 2022, an increase of 9% from the second quarter of 2021 and an increase of 11% from the previous quarter due to higher average loans outstanding and higher interest rates. Average earning assets totaled $5.4 billion for the second quarter of 2022, a decrease of $92 million or 2% from the same quarter in 2021. This decline in average earning assets was largely driven by a decrease of $210 million in average interest-bearing deposits in other banks, the impact of which was outweighed by the increase of $29 million in average loans and the associated loan yield increase.

Interest expense for the second quarter of 2022 was $6.1 million, slightly lower than the second quarter of 2021 and 32% higher than the previous quarter. Average interest-bearing deposits decreased to $3.4 billion in the second quarter of 2022, a 13% decrease from the same prior year period. The cost of funds increased from the previous quarter to 0.50%, compared to 0.39% for the first quarter of 2022, driven by the higher interest rate environment.

Net interest income totaled $46.7 million for the second quarter of 2022, which was 8% higher than the first quarter of 2022, and 10% higher than the second quarter of 2021. Tax-equivalent net interest margin increased to 3.52% in the current quarter from 3.29% in the previous quarter and 3.14% in the second quarter of 2021. The tax-equivalent adjustment, which accounts for income taxes saved on the interest earned on non-taxable securities and loans, was $0.8 million for the second quarter of 2022.

Non-Interest Income

Non-interest income decreased $1.6 million in the second quarter of 2022 or 28% compared to the same quarter of 2021 and decreased $0.7 million compared to the first quarter of 2022. The decrease in non-interest income compared to the previous quarter was due to a $1.1 million decrease in credit card fees and $0.1 million decrease in swap fee income, partly offset by a $0.3 million increase in letter of credit fees and $0.1 million increase in service charge income. The decrease in non-interest income compared to the same quarter of 2021, was primarily due to $1.8 million in income from bank-owned life insurance proceeds received last year.

Non-Interest Expense

Non-interest expense for the second quarter of 2022 was $29.2 million, which increased 13% compared to the second quarter of 2021 and increased 6% from the first quarter of 2022. Salaries and benefit costs were lower in the current quarter by $0.8 million compared to the prior quarter. Furthermore, professional fees increased $0.3 million and data processing expenses increased $0.3 million, partly offset by a slight decrease in software and communication expenses. Compared to the same quarter in the prior year, salaries and benefit costs were $1.4 million higher mainly due to increased hiring for market expansion and increased incentive expenses. Additionally, software and communication expenses increased $0.2 million, and data processing expenses increased $0.4 million, offset by a $0.7 million decrease in foreclosed assets. The other non-interest expense increase for the second quarter of 2022 was primarily due to increases in travel and meeting expenses and employee separation expense of $1.1 million.

CrossFirst’s effective tax rate for the second quarter of 2022 was 21%, as compared to 17% for the second quarter of 2021 and 20% in the first quarter of 2022. The 4% effective tax rate increase compared to the same quarter in the prior year was primarily due to the $1.8 million in income from bank-owned life insurance proceeds received last year, which was not subject to tax. For both comparable periods, the Company continued to benefit from its tax-exempt municipal bond portfolio and bank-owned life insurance. The tax-exempt benefit diminishes as the Company’s ratio of taxable income to tax-exempt income increases.

Balance Sheet Performance & Analysis

During the second quarter of 2022, total assets increased by $190 million or 3% compared to March 31, 2022, and increased $397 million or 7% compared to June 30, 2021. Total assets increased on a linked quarter basis primarily due to a $179 million increase in loans. The year-over-year increase was due to increases in loans of $310 million and cash and cash equivalents of $57 million. Non-interest-bearing deposits increased $53 million compared to March 31, 2022, and increased $345 million from June 30, 2021. During the second quarter of 2022, available-for-sale investment securities decreased $27 million to $696 million compared to March 31, 2022 primarily due to unrealized losses from interest rate increases. The securities yields increased 7 basis points to a tax equivalent yield of 3.07% for the second quarter of 2022 compared to the prior quarter.

Loan Results

During the second quarter of 2022, the Company produced an increase in average loans of $105 million compared to the first quarter of 2022, and an increase of $29 million or 1% compared to the second quarter of 2021. The linked quarter increase in average loans was primarily a result of growth in the commercial and commercial real estate portfolios. Net of PPP loans, average loans grew 3% compared to the quarter ended March 31, 2022. Loan yields increased 28 basis points to 4.28% during the second quarter of 2022 and increased 29 basis points compared to the same prior year quarter.

		2Q22			1Q22			4Q21			3Q21			2Q21		QoQ Growth ($)		QoQ Growth (%)⁽¹⁾		YoY Growth ($)		YoY Growth (%)⁽¹⁾
	(Dollars in millions)
Average loans (gross)
Commercial and industrial	$	1,532		$	1,434		$	1,328		$	1,233		$	1,221		$	98	7	%	$	311	25	%
Energy		241			274			290			311			341			(33)	(12)			(100)	(29)
Commercial real estate		1,399			1,327			1,272			1,213			1,203			72	5			196	16
Construction and land development		581			593			579			611			633			(12)	(2)			(52)	(8)
Residential and multifamily real estate		609			604			612			659			659			5	1			(50)	(8)
Paycheck Protection Program		20			42			84			147			296			(22)	(52)			(276)	(93)
Consumer		56			59			56			57			56			(3)	(5)			-	0
Total	$	4,438		$	4,333		$	4,221		$	4,231		$	4,409		$	105	2	%	$	29	1	%

Yield on average loans for the period ending		4.28	%		4.00	%		4.17	%		4.00	%		3.99	%
⁽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 & Other Borrowing Results

During the second quarter of 2022, the Company experienced a decrease in average deposits of 2% compared to the previous quarter, and a 4% decline in average deposits compared to the second quarter of 2021. The deposit reduction for the quarter was driven by decreases in transaction deposits and time deposits. As a result of the increasing interest rate environment, the Company had an increase of 11 basis points in the overall cost of deposits during the second quarter of 2022, and the cost of interest-bearing deposits has increased 6 basis points over the last twelve months.

		2Q22			1Q22			4Q21			3Q21			2Q21		QoQ Growth ($)		QoQ Growth (%)⁽¹⁾		YoY Growth ($)		YoY Growth (%)⁽¹⁾
	(Dollars in millions)
Average deposits
Non-interest-bearing deposits	$	1,150		$	1,157		$	1,058		$	910		$	802		$	(7)	(1)	%	$	348	43	%
Transaction deposits		507			586			543			511			665			(79)	(13)			(158)	(23)
Savings and money market deposits		2,334			2,303			2,272			2,276			2,385			31	1			(51)	(2)
Time deposits		560			587			662			752			869			(27)	(5)			(309)	(36)
Total	$	4,551		$	4,633		$	4,535		$	4,449		$	4,721		$	(82)	(2)	%	$	(170)	(4)	%

Cost of deposits for the period ending		0.42	%		0.31	%		0.33	%		0.38	%		0.41	%
Cost of interest-bearing deposits for the period ending		0.56	%		0.41	%		0.43	%		0.47	%		0.50	%
⁽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.

At June 30, 2022, other borrowings totaled $298 million, as compared to $228 million at March 31, 2022, and $284 million at June 30, 2021.

Asset Quality Position

Non-performing assets decreased to $30.8 million due to a $5.4 million decrease in non-accrual loans. The decline is attributable to decreases in non-accrual commercial and industrial and energy loans. The non-performing assets to total assets ratio decreased from 1.09% at June 30, 2021 to 0.54% at June 30, 2022. Classified loans increased slightly during the second quarter due to some grade changes in the commercial and industrial portfolio, but remained in an acceptable range at 12.1% of total capital plus the allowance for credit losses.

The allowance for credit losses was $56 million or 1.23% of outstanding loans and 202% of non-accruing loans at June 30, 2022. The combined allowance for credit losses and accrual for off-balance sheet credit risk from unfunded commitments (“RUC”) was $61 million or 1.35% of outstanding loans and 221% of non-accruing loans at June 30, 2022.

The allowance for credit losses to total loans decreased to 1.23% at June 30, 2022 from 1.27% at March 31, 2022. The improvements in credit metrics compared to June 30, 2021 were primarily driven by upgrades in COVID-19 impacted segments and the Energy portfolio. Net charge-offs were $1.1 million for the second quarter of 2022 and were consistent with the prior quarter. The charge-offs for the current quarter were primarily related to commercial and industrial and energy credits. The following table provides information regarding asset quality.

Asset quality (Dollars in millions)		2Q22			1Q22			4Q21			3Q21			2Q21
Non-accrual loans	$	27.7		$	33.1		$	31.4		$	48.1		$	54.7
Other real estate owned		1.0			1.0			1.1			1.1			1.7
Non-performing assets		30.8			35.6			32.7			49.8			58.1
Loans 90+ days past due and still accruing		2.2			1.5			0.1			0.5			1.8
Loans 30 - 89 days past due		16.6			15.9			3.5			37.6			18.8
Net charge-offs (recoveries)		1.1			1.1			0.8			1.3			2.6

Asset quality metrics (%)		2Q22			1Q22			4Q21			3Q21			2Q21
Non-performing assets to total assets		0.54	%		0.64	%		0.58	%		0.92	%		1.09	%
Allowance for credit loss to total loans		1.23			1.27			1.37			1.51			1.78
Allowance for credit loss + RUC to total loans⁽¹⁾		1.35			1.38			-			-			-
Allowance for credit loss to non-performing loans		187			160			185			132			134
Net charge-offs (recoveries) to average loans⁽²⁾		0.10			0.10			0.07			0.13			0.23
Provision to average loans⁽²⁾		0.19			(0.06)			(0.47)			(0.94)			0.32
Classified Loans / (Total Capital + ACL)		12.1			10.8			10.8			17.3			24.0
Classified Loans / (Total Capital + ACL + RUC)⁽¹⁾		12.0			10.7			-			-			-
⁽¹⁾Includes the accrual for off-balance sheet credit risk from unfunded commitments that resulted from CECL adoption on January 1, 2022.
⁽²⁾Interim periods annualized.

Capital Position

At June 30, 2022, stockholders' equity totaled $608 million, or $12.27 per share, compared to $668 million, or $13.23 per share, at December 31, 2021. During the second quarter of 2022, CrossFirst continued its share repurchase program by purchasing 237,993 shares of common stock outstanding. In addition, accumulated other comprehensive income (loss) declined by $71 million between December 31, 2021 and June 30, 2022; driven by a $74 million decrease in the unrealized gain (loss) on available-for-sale securities, net of tax.

The ratio of common equity Tier 1 capital to risk-weighted assets was approximately 12% and the total capital to risk-weighted assets was approximately 13% at June 30, 2022. The Company remains well-capitalized.

Conference Call and Webcast

CrossFirst will host a conference call to review second quarter 2022 financial results on Tuesday, July 19, 2022, at 10 a.m. CT / 11 a.m. ET. The conference call and webcast may also include discussion of Company developments, forward-looking statements and other material information about business and financial matters. To access the event by telephone, please dial (877) 270-2148 at least fifteen minutes prior to the start of the call and request access to the CrossFirst Bankshares, Inc. call. International callers should dial +1 (412) 902-6510 and request access as directed above.

The call will also be broadcast live over the internet and can be accessed via the following link: https://edge.media-server.com/mmc/p/px7sxoby. Please visit the site at least 15 minutes prior to the call to allow time for registration.

For those unable to join the presentation, a replay of the call will be available two hours after the conclusion of the live call. To access the replay, dial (877) 344-7529 and enter the replay access code 4987463. International callers should dial +1 (412) 317-0088 and enter the same access code. A replay of the webcast will also be available for 90 days on the company’s website https://investors.crossfirstbankshares.com/.

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 Quarterly Report on Form 10-Q is filed. This earnings release contains forward-looking statements regarding, among other things, our business plans, the acquisition of Central, and future 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,” “planned,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. 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 its 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, credit quality and risk, ongoing impact of the COVID-19 pandemic, industry and technological changes, cyber incidents or other failures, disruptions or security breaches, interest rates, commercial and residential real estate values, economic and market conditions in the United States or internationally, funding availability, accounting estimates and risk management processes, the transition away from the London Interbank Offered Rate (LIBOR), legislative and regulatory changes, business strategy execution, hiring and retention of key personnel, competition, mortgage markets, fraud committed against the Company, environmental liability and severe weather, natural disasters, acts of war or terrorism or other external events. These and other factors that could cause results to differ materially from those described in the forward-looking statements, as well as a discussion of the risks and uncertainties that may affect our business, can be found in our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and in other filings we make with the Securities and Exchange Commission. These forward-looking statements are made as of the date of this communication, and we disclaim any obligation to update any forward-looking statement or to publicly announce the results of any revisions to any of the forward-looking statements included herein, except as required by law.

About CrossFirst Bankshares, Inc.

CrossFirst Bankshares, Inc. (Nasdaq: CFB) 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 nine full-service banking locations in Kansas, Missouri, Oklahoma, Texas, and Arizona that offer products and services to businesses, professionals, individuals, and families.

TABLE 1. CONSOLIDATED BALANCE SHEETS

	June 30, 2022			December 31, 2021⁽²⁾
	(Unaudited)
	(Dollars in thousands)
Assets
Cash and cash equivalents	$	277,678		$	482,727
Available-for-sale securities - taxable		186,154			192,146
Available-for-sale securities - tax-exempt		509,493			553,823
Loans, net of unearned fees		4,528,234			4,256,213
Allowance for credit losses on loans⁽¹⁾		55,817			58,375
Net loans		4,472,417			4,197,838
Premises and equipment, net		64,769			66,069
Restricted equity securities		14,946			11,927
Interest receivable		17,909			16,023
Foreclosed assets held for sale		973			1,148
Bank-owned life insurance		68,293			67,498
Other		95,679			32,258
Total assets	$	5,708,311		$	5,621,457
Liabilities and stockholders’ equity
Deposits
Non-interest-bearing	$	1,163,462		$	1,163,224
Savings, NOW and money market		2,847,887			2,895,986
Time		733,071			624,387
Total deposits		4,744,420			4,683,597
Federal Home Loan Bank advances		296,600			236,600
Other borrowings		1,041			1,009
Interest payable and other liabilities		58,234			32,678
Total liabilities		5,100,295			4,953,884
Stockholders’ equity
Common stock, $0.01 par value:
authorized - 200,000,000 shares, issued - 52,972,244 and 52,590,015 shares at June 30, 2022 and December 31, 2021, respectively		529			526
Treasury stock, at cost:
3,436,295 and 2,139,970 shares held at June 30, 2022 and December 31, 2021, respectively		(48,501	)		(28,347	)
Additional paid-in capital		528,548			526,806
Retained earnings		176,869			147,099
Accumulated other comprehensive income (loss)		(49,429	)		21,489
Total stockholders’ equity		608,016			667,573
Total liabilities and stockholders’ equity	$	5,708,311		$	5,621,457

⁽¹⁾ As of December 31, 2021, this line represents the allowance for loan and lease losses.
⁽²⁾ The year-end Condensed Consolidated Balance Sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

TABLE 2. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
	(Dollars in thousands except per share data)
Interest Income
Loans, including fees	$	47,327		$	43,846		$	90,055		$	87,604
Available-for-sale securities - taxable		1,086			869			2,130			1,620
Available-for-sale securities - tax-exempt		3,845			3,497			7,537			6,848
Deposits with financial institutions		369			110			521			238
Dividends on bank stocks		213			162			357			327
Total interest income		52,840			48,484			100,600			96,637
Interest Expense
Deposits		4,732			4,850			8,243			10,578
Fed funds purchased and repurchase agreements		74			2			74			3
Federal Home Loan Bank Advances		1,294			1,280			2,403			2,563
Other borrowings		31			24			56			48
Total interest expense		6,131			6,156			10,776			13,192
Net Interest Income		46,709			42,328			89,824			83,445
Provision for Credit Losses⁽¹⁾		2,135			3,500			1,510			11,000
Net Interest Income after Provision for Credit Losses⁽¹⁾		44,574			38,828			88,314			72,445
Non-Interest Income
Service charges and fees on customer accounts		1,546			1,177			2,954			2,134
Realized losses on available-for-sale securities		(12	)		(13	)		(38	)		(3	)
Unrealized losses on equity securities, net		(71	)		6			(174	)		(33	)
Income from bank-owned life insurance		407			2,245			795			2,661
Swap fees and credit valuation adjustments, net		12			(30	)		130			125
ATM and credit card interchange income		1,521			1,506			4,185			3,834
Other non-interest income		798			934			1,291			1,251
Total non-interest income		4,201			5,825			9,143			9,969
Non-Interest Expense
Salaries and employee benefits		17,095			15,660			35,036			29,213
Occupancy		2,622			2,397			5,115			4,891
Professional fees		1,068			1,138			1,873			1,920
Deposit insurance premiums		713			917			1,450			2,068
Data processing		1,160			720			1,972			1,436
Advertising		757			435			1,449			738
Software and communication		1,198			1,034			2,468			2,099
Foreclosed assets, net		15			665			(38	)		715
Other non-interest expense		4,575			2,847			7,544			5,551
Total non-interest expense		29,203			25,813			56,869			48,631
Net Income Before Taxes		19,572			18,840			40,588			33,783
Income tax expense		4,027			3,263			8,215			6,171
Net Income	$	15,545		$	15,577		$	32,373		$	27,612
Basic Earnings Per Share	$	0.31		$	0.30		$	0.65		$	0.54
Diluted Earnings Per Share	$	0.31		$	0.30		$	0.64		$	0.53

⁽¹⁾For the three and six-months ended June 30, 2021, this line represents the provision for loan and lease losses.

TABLE 3. YEAR-TO-DATE ANALYSIS OF CHANGES IN NET INTEREST INCOME
(UNAUDITED)

		Six Months Ended
		June 30,
		2022							2021
	Average Balance			Interest Income / Expense		Average Yield / Rate⁽⁴⁾		Average Balance			Interest Income / Expense		Average Yield / Rate⁽⁴⁾
		(Dollars in thousands)
Interest-earning assets:
Securities - taxable⁽¹⁾	$	220,783		$	2,487	2.26	%	$	209,730		$	1,947	1.86	%
Securities - tax-exempt⁽¹⁾⁽²⁾		543,873			9,120	3.35			464,208			8,286	3.57
Federal funds sold		-			-	-			-			-	-
Interest-bearing deposits in other banks		253,771			521	0.41			429,930			238	0.11
Gross loans, net of unearned income⁽³⁾		4,385,664			90,055	4.14			4,457,792			87,604	3.96
Total interest-earning assets⁽¹⁾⁽²⁾		5,404,091		$	102,183	3.81	%		5,561,660		$	98,075	3.55	%
Allowance for credit losses		(57,324	)						(77,552	)
Other non-interest-earning assets		207,881							251,450
Total assets	$	5,554,648						$	5,735,558
Interest-bearing liabilities
Transaction deposits	$	546,982		$	596	0.22	%	$	690,514		$	677	0.20	%
Savings and money market deposits		2,318,415			4,716	0.41			2,403,318			4,495	0.38
Time deposits		573,503			2,931	1.03			920,307			5,406	1.18
Total interest-bearing deposits		3,438,900			8,243	0.48			4,014,139			10,578	0.53
FHLB and short-term borrowings		280,883			2,477	1.78			289,039			2,566	1.79
Trust preferred securities, net of fair value adjustments		1,018			56	11.11			971			48	9.89
Non-interest-bearing deposits		1,153,499			-	-			766,725			-	-
Cost of funds		4,874,300		$	10,776	0.44	%		5,070,874		$	13,192	0.52	%
Other liabilities		46,312							35,017
Stockholders’ equity		634,036							629,667
Total liabilities and stockholders' equity	$	5,554,648						$	5,735,558
Net interest income⁽²⁾				$	91,407						$	84,883
Net interest spread⁽¹⁾⁽²⁾						3.37	%						3.03	%
Net interest margin⁽¹⁾⁽²⁾						3.41	%						3.07	%

⁽¹⁾ The Company changed the annualization method on the available-for-sale securities portfolio from Actual/Actual to 30/360 and moved the unrealized gain (loss) on available-for-sale securities from an interest-earning asset to a non-interest-earning asset. All periods presented reflect this change.
⁽²⁾ Tax exempt income is calculated on a tax-equivalent basis. Tax-free municipal securities are exempt from federal income taxes. The incremental income tax rate used is 21.0%.
⁽³⁾Average gross loan balances include non-accrual loans.
⁽⁴⁾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)

	Six Months Ended
	June 30, 2022 over 2021
	Average Volume			Yield/Rate			Net Change⁽²⁾
	(Dollars in thousands)
Interest Income
Securities - taxable	$	107		$	433		$	540
Securities - tax-exempt⁽¹⁾		987			(153	)		834
Federal funds sold		-			-			-
Interest-bearing deposits in other banks		(132	)		415			283
Gross loans, net of unearned income		(1,434	)		3,885			2,451
Total interest income⁽¹⁾		(472	)		4,580			4,108
Interest Expense
Transaction deposits		(151	)		70			(81	)
Savings and money market deposits		(163	)		384			221
Time deposits		(1,840	)		(635	)		(2,475	)
Total interest-bearing deposits		(2,154	)		(181	)		(2,335	)
FHLB and short-term borrowings		(71	)		(18	)		(89	)
Trust preferred securities, net of fair value adjustments		2			6			8
Total interest expense		(2,223	)		(193	)		(2,416	)
Net interest income⁽¹⁾	$	1,751		$	4,773		$	6,524

⁽¹⁾ Tax exempt income is calculated on a tax-equivalent basis. Tax-free municipal securities are exempt from federal income taxes. The incremental income 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. 2021 - 2022 QUARTERLY ANALYSIS OF CHANGES IN NET INTEREST INCOME (UNAUDITED)

		Three Months Ended
		June 30,
		2022							2021
	Average Balance			Interest Income / Expense		Average Yield / Rate⁽⁴⁾		Average Balance			Interest Income / Expense		Average Yield / Rate⁽⁴⁾
		(Dollars in thousands)
Interest-earning assets:
Securities - taxable⁽¹⁾	$	220,763		$	1,299	2.35	%	$	207,835		$	1,031	1.99	%
Securities - tax-exempt⁽¹⁾⁽²⁾		553,960			4,653	3.36			478,334			4,231	3.54
Federal funds sold		-			-	-			-			-	-
Interest-bearing deposits in other banks		198,210			369	0.75			407,801			110	0.11
Gross loans, net of unearned income⁽³⁾		4,437,917			47,327	4.28			4,409,280			43,846	3.99
Total interest-earning assets⁽¹⁾⁽²⁾		5,410,850		$	53,648	3.98	%		5,503,250		$	49,218	3.59	%
Allowance for credit losses		(56,732	)						(76,741	)
Other non-interest-earning assets		191,539							247,129
Total assets	$	5,545,657						$	5,673,638
Interest-bearing liabilities
Transaction deposits	$	508,403		$	374	0.29	%	$	664,552		$	313	0.19	%
Savings and money market deposits		2,334,103			2,869	0.49			2,385,074			2,107	0.35
Time deposits		559,708			1,489	1.07			869,176			2,430	1.12
Total interest-bearing deposits		3,402,214			4,732	0.56			3,918,802			4,850	0.50
FHLB and short-term borrowings		330,064			1,368	1.66			287,904			1,282	1.79
Trust preferred securities, net of fair value adjustments		1,024			29	11.94			976			24	9.82
Non-interest-bearing deposits		1,149,654			-	-			801,591			-	-
Cost of funds		4,882,956		$	6,129	0.50	%		5,009,273		$	6,156	0.49	%
Other liabilities		48,160							30,948
Stockholders’ equity		614,541							633,417
Total liabilities and stockholders' equity	$	5,545,657						$	5,673,638
Net interest income⁽²⁾				$	47,519						$	43,062
Net interest spread⁽¹⁾⁽²⁾						3.48	%						3.10	%
Net interest margin⁽¹⁾⁽²⁾						3.52	%						3.14	%

⁽¹⁾ The Company changed the annualization method on the available-for-sale securities portfolio from Actual/Actual to 30/360 and moved the unrealized gain (loss) on available-for-sale securities from an interest-earning asset to a non-interest-earning asset. All periods presented reflect this change.
⁽²⁾ Tax exempt income is calculated on a tax-equivalent basis. Tax-free municipal securities are exempt from federal income taxes. The incremental income tax rate used is 21.0%.
⁽³⁾Average loan balances include non-accrual loans.
⁽⁴⁾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
	June 30, 2022 over 2021
	Average Volume			Yield/Rate			Net Change⁽²⁾
	(Dollars in thousands)
Interest Income
Securities - taxable	$	67		$	201		$	268
Securities - tax-exempt⁽¹⁾		643			(221	)		422
Federal funds sold		-			-			-
Interest-bearing deposits in other banks		(84	)		343			259
Gross loans, net of unearned income		287			3,194			3,481
Total interest income⁽¹⁾		913			3,517			4,430
Interest Expense
Transaction deposits		(86	)		147			61
Savings and money market deposits		(46	)		808			762
Time deposits		(827	)		(114	)		(941	)
Total interest-bearing deposits		(959	)		841			(118	)
FHLB and short-term borrowings		179			(93	)		86
Trust preferred securities, net of fair value adjustments		1			4			5
Total interest expense		(779	)		752			(27	)
Net interest income⁽¹⁾	$	1,692		$	2,765		$	4,457

TABLE 5. 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 (unaudited) of these non-GAAP measures below. The measures used in this release include the following:

We calculate ‘‘non-GAAP core operating income’’ as net income adjusted to remove non-core income and expense items related to:
- Acquisition costs - We incurred expenses in the second quarter of 2022 related to the announced acquisition of Central Bancorp, Inc.’s bank subsidiary, Farmers & Stockmens Bank.
- Employee separation - During the quarter ended June 30, 2022, the Company recorded $1.1 million expense related to employee separation.
- Charges and adjustments associated with the full vesting of a former executive - We incurred additional charges in the second quarter of 2021 related to the acceleration of $0.7 million of certain cash, stock-based compensation, and employee costs.
- Bank Owned Life Insurance - We obtain bank owned life insurance on key employees throughout the organization and received a $1.8 million benefit in the second quarter of 2021.
- Unrealized loss on equity security - During the quarter ended September 30, 2021, the Company recorded a $6.2 million impairment loss related to an equity investment that was received as part of a restructured loan agreement.

The most directly comparable GAAP financial measure for non-GAAP core operating income is net income. Management believes that non-GAAP core operating income removes events that are not part of core business activities and are useful analytical tools for investors to compare periods excluding these non-core expenses and charges.

We calculate "non-GAAP core return on average tangible common equity" as non-GAAP core operating income (as defined above) divided by average tangible common equity. Average tangible common equity is calculated as average common equity less average goodwill and intangibles and average preferred equity. The most directly comparable GAAP measure is return on average common equity. Management believes that non-GAAP core return on average tangible common equity removes events that are not part of core business activities and are useful analytical tools for investors to compare periods excluding these non-core expenses and charges.
We calculate "non-GAAP core operating return on average assets" as non-GAAP core operating income (as defined above) divided by average assets. The most directly comparable GAAP financial measure is return on average assets, which is calculated as net income divided by average assets. Management believes that non-GAAP core operating return on average assets removes events that are not part of core business activities and are useful analytical tools for investors to compare periods excluding these non-core expenses and charges.
We calculate "tangible common stockholders' equity" as total stockholders' equity less goodwill and intangibles and preferred equity. The most directly comparable GAAP measure is total stockholders' equity. Management believes that tangible stockholders’ equity is important to many investors in the marketplace who are interested in changes from period to period in our stockholders’ equity, exclusive of changes in intangible assets.
We calculate ‘‘tangible book value per share’’ as tangible common stockholders' equity (as defined above) divided by the total number of shares outstanding. The most directly comparable GAAP measure is book value per share. Management believes that tangible book value per share is important to many investors in the marketplace who are interested in changes from period to period in our stockholders’ equity, exclusive of changes in intangible assets.
We calculate ‘‘non-GAAP loan growth, excluding PPP loans’’ as gross loans, net of unearned income subtracted by PPP loans, net of unearned income. Management believes that loan growth, excluding PPP loans is important to investors because it is a better representation of the overall loan portfolio activity when comparing between periods.
We calculate "non-GAAP core operating efficiency ratio - fully tax equivalent (FTE)" as non-interest expense adjusted to remove non-core, non-interest expenses as defined above under non-GAAP core operating income divided by net interest income on a fully tax-equivalent basis plus non-interest income adjusted to remove non-core, non-interest income as defined above under non-GAAP core operating income. The most directly comparable financial measure is the efficiency ratio. Management believes that the non-GAAP core operating efficiency ratio is important to many investors because the ratio removes events that are not part of core business activities and is a useful analytical tool.
We calculate "non-GAAP pre-tax pre-provision profit" as net income before taxes plus the provision for credit losses. Management believes that non-GAAP pre-tax pre-provision profit is important to many investors because the calculation removes the tax impact on the financials and gives investors insight into the operating income of the company.

	Quarter Ended											Six Months Ended
	6/30/2022		3/31/2022		12/31/2021		9/30/2021		6/30/2021		6/30/2022		6/30/2021
		(Dollars in thousands)
Non-GAAP core operating income:
Net income	$	15,545	$	16,828	$	20,801	$	21,000	$	15,577	$	32,373	$	27,612
Add: Acquisition costs		239		-		-		-		-		239		-
Less: Tax effect⁽¹⁾		50		-		-		-		-		50		-
Acquisition costs, net of tax		189		-		-		-		-		189		-
Add: Employee separation		1,063		-		-		-		-		1,063		-
Less: Tax effect⁽¹⁾		223		-		-		-		-		223		-
Employee separation, net of tax		840		-		-		-		-		840		-
Add: Unrealized loss on equity security		-		-		-		6,200		-		-		-
Less: Tax effect⁽¹⁾		-		-		-		1,302		-		-		-
Unrealized loss on equity security, net of tax		-		-		-		4,898		-		-		-
Add: Accelerated employee benefits		-		-		-		-		719		-		719
Less: Tax effect⁽²⁾		-		-		-		-		210		-		210
Accelerated employee benefits, net of tax		-		-		-		-		509		-		509
Less: BOLI settlement benefits⁽³⁾		-		-		-		-		1,841		-		1,841
Non-GAAP core operating income	$	16,574	$	16,828	$	20,801	$	25,898	$	14,245	$	33,402	$	26,280
⁽¹⁾Represents the tax impact of the adjustments at a tax rate of 21.0%.
⁽²⁾Represents the tax impact of the adjustments above at a tax rate of 21.0%, plus a permanent tax benefit associated with stock-based grants.
⁽³⁾No tax effect.

		Quarter Ended															Six Months Ended
		6/30/2022			3/31/2022			12/31/2021			9/30/2021			6/30/2021			6/30/2022			6/30/2021
		(Dollars in thousands)
Non-GAAP core return on average tangible common equity:
Net income available to common stockholders	$	15,545		$	16,828		$	20,801		$	21,000		$	15,577		$	32,373		$	27,612
Non-GAAP core operating income		16,574			16,828			20,801			25,898			14,245			33,402			26,280
Average common equity		614,541			653,747			656,415			644,715			633,417			634,036			629,667
Less: average goodwill and intangibles		101			121			140			160			179			111			189
Average tangible common equity	$	614,440		$	653,626		$	656,275		$	644,555		$	633,238		$	633,925		$	629,478
Return on average common equity		10.15	%		10.44	%		12.57	%		12.92	%		9.86	%		10.30	%		8.84	%
Non-GAAP core return on average tangible common equity		10.82	%		10.44	%		12.57	%		15.94	%		9.02	%		10.63	%		8.42	%

		Quarter Ended															Six Months Ended
		6/30/2022			3/31/2022			12/31/2021			9/30/2021			6/30/2021			6/30/2022			6/30/2021
		(Dollars in thousands)
Non-GAAP core operating return on average assets:
Net income	$	15,545		$	16,828		$	20,801		$	21,000		$	15,577		$	32,373		$	27,612
Non-GAAP core operating income		16,574			16,828			20,801			25,898			14,245			33,402			26,280
Average assets	$	5,545,657		$	5,563,738		$	5,490,482		$	5,408,984		$	5,673,638		$	5,554,648		$	5,735,558
Return on average assets		1.12	%		1.23	%		1.50	%		1.54	%		1.10	%		1.18	%		0.97	%
Non-GAAP core operating return on average assets		1.20	%		1.23	%		1.50	%		1.90	%		1.01	%		1.21	%		0.92	%

		Quarter Ended
	6/30/2022		3/31/2022		12/31/2021		9/30/2021		6/30/2021
		(Dollars in thousands except per share data)
Tangible common stockholders' equity:
Total stockholders' equity	$	608,016	$	623,199	$	667,573	$	652,407	$	637,190
Less: goodwill and other intangible assets		91		110		130		149		169
Tangible common stockholders' equity	$	607,925	$	623,089	$	667,443	$	652,258	$	637,021
Tangible book value per share:
Tangible common stockholders' equity	$	607,925	$	623,089	$	667,443	$	652,257	$	637,021
Shares outstanding at end of period		49,535,949		49,728,253		50,450,045		51,002,698		50,958,680
Book value per share	$	12.27	$	12.53	$	13.23	$	12.79	$	12.50
Tangible book value per share	$	12.27	$	12.53	$	13.23	$	12.79	$	12.50

		Quarter Ended
		6/30/2022			3/31/2022		12/31/2021		9/30/2021		6/30/2021
	(Dollars in thousands)
Non-GAAP loan growth, excluding PPP loans:
Gross loans, net of unearned income	$	4,528,234		$	4,349,558	$	4,256,213	$	4,233,117	$	4,237,944
Less: PPP loans, net of unearned income		14,536			31,200		64,805		109,465		197,084
Non-PPP gross loans, net of unearned income	$	4,513,698		$	4,318,358	$	4,191,408	$	4,123,652	$	4,040,860
Year-over-year loan growth		6.85	%
Non-GAAP year-over-year loan growth excluding PPP loans		12.00
Linked quarter loan growth		4.11
Non-GAAP linked quarter loan growth excluding PPP loans		4.52	%

		Quarter Ended																Six Months Ended
		6/30/2022			3/31/2022			12/31/2021			9/30/2021				6/30/2021			6/30/2022			6/30/2021
		(Dollars in thousands)
Non-GAAP Core Operating Efficiency Ratio - Fully Tax Equivalent (FTE)
Non-interest expense	$	29,203		$	27,666		$	26,715		$	24,036			$	25,813		$	56,869		$	48,631
Less: Accelerated employee benefits		-			-			-			-				719			-			719
Adjusted Non-interest expense (numerator)	$	29,203		$	27,666		$	26,715		$	24,036			$	25,094		$	56,869		$	47,912
Net interest income		46,709			43,115			43,445			41,801				42,328			89,824			83,445
Tax equivalent interest income⁽¹⁾		810			775			762			748				734			1,583			1,438
Non-interest income (loss)		4,201			4,942			4,796			(1,105	)			5,825			9,143			9,969
Add: Acquisition costs		239			-			-			-				-			239			-
Add: Employee separation		1,063			-			-			-				-			1,063			-
Add: Unrealized loss on equity security		-			-			-			6,200				-			-			-
Less: BOLI settlement benefits⁽²⁾		-			-			-			-				1,841			-			1,841
Total tax-equivalent income (denominator)	$	53,022		$	48,832		$	49,003		$	47,644			$	47,046		$	101,852		$	93,011
Efficiency Ratio		57.36	%		57.57	%		55.38	%		59.06		%		53.61	%		57.46	%		52.06	%
Non-GAAP Core Operating Efficiency Ratio - Fully Tax Equivalent (FTE)		55.08	%		56.66	%		54.52	%		50.45		%		53.34	%		55.83	%		51.51	%
⁽¹⁾Tax exempt income (tax-free municipal securities) is calculated on a tax equivalent basis. The incremental tax rate used is 21.0%.
⁽²⁾No tax effect.

		Quarter Ended													Six Months Ended
	6/30/2022		3/31/2022			12/31/2021			9/30/2021			6/30/2021		6/30/2022		6/30/2021
	(Dollars in thousands)
Non-GAAP Pre-Tax Pre-Provision Profit
Net income before taxes	$	19,572	$	21,016		$	26,526		$	26,660		$	18,840	$	40,588	$	33,783
Add: Provision for credit losses		2,135		(625	)		(5,000	)		(10,000	)		3,500		1,510		11,000
Non-GAAP Pre-Tax Pre-Provision Profit	$	21,707	$	20,391		$	21,526		$	16,660		$	22,340	$	42,098	$	44,783

INVESTOR CONTACT
Heather Worley
Heather@crossfirst.com | (214) 676-4666
https://investors.crossfirstbankshares.com

CrossFirst Bankshares, Inc. Reports Second Quarter 2022 Results

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