CrossFirst Bankshares Inc. (CFB) Q2 2024 Earnings Call Transcript
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Overview
The earnings call highlights strong financial performance with a 2% increase in net income, 6% loan growth annualized, and a robust return on equity of 10.6%. The company is also optimistic about deposit growth outpacing loan growth, and management's proactive approach to capital deployment and share buybacks is positive. Despite some risks in CRE exposure and market conditions, the overall sentiment is buoyed by solid financial metrics, shareholder returns, and strategic focus on growth, suggesting a positive stock price movement in the near term.
Key Financial Performance
Net Income $18.6 million, or $0.37 per diluted share, an increase of about 2% from last quarter.
Adjusted Net Income Over 6% growth compared to a year ago.
Total Assets $7.6 billion, an increase of 2% from the previous quarter.
Total Loans Increased by $95 million, resulting in a growth rate of 6% on an annualized basis.
Average Loan Yield 8.93% for new production in the quarter.
Deposits Increased 2% to $6.7 billion, up $147 million from the previous quarter.
Non-Interest Income $5.7 million for the quarter, expanding 2% from last quarter.
Service Charge Fees Increased 11% over Q1 to $2.3 million.
Credit Card Income Increased 5% over Q1 to $1.6 million.
Non-Interest Expense Increased slightly less than 1% due to restructuring costs.
Return on Average Assets 1.0%.
Return on Average Common Equity 10.6%.
Net Charge-Offs $1 million, resulting in a charge-off rate of 7 basis points on an annualized basis.
Allowance for Credit Loss to Total Loans Ratio 1.42%, consistent with the prior quarter.
Provision Expense $2.4 million, resulting in a provision to charge off ratio of 232%.
Liquidity 34% of assets, approximately $2.6 billion from on and off-balance sheet sources.
Share Buybacks Repurchased 237,000 shares at a weighted average cost of $12.78.
Operating Highlights
Loan Growth: Total loan growth for the quarter was $95 million, resulting in a growth rate of 6% on an annualized basis.
Deposit Growth: Deposits increased 2% to $6.7 billion, up $147 million from the previous quarter.
Fee Income Growth: Service charge fees increased 11% over Q1 to $2.3 million, while credit card income increased 5% over Q1 to $1.6 million.
Core Services Contract Restructuring: Completed a successful negotiation of our core services contract, expected to generate significant savings of approximately $2 million per year.
Efficiency Ratio Improvement: Progress made on improving efficiency ratio, with operating revenue growth outpacing expense growth this quarter.
Share Buyback Program: Repurchased 237,000 shares at a weighted average cost of $12.78, compared to tangible book value per share of $14.02.
Moderated Loan Growth Strategy: Strategically moderated loan growth while focusing on quality relationships and adhering to credit underwriting guidelines.
Risk or Challenges
Market Conditions: Market conditions continue to apply pressure to borrowers across the country, indicating potential credit risk.
Loan Portfolio: Portfolio churn is expected to increase, particularly in the commercial real estate (CRE) sector, which may affect loan quality.
CRE Exposure: 63% of the CRE portfolio is set to mature in the next two years, with 83% of these loans having floating rates that are increasing.
Economic Uncertainty: Strong portfolio management is emphasized due to ongoing economic uncertainty, which could impact credit quality.
Deposit Market Competition: The deposit market remains highly competitive, which may affect deposit growth and cost.
Interest Rate Environment: The dynamic interest rate environment poses risks to net interest margin, particularly if rate cuts do not occur as anticipated.
Credit Quality Monitoring: Ongoing credit monitoring activities are crucial due to the potential for increased classified assets and non-performing loans.
Guidance & Outlook
Earnings Growth: Increased earnings to $18.6 million, or $0.37 per diluted share, driven by a focused strategy to scale markets and verticals.
Loan Growth: Total loan growth for the quarter was $95 million, with a growth rate of 6% on an annualized basis.
Credit Quality: Improved credit quality metrics with a decrease in non-performing assets to total assets ratio from 27 basis points to 22 basis points.
Deposit Growth: Deposits increased 2% to $6.7 billion, with non-interest bearing deposits slightly increasing.
Core Services Contract: Successfully negotiated core services contract expected to generate annual savings of approximately $2 million.
Share Buyback Program: Repurchased 237,000 shares at a weighted average cost of $12.78, below tangible book value.
Loan Growth Guidance: Moderating estimated loan growth in 2024 to a range of 6% to 8%.
Net Interest Margin Guidance: Expected margin in a range of 3.20% to 3.25% for the year, assuming two rate cuts.
Non-Interest Expense Guidance: Expect non-interest expense to be around $37 million per quarter for the rest of 2024.
Tax Rate Guidance: Expect tax rate to remain in a range of 20% to 22% for the year.
Shareholder Return Plan
Share Buyback Program: In Q2, CrossFirst Bankshares repurchased 237,000 shares at a weighted average cost of $12.78, compared to a tangible book value per share of $14.02 at quarter end.
Capital Return Strategy: The company plans to leverage its earnings power to build capital while remaining opportunistic with share buybacks.
Key Q&A
Earnings Word Cloud
CFB Transcript
The earnings call highlights strong financial performance with a 2% increase in net income, 6% loan growth annualized, and a robust return on equity of 10.6%. The company is also optimistic about deposit growth outpacing loan growth, and management's proactive approach to capital deployment and share buybacks is positive. Despite some risks in CRE exposure and market conditions, the overall sentiment is buoyed by solid financial metrics, shareholder returns, and strategic focus on growth, suggesting a positive stock price movement in the near term.
The earnings call summary and Q&A indicate strong financial performance with loan growth, increased noninterest income, and a stable NIM. Management's optimistic guidance on fee income and NIM stability, despite minor concerns on loan churn, suggests a positive outlook. The Q&A clarifies concerns about credit cycles and deposit growth, further supporting a positive sentiment. The absence of any major negative factors and the expectation of stable or improving margins contribute to a positive prediction for the stock price movement.
CFB Report
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