CrossFirst Bankshares, Inc. Reports Second Quarter 2021 Results

 | Source: CrossFirst Bankshares, Inc. CrossFirst Bankshares, Inc.

Second Quarter 2021 Key Financial Performance Metrics  

Net Income  Diluted EPS PTPP Net Interest Margin
(FTE)		 Efficiency Ratio Book Value per
Common Share
$15.6 million  $0.30  $22.3 million  3.12%  53.61%  $12.50

LEAWOOD, Kan., July 22, 2021 (GLOBE NEWSWIRE) -- CrossFirst Bankshares, Inc. (Nasdaq: CFB), the bank holding company for CrossFirst Bank, today reported its results for the second quarter of 2021, with net income of $15.6 million, or $0.30 per diluted share, and year-to-date net income of $27.6 million, or $0.53 per diluted share.

CEO Commentary:

"During the second quarter, we achieved the strongest profitability in the Company's history and I am extremely proud of our team for executing on several key strategic initiatives that provides a foundation for future growth and success," said CrossFirst’s CEO and President, Mike Maddox.  "The Company took several steps to improve the efficiency of the balance sheet and reduce excess liquidity, which resulted in stronger performance metrics, improved margin, and stronger core earnings power.  We grew our operating revenue 6% from the previous quarter and our asset quality metrics improved with the strengthening of the loan portfolio and economic recovery.  We made great progress on our expansion efforts in Arizona and Frisco, which we believe will create long term value for the organization."

2021 Second Quarter Highlights:

  • $5.3 billion of assets with 10% operating revenue growth compared to the second quarter of 2020
  • Return on Average Assets of 1.10% and a Return on Equity of 9.86%
  • Efficiency ratio of 53.61% for the second quarter of 2021 and a non-GAAP core efficiency ratio of 53.34% after adjusting for nonrecurring or non-core items and tax equivalent interest
  • Net Interest Margin (Fully Tax-Equivalent) of 3.12% compared to 3.00% in the previous quarter
  • Demand deposit growth of 3% from the previous quarter and 9% from same quarter last year; increased to 19% of total deposits
  • Completed the $20 million share repurchase program at a weighted average price of $12.68
  • Book value per share of $12.50 at June 30, 2021 compared to $11.66 at June 30, 2020
  Quarter-to-Date Year-to-Date
  June 30, June 30,
(Dollars in millions except per share data) 2020 2021 2020 2021
   
Operating revenue(1) $43.8   $48.2  $84.1   $93.4 
Net income (loss) $(7.4)  $15.6  $(3.5)  $27.6 
Diluted earnings (loss) per share $(0.14)  $0.30  $(0.07)  $0.53 
Return on average assets (0.54)% 1.10% (0.14)% 0.97%
Return on average common equity (4.84)% 9.86% (1.15)% 8.84%
Non-GAAP core return on average tangible common equity(2) 0.03 % 9.02% 1.30 % 8.42%
Net interest margin 3.14 % 3.07% 3.16 % 3.01%
Net interest margin, fully tax-equivalent(3) 3.19 % 3.12% 3.22 % 3.06%
Efficiency ratio 70.81 % 53.61% 63.29 % 52.06%
Non-GAAP core operating efficiency ratio, tax-equivalent(2)(3) 53.09 % 53.34% 53.61 % 51.51%
(1) Net interest income plus non-interest income.
(2) Represents a non-GAAP measure. See "Table 5. Non-GAAP Financial Measures" for a reconciliation of these measures.
(3) 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%.

COVID-19 and Coronavirus Aid, Relief, and Economic Security Act (CARES Act) Programs Update

During the second quarter of 2021, the Company operated with open lobbies to the public, and it opened offices for employees, but remains flexible to respond to possible changes to federal, state and local requirements in the event of the COVID-19 pandemic's resurgence.  As of June 30, 2021, the Company retained $197 million in loans produced through the Paycheck Protection Program ("PPP"), and the Company will continue to work through the forgiveness process for those loans with the Small Business Administration ("SBA").  In addition to PPP loans, we granted loan modifications and payment deferrals for many customers who requested additional relief.  As of June 30, 2021, the Company still had several modified loans related to COVID-19, mostly in industries such as hospitality, entertainment, travel or other recreational activities directly impacted from the lockdowns.

Income from Operations

Net Interest Income

The Company produced interest income of $48.5 million for the second quarter of 2021, a decrease of 5% from the second quarter of 2020 and a slight increase from the previous quarter.  Interest income was down from the second quarter of 2020 primarily due to the impact of lower market interest rates and increased competition for loans, which led to lower loan and bond yields.  Average earning assets totaled $5.5 billion for the second quarter of 2021, an increase of $264 million or 5% from the same quarter in 2020.  The tax-equivalent yield on earning assets increased from 3.50% to 3.57% during the second quarter of 2021, and was down from 3.96% recorded in the second quarter of 2020, primarily due to the movement of variable rate assets indexed to lower market rates.  Year-to-date, the Company produced interest income of $96.6 million, which declined compared to the same period in 2020 primarily with the yield movements on earning assets.

Interest expense for the second quarter of 2021 was $6.2 million, or 39% lower than the second quarter of 2020 and 13% lower than the previous quarter.  While average interest-bearing deposits increased to $3.9 billion in the second quarter of 2021, or a 11% increase from the same prior year period, overall interest expense on interest-bearing deposits continued to decline as a result of repricing due to lower market interest rates.  Non-deposit funding costs for the second quarter of 2021 remained at 1.79%, while overall cost of funds for the quarter was 0.49%, compared to 0.56% for the first quarter of 2021.  Year-to-date, the Company incurred interest expense of $13.2 million, a decrease of 49% from the same period in the prior year.

Net interest income totaled $42.3 million for the second quarter of 2021 or 3% higher than the first quarter of 2021, and 3% higher than the second quarter of 2020.  Tax-equivalent net interest margin increased to 3.12% in the current quarter, from 3.00% in the previous quarter, and declined from 3.19% in the same quarter in 2020.  The lower year-over-year yields reflect the repricing impact from a lower rate environment and lower priced new loans originated in the first quarter of 2021.  The reduction of excess cash on the balance sheet improved overall margin during the second quarter of 2021 compared to the first quarter of 2021.  During the second quarter of 2021, CrossFirst realized $2.1 million in fees primarily from the forgiveness of $139 million of PPP loans.  The PPP loans yielded 3.84% for the current quarter and the Company will continue to recognize fees over the life of the loans or as the loans are forgiven.  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 second quarter of 2021.  Year-to-date net interest income grew to $83.4 million, an increase of 5% from the same period in the prior year, while tax-equivalent net interest margin declined to 3.06% from 3.22%.

Non-Interest Income

Non-interest income increased $3.2 million in the second quarter of 2021 or 121% compared to the same quarter of 2020 and increased $1.7 million or 41% compared to the first quarter of 2021.  During the second quarter of 2021, the Company recorded an increase of $0.6 million in credit card fees, $0.5 million in service charge income, and recognized a one-time $1.8 million benefit in bank-owned life insurance proceeds compared to the same quarter in 2020, which were the primary drivers of quarterly and year-to-date non-interest income growth.  Year-to-date non-interest income was up $5.2 million or 111% compared to the same period in the prior year.

Non-Interest Expense

Non-interest expense for the second quarter of 2021 was $25.8 million, which decreased 17% compared to the second quarter of 2020 and increased 13% from the first quarter of 2021.  Salaries and benefit costs were higher in the current quarter by $2.1 million compared to the prior quarter and $1.7 million higher than the same quarter in the prior year mainly due to increased hiring for planned expansion efforts and a one-time $0.7 million dollar compensation benefit to a former executive.  In addition, the Company recorded a $0.6 million valuation write-down on a foreclosed property held for sale on the balance sheet that increased non-interest expense for the second quarter of 2021.  Year-to-date non-interest expense also decreased from the same period in the prior year primarily due to a one-time non-cash expense recorded in the second quarter of 2020.  Overall, the Company continues to benefit from reduced travel, entertainment, and other discretionary spending as a result of the COVID-19 pandemic. 

CrossFirst’s effective tax rate for the second quarter of 2021 was 17% as compared to 10% for the second quarter of 2020. The 2021 quarter-to-date income tax expense was impacted by a $27.1 million increase in income before income taxes that increased taxes at the statutory rate by $5.7 million.  For both of the comparable periods, the Company continued to benefit from the tax-exempt municipal bond portfolio and bank-owned life insurance.

Balance Sheet Performance & Analysis

During the second quarter of 2021, total assets decreased by $687 million or 11% compared to March 31, 2021 and $151 million or 3% compared to June 30, 2020.  As part of the Company's efforts to improve the efficiency of its balance sheet, $162 million in PPP loans were forgiven and the Company reduced its first quarter cash position by over $400 million through a reduction of non-core wholesale, brokered, and institutional deposits.  During the second quarter of 2021, available-for-sale investment securities increased $27 million to $712 million compared to March 31, 2021, while the overall average for the second quarter was $720 million.  The securities yields increased 4 basis points to a tax equivalent yield of 2.93% for the second quarter of 2021 compared to the prior quarter.

Loan Results

The Company experienced a decrease in average loans of 2% since March 31, 2021, but increased average loans 1% year-over-year from June 30, 2020.  The reduction in average loans was primarily a result of PPP forgiveness and pay downs of lower yielding commercial and industrial lines drawn on through the pandemic, which enhanced the previous quarter loan yields.  Loan yields increased 5 basis points to 3.99% during the second quarter and declined 29 basis points over the last twelve months, commensurate with adjustable rate loan movements during 2020, competitive pricing from persistently low interest rates and related loan repricing.

                    
(Dollars in millions)2Q20 3Q20 4Q20 1Q21 2Q21 % of
Total		 QoQ
Growth
($)		 QoQ
Growth
(%)(1)		 YoY
Growth
($)		 YoY
Growth
(%)(1)
Average loans (gross)                   
Commercial and industrial$1,381  $1,308  $1,367  $1,329  $1,221  28% $(108)  (8)% $(160)  (12)%
Energy404  393  381  351  341  8  (10)  (3)  (63)  (16) 
Commercial real estate1,115  1,169  1,194  1,183  1,203  27  20   2   88   8  
Construction and land development651  617  585  598  633  14  35   6   (18)  (3) 
Residential real estate517  583  664  688  659  15  (29)  (4)  142   27  
Paycheck Protection Program245  362  258  308  296  7  (12)  (4)  51   21  
Consumer44  45  45  50  56  1  6   12   12   27  
Total$4,357  $4,477  $4,494  $4,507  $4,409  100% $(98)  (2)% $52   1 %
                    
Yield on average loans for the period ending4.28 % 3.90 % 4.00 % 3.94 % 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

The Company experienced an average reduction in deposits of 2% since March 31, 2021, and increased average deposits 10% year-over-year from June 30, 2020.  After improving the efficiency of the balance sheet, the Company ended the  quarter with a loan to deposit ratio of 97% at the end of the quarter compared to 89% at the end of the previous quarter.  The deposit decrease for the quarter was primarily driven by a reduction in wholesale and institutional funded time deposits, transaction deposits, and money market accounts.  In addition, the Company continued to improve the overall cost of deposits as the cost of interest bearing deposits declined 7 basis points during the second quarter of 2021, reflective of changes made to deposit pricing.  The cost of interest bearing deposits has declined 45 basis points over the last twelve months primarily as a result of the lower interest rate environment.

                    
(Dollars in millions)2Q20 3Q20 4Q20 1Q21 2Q21 % of
Total		 QoQ
Growth
($)		 QoQ
Growth
(%)(1)		 YoY Growth
($)		 YoY
Growth
(%)(1)
Average deposits                   
Non-interest bearing deposits$746  $714  $732  $731  $802  17% $71   10 % $56   8 %
Transaction deposits414  460  575  717  665  14% (52)  (7)% 251   61 %
Savings and money market deposits1,933  1,995  2,158  2,422  2,385  51% (37)  (2)% 452   23 %
Time deposits1,195  1,175  1,087  972  869  18% (103)  (11)% (326)  (27)%
Total$4,288  $4,344  $4,552  $4,842  $4,721  100% $(121)  (2)% $433   10 %
                    
Cost of deposits for the period ending0.79 % 0.67 % 0.58 % 0.48 % 0.41 %          
Cost of interest-bearing deposits for the period ending0.95 % 0.80 % 0.69 % 0.57 % 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, 2021, other borrowings totaled $284 million, as compared to $287 million at March 31, 2021, and $501 million at June 30, 2020. 

Asset Quality Position

Credit quality metrics generally improved during the second quarter of 2021 as classified assets decreased nearly $100 million and nonperforming assets to total assets decreased to 1.09% from 1.15% in the previous quarter.  The improvement in credit metrics were primarily derived from upgrades in COVID-19 impacted segments and the Energy portfolio.  Net charge-offs were $2.6 million for the second quarter of 2021 as compared to $8.2 million for the first quarter of 2021.  The charge-offs for the current quarter were primarily related to several commercial and industrial credits partially impacted by COVID-19. 

Overall credit risk remained elevated as the Company added $3.5 million to the allowance for loan loss due to changes in risk factors, charge-off activity, and the continued economic uncertainty regarding the recovery speed from the pandemic.  The following table provides information regarding asset quality.

          
Asset quality (Dollars in millions)2Q20 3Q20 4Q20 1Q21 2Q21
Non-accrual loans$37.5  $75.6  $75.1  $63.3  $54.7 
Other real estate owned2.5  2.3  2.3  2.3  1.7 
Nonperforming assets40.3  82.2  78.4  68.9  58.1 
Loans 90+ days past due and still accruing0.2  4.3  1.0  3.2  1.8 
Loans 30 - 89 days past due34.9  45.4  18.1  11.0  18.8 
Net charge-offs (recoveries)1.3  6.0  11.6  8.2  2.6 


          
Asset quality metrics (%)2Q20 3Q20 4Q20 1Q21 2Q21
Nonperforming assets to total assets0.74% 1.49% 1.39% 1.15% 1.09%
Allowance for loan loss to total loans1.61  1.70  1.70  1.65  1.78 
Allowance for loan loss to nonperforming loans189  95  99  112  134 
Net charge-offs (recoveries) to average loans(1)0.12  0.54  1.03  0.74  0.23 
Provision to average loans(1)1.94  0.97  0.96  0.67  0.32 
Classified Loans / (Total Capital + ALLL)34.9  43.2  40.9  38.2  24.0 
(1) Interim periods annualized.

Capital Position

At June 30, 2021, stockholders' equity totaled $637 million, or $12.50 per share, compared to $624 million, or $12.08 per share, at December 31, 2020.  During the second quarter of 2021, CrossFirst completed its $20 million share repurchase program by purchasing 1,573,806 shares of common stock under the program at a weighted average price of $12.68 per share. 

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 14% at June 30, 2021. The Company remains well-capitalized.

Conference Call and Webcast

CrossFirst will hold a conference call and webcast to discuss second quarter 2021 results on Thursday, July 22, 2021, 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. 9690426.  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 July 29, 2021, accessible at (855) 859-2056 with conference ID no. 9690426.

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. 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 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, those listed from time to time in reports that the Company files with the Securities and Exchange Commission as well as the uncertain impact of the COVID-19 pandemic. 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. (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 has nine full-service banking locations in Kansas, Missouri, Oklahoma, Texas, and Arizona that offer products and services to businesses, professionals, individuals, and families.

CROSSFIRST BANKSHARES, INC. CONTACT:
Matt Needham, Investor Relations / Media Contact
matt@crossfirst.com / (913) 312-6822
https://investors.crossfirstbankshares.com 


Unaudited Financial Tables

  • Table 1. Consolidated Balance Sheets
  • Table 2. Consolidated Statements of Operations
  • Table 3. 2020 - 2021 Year-to-Date Analysis of Changes in Net Interest Income
  • Table 4. 2020 - 2021 Quarterly Analysis of Changes in Net Interest Income
  • Table 5. Non-GAAP Financial Measures


TABLE 1. CONSOLIDATED BALANCE SHEETS

 December 31, 2020 June 30, 2021
   (unaudited)
 (Dollars in thousands)
Assets   
Cash and cash equivalents$408,810   $220,814  
Available-for-sale securities - taxable177,238   187,553  
Available-for-sale securities - tax-exempt477,350   524,664  
Loans, net of allowance for loan losses of $75,295 and $75,493 at December 31, 2020 and June 30, 2021, respectively4,366,602   4,162,451  
Premises and equipment, net70,509   67,918  
Restricted equity securities15,543   13,329  
Interest receivable17,236   15,816  
Foreclosed assets held for sale2,347   1,718  
Bank-owned life insurance67,498   66,676  
Other56,170   50,495  
Total assets$5,659,303   $5,311,434  
Liabilities and stockholders’ equity   
Deposits   
Noninterest bearing$718,459   $818,887  
Savings, NOW and money market2,932,799   2,733,693  
Time1,043,482   804,047  
Total deposits4,694,740   4,356,627  
Federal funds purchased and repurchase agreements2,306   —  
Federal Home Loan Bank advances293,100   283,100  
Other borrowings963   986  
Interest payable and other liabilities43,766   33,531  
Total liabilities5,034,875   4,674,244  
Stockholders’ equity   
Common stock, $0.01 par value:   
authorized - 200,000,000 shares, issued - 52,289,129 and 52,532,486 shares at December 31, 2020 and June 30, 2021, respectively523   525  
Treasury stock, at cost:   
609,613 and 1,573,806 shares held at December 31, 2020 and June 30, 2021, respectively(6,061)  (20,000) 
Additional paid-in capital522,911   524,637  
Retained earnings77,652   105,299  
Accumulated other comprehensive income29,403   26,729  
Total stockholders’ equity624,428   637,190  
Total liabilities and stockholders’ equity$5,659,303   $5,311,434  


            TABLE 2. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 Three Months Ended Six Months Ended
 June 30, June 30,
 2020 2021 2020 2021
 (Dollars in thousands except per share data)
Interest Income       
Loans, including fees$46,323   $43,846   $94,662   $87,604  
Available for sale securities - Taxable1,358   869   3,132   1,620  
Available for sale securities - Tax-exempt3,260   3,497   6,572   6,848  
Deposits with financial institutions45   110   536   238  
Dividends on bank stocks268   162   560   327  
Total interest income51,254   48,484   105,462   96,637  
Interest Expense       
Deposits8,405   4,850   22,677   10,578  
Fed funds purchased and repurchase agreements46   2   108   3  
Advances from Federal Home Loan Bank1,620   1,280   3,231   2,563  
Other borrowings26   24   61   48  
Total interest expense10,097   6,156   26,077   13,192  
Net Interest Income41,157   42,328   79,385   83,445  
Provision for Loan Losses21,000   3,500   34,950   11,000  
Net Interest Income after Provision for Loan Losses20,157   38,828   44,435   72,445  
Non-Interest Income       
Service charges and fees on customer accounts647   1,177   1,155   2,134  
Realized gain (loss) on available-for-sale securities320   (13)  713   (3) 
Income from bank-owned life insurance453   2,245   909   2,661  
Swap fees and credit valuation adjustments, net(32)  (30)  (41)  125  
ATM and credit card interchange income896   1,506   1,381   3,834  
Other non-interest income350   940   612   1,218  
Total non-interest income2,634   5,825   4,729   9,969  
Non-Interest Expense       
Salaries and employee benefits14,004   15,660   28,394   29,213  
Occupancy2,045   2,397   4,130   4,891  
Professional fees1,295   1,138   1,966   1,920  
Deposit insurance premiums1,039   917   2,055   2,068  
Data processing721   720   1,413   1,436  
Advertising223   435   723   738  
Software and communication937   1,034   1,813   2,099  
Foreclosed assets, net1,135   665   1,154   715  
Goodwill impairment7,397   —   7,397   —  
Other non-interest expense2,214   2,847   4,188   5,551  
Total non-interest expense31,010   25,813   53,233   48,631  
Net Income (Loss) Before Taxes(8,219)  18,840   (4,069)  33,783  
Income tax expense (benefit)(863)  3,263   (570)  6,171  
Net Income (Loss)(7,356)  15,577   $(3,499)  $27,612  
Basic Earnings (Loss) Per Share$(0.14)  $0.30   $(0.07)  $0.54  
Diluted Earnings (Loss) Share$(0.14)  $0.30   $(0.07)  $0.53  


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

 Six Months Ended
 June 30,
 2020 2021
 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$299,456   $3,692  2.48% $214,178   $1,947  1.83%
Securities - tax-exempt(1)444,948   7,952  3.59  494,297   8,286  3.38 
Federal funds sold2,057   18  1.74  —   —  — 
Interest-bearing deposits in other banks172,294   518  0.60  429,930   238  0.11 
Gross loans, net of unearned income(2)4,132,279   94,662  4.61  4,457,792   87,604  3.96 
Total interest-earning assets(1)5,051,034   $106,842  4.25% 5,596,197   $98,075  3.53%
Allowance for loan losses(59,267)      (77,552)     
Other non-interest-earning assets218,043       216,913      
Total assets$5,209,810       $5,735,558      
Interest-bearing liabilities           
Transaction deposits$377,883   $1,131  0.60% $690,514   $677  0.20%
Savings and money market deposits1,909,881   9,388  0.99  2,403,318   4,495  0.38 
Time deposits1,180,704   12,158  2.07  920,307   5,406  1.18 
Total interest-bearing deposits3,468,468   22,677  1.31  4,014,139   10,578  0.53 
FHLB and short-term borrowings444,141   3,342  1.51  289,039   2,566  1.79 
Trust preferred securities, net of fair value adjustments928   58  12.64  971   48  9.89 
Non-interest-bearing deposits643,659   —  —  766,725   —  — 
Cost of funds4,557,196   $26,077  1.15% 5,070,874   $13,192  0.52%
Other liabilities40,406       35,017      
Stockholders’ equity612,208       629,667      
Total liabilities and stockholders' equity$5,209,810       $5,735,558      
Net interest income(1)  $80,765      $84,883   
Net interest spread(1)    3.10%     3.01%
Net interest margin(1)    3.22%     3.06%
(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) 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)
 Six Months Ended
 June 30, 2021 over 2020
 Average Volume Yield/Rate Net Change(2)
 (Dollars in thousands)
Interest Income     
Securities - taxable$(909)  $(836)  $(1,745) 
Securities - tax-exempt(1)825   (491)  334  
Federal funds sold(18)  —   (18) 
Interest-bearing deposits in other banks361   (641)  (280) 
Gross loans, net of unearned income7,019   (14,077)  (7,058) 
Total interest income(1)7,278   (16,045)  (8,767) 
Interest Expense     
Transaction deposits579   (1,033)  (454) 
Savings and money market deposits1,968   (6,861)  (4,893) 
Time deposits(2,289)  (4,463)  (6,752) 
Total interest-bearing deposits258   (12,357)  (12,099) 
FHLB and short-term borrowings(1,312)  536   (776) 
Trust preferred securities, net of fair value adjustments3   (13)  (10) 
Total interest expense(1,051)  (11,834)  (12,885) 
Net interest income(1)$8,329   $(4,211)  $4,118  
      
(1) Tax exempt income is calculated on a tax-equivalent basis. Tax-free municipal securities are exempt from federal income income taxes. The incremental income 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. 2020 - 2021 QUARTERLY ANALYSIS OF CHANGES IN NET INTEREST INCOME (UNAUDITED)

 Three Months Ended
 June 30,
 2020 2021
 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$290,342   $1,626  2.25% $211,158   $1,031  1.96%
Securities - tax-exempt(1)438,525   3,945  3.62  508,483   4,231  3.34 
Federal funds sold—   —  —  —   —  — 
Interest-bearing deposits in other banks186,388   45  0.10  407,801   110  0.11 
Gross loans, net of unearned income(2) (3)4,357,055   46,323  4.28  4,409,280   43,846  3.99 
Total interest-earning assets(1)5,272,310   $51,939  3.96% 5,536,722   $49,218  3.57%
Allowance for loan losses(60,889)      (76,741)     
Other non-interest-earning assets230,092       213,657      
Total assets$5,441,513       $5,673,638      
Interest-bearing liabilities           
Transaction deposits$413,870   $266  0.26% $664,552   $313  0.19%
Savings and money market deposits1,932,723   2,653  0.55  2,385,074   2,107  0.35 
Time deposits1,195,445   5,486  1.85  869,176   2,430  1.12 
Total interest-bearing deposits3,542,038   8,405  0.95  3,918,802   4,850  0.50 
FHLB and short-term borrowings496,556   1,668  1.35  287,904   1,282  1.79 
Trust preferred securities, net of fair value adjustments933   24  10.61  976   24  9.82 
Non-interest-bearing deposits745,864   —  —  801,591   —  — 
Cost of funds4,785,391   $10,097  0.85% 5,009,273   $6,156  0.49%
Other liabilities44,656       30,948      
Total stockholders' equity611,466       633,417      
Total liabilities and stockholders' equity$5,441,513       $5,673,638      
Net interest income(1)  $41,842      $43,062   
Net interest spread(1)    3.11%     3.08%
Net interest margin(1)    3.19%     3.12%
            
(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) Average gross 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 Ended
 June 30, 2021 over 2020
 Average Volume Yield/Rate Net Change(2)
 (Dollars in thousands)
Interest Income     
Securities - taxable$(404)  $(191)  $(595) 
Securities - tax-exempt(1)604   (318)  286  
Federal funds sold—   —   —  
Interest-bearing deposits in other banks59   6   65  
Gross loans, net of unearned income575   (3,052)  (2,477) 
Total interest income(1)834   (3,555)  (2,721) 
Interest Expense     
Transaction deposits133   (86)  47  
Savings and money market deposits541   (1,087)  (546) 
Time deposits(1,249)  (1,807)  (3,056) 
Total interest-bearing deposits(575)  (2,980)  (3,555) 
FHLB and short-term borrowings(831)  445   (386) 
Trust preferred securities, net of fair value adjustments1   (1)  —  
Total interest expense(1,405)  (2,536)  (3,941) 
Net interest income(1)$2,239   $(1,019)  $1,220  
      
(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 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 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 (loss) adjusted to remove non-recurring or non-core income and expense items related to:
     
    • Goodwill impairment - We performed an interim review of goodwill as of June 30, 2020. The book value of goodwill exceeded its fair market value and resulted in a full $7.4 million impairment.
       
    • 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.

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

  • We calculate "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.

  • We calculate "Non-GAAP core operating return on average assets" as non-GAAP core operating income (loss) (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 (loss) divided by average assets.

  • We calculate ‘‘non-GAAP core operating return on average common equity’’ as non-GAAP core operating income (as defined above) less preferred dividends divided by average common equity. The most directly comparable GAAP financial measure is return on average common equity, which is calculated as net income less preferred dividends divided by average common equity.

  • 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.

  • 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.

  • We calculate "non-GAAP core operating efficiency ratio - fully tax equivalent (FTE)" as non-interest expense adjusted to remove non-recurring, or 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-recurring, or non-core, non-interest income as defined above under non-GAAP core operating income. The most directly comparable financial measure is the efficiency ratio.

  • We calculate "non-GAAP pre-tax pre-provision profit" as net income (loss) before taxes plus the provision for loan losses.
 Quarter Ended Six Months Ended
 06/30/2020 09/30/2020 12/31/2020 03/31/2021 06/30/2021 06/30/2020 06/30/2021
 (Dollars in thousands)
Non-GAAP core operating income:             
Net income (loss)$(7,356)  $8,006  $8,094  $12,035  $15,577  $(3,499)  $27,612 
Add: Goodwill impairment(1)7,397   —  —  —  —  7,397   — 
Add: Accelerated employee benefits—   —  —  —  719  —   719 
Less: Tax effect(2)—   —  —  —  210  —   210 
Accelerated employee benefits, net of tax—   —  —  —  509  —   509 
Less: BOLI settlement benefits(1)—   —  —  —  1,841  —   1,841 
Non-GAAP core operating income $41   $8,006  $8,094  $12,035  $14,245  $3,898   $26,280 
              
(1) No tax effect.
(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.


 Quarter Ended Six Months Ended
 06/30/2020 09/30/2020 12/31/2020 03/31/2021 06/30/2021 06/30/2020 06/30/2021
 (Dollars in thousands)
Non-GAAP core return on average tangible common equity:             
Net income (loss) available to common stockholders$(7,356)  $8,006  $8,094  $12,035  $15,577  $(3,499)  $27,612 
Non-GAAP core operating income41   8,006  8,094  12,035  14,245  3,898   26,280 
Average common equity611,466   613,910  620,496  625,875  633,417  612,208   629,667 
Less: average goodwill and intangibles7,576   238  218  199  179  7,629   189 
Average tangible common equity603,890   613,672  620,278  625,676  633,238  604,579   629,478 
Return on average common equity(4.84)% 5.19% 5.19% 7.80% 9.86% (1.15)% 8.84%
Non-GAAP core return on average tangible common equity0.03 % 5.19% 5.19% 7.80% 9.02% 1.30 % 8.42%


 Quarter Ended Six Months Ended
 06/30/2020 09/30/2020 12/31/2020 03/31/2021 06/30/2021 06/30/2020 06/30/2021
 (Dollars in thousands)
Non-GAAP core operating return on average assets:             
Net income (loss)$(7,356)  $8,006  $8,094  $12,035  $15,577  $(3,499)  $27,612 
Non-GAAP core operating income41   8,006  8,094  12,035  14,245  3,898   26,280 
Average assets$5,441,513   $5,486,252  $5,523,196  $5,798,167  $5,673,638  $5,209,810   $5,735,558 
Return on average assets(0.54)% 0.58% 0.58% 0.84% 1.10% (0.14)% 0.97%
Non-GAAP core operating return on average assets— % 0.58% 0.58% 0.84% 1.01% 0.15 % 0.92%


 Quarter Ended
 06/30/2020 09/30/2020 12/31/2020 03/31/2021 06/30/2021
 (Dollars in thousands except per share data)
Tangible common stockholders' equity:         
Total stockholders' equity$608,092  $617,883  $624,428  $628,834  $637,190 
Less: goodwill and other intangible assets247  227  208  188  169 
Tangible common stockholders' equity$607,845  $617,656  $624,220  $628,646  $637,021 
Tangible book value per share:         
Tangible common stockholders' equity$607,845  $617,656  $624,220  $628,646  $637,021 
Shares outstanding at end of period52,167,573  52,195,778  51,679,516  51,678,669  50,958,680 
Book value per share$11.66  $11.84  $12.08  $12.17  $12.50 
Tangible book value per share$11.65  $11.83  $12.08  $12.16  $12.50 


 Quarter Ended Six Months Ended
 06/30/2020 09/30/2020 12/31/2020 03/31/2021 06/30/2021 06/30/2020 06/30/2021
 (Dollars in thousands)
Non-GAAP Core Operating Efficiency Ratio - Fully Tax Equivalent (FTE)             
Non-interest expense$31,010  $23,011  $23,732  $22,818  $25,813  $53,233  $48,631 
Less: Accelerated employee benefits—  —  —  —  719  —  719 
Less: goodwill impairment7,397  —  —  —  —  7,397  — 
Adjusted Non-interest expense (numerator)$23,613  $23,011  $23,732  $22,818  $25,094  $45,836  $47,912 
Net interest income41,157  39,327  41,537  41,117  42,328  79,385  83,445 
Tax-equivalent interest income(1)685  669  683  704  734  1,380  1,438 
Non-interest income2,634  4,063  2,949  4,144  5,825  4,729  9,969 
Less: BOLI settlement benefits—  —  —  —  1,841  —  1,841 
Total tax-equivalent income (denominator)$44,476  $44,059  $45,169  $45,965  $47,046  $85,494  $93,011 
Efficiency Ratio70.81% 53.03% 53.35% 50.41% 53.61% 63.29% 52.06%
Non-GAAP Core Operating Efficiency Ratio - Fully Tax Equivalent (FTE)53.09% 52.23% 52.54% 49.64% 53.34% 53.61% 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) 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.


 Quarter Ended Six Months Ended
 06/30/2020 09/30/2020 12/31/2020 03/31/2021 06/30/2021 06/30/2020 06/30/2021
 (Dollars in thousands)
Non-GAAP Pre-Tax Pre-Provision Profit             
Net income (loss) before taxes$(8,219)  $9,504  $9,879  $14,943  $18,840  $(4,069)  $33,783 
Add: Provision for loan losses21,000   10,875  10,875  7,500  3,500  34,950   11,000 
Non-GAAP Pre-Tax Pre-Provision Profit$12,781   $20,379  $20,754  $22,443  $22,340  $30,881   $44,783