CrossFirst Bankshares (CFB): Poised for Growth through Strategic Merger

Published on March 14, 2025 | Ticker: CFB

CrossFirst Bankshares, Inc. (CFB) is a bank holding company headquartered in Leawood, Kansas, with a strong presence across the Midwest and Southwest regions of the United States. Founded in 2007, the company has experienced steady growth over the past decade, establishing itself as a leading provider of banking and financial services to individuals and businesses alike.

Business Overview and History

CrossFirst Bankshares was established in 2007 with the goal of creating a community-focused bank that would cater to the unique needs of its local markets. The company commenced operations in 2008 with its first branch in Leawood, Kansas, and has since expanded its footprint to include locations across Kansas, Missouri, Oklahoma, Texas, Arizona, Colorado, and New Mexico.

In its early years, CrossFirst faced challenges in establishing its brand and competing against larger regional banks. However, the company successfully attracted a loyal customer base through personalized service and relationship banking. As CrossFirst grew, it expanded into new markets, which helped reduce its exposure to economic downturns in any one region but also presented new operational and risk management challenges.

Throughout its history, CrossFirst has demonstrated resilience in the face of economic challenges, including the 2008 financial crisis and the COVID-19 pandemic. The company maintained strong asset quality and profitability during these difficult periods, showcasing its ability to navigate complex economic environments.

Today, CrossFirst operates as a well-capitalized, diversified bank holding company serving clients through 28 branches across 7 states. The company has built a reputation for delivering personalized banking solutions and exceptional customer service, which has been key to its success in attracting and retaining both individual and commercial clients.

In 2024, CrossFirst made headlines with the announcement of its planned merger with First Busey Corporation (BUSE), a respected financial institution headquartered in Champaign, Illinois. The all-stock deal, valued at approximately $916.8 million, is expected to create a combined entity with over $16 billion in assets and a presence across 10 states. This transformative merger will allow CrossFirst to leverage Busey's expertise and expand its reach into new high-growth markets, positioning the combined company for continued success.

Financial Performance and Ratios

CrossFirst Bankshares has consistently delivered strong financial results, reflecting its prudent management and strategic vision. In the 2023 fiscal year, the company reported net income of $66.67 million, with a net interest margin of 3.36% and a return on average assets of 0.95%. The company's efficiency ratio, a measure of its operational efficiency, stood at 60.77% for the year.

As of December 31, 2023, CrossFirst's total assets stood at $7.38 billion, with a loan portfolio of $6.13 billion and deposits of $6.49 billion. The company's capital ratios remained well above regulatory requirements, with a total risk-based capital ratio of 11.20% and a Tier 1 leverage ratio of 9.90%.

In the most recent quarter (Q3 2024), CrossFirst reported impressive financial results. The company's quarterly revenue reached $67.13 million, representing a 9.9% year-over-year growth. Net income for the quarter was $19.65 million, showing a robust 10.26% increase compared to the same period in the previous year. These figures demonstrate CrossFirst's ability to generate consistent growth and profitability.

Liquidity and Solvency

CrossFirst Bankshares has maintained a strong liquidity position, with cash and cash equivalents totaling $255.23 million as of December 31, 2023. The company's current ratio, a measure of its ability to meet short-term obligations, stood at 1.14, indicating a healthy balance between current assets and liabilities.

The company's long-term debt, which primarily consists of Federal Home Loan Bank advances and trust preferred securities, totaled $86.84 million as of the end of 2023. CrossFirst's debt-to-equity ratio, a measure of its solvency, was 0.12, suggesting a conservative capital structure and a low level of financial leverage.

Product Segments and Loan Portfolio

CrossFirst Bankshares operates through several major product segments, each contributing to its diversified loan portfolio:

1. Commercial and Industrial Loans: This segment comprises 35% of the total loan portfolio as of September 30, 2024, showing a 3% increase from December 31, 2023. These loans primarily cater to commercial and industrial clients for various business needs.

2. Energy Loans: Representing 4% of total loans, this segment focuses on financing oil and natural gas clients. It has shown a 5% growth from the prior year-end.

3. Commercial Real Estate (CRE) - Owner-Occupied: This segment accounts for 9% of the total loan portfolio, with a 3% increase from December 31, 2023.

4. Commercial Real Estate (CRE) - Non-Owner-Occupied: Making up 44% of the total loan portfolio, this segment has grown 4% compared to the end of the previous year.

5. Residential Real Estate Loans: Accounting for 8% of total loans, this segment has seen a 3% increase from December 31, 2023.

6. Consumer Loans: Representing less than 1% of the total loan portfolio, this segment has decreased by 37% from the prior year-end.

The company's loan portfolio remains well-balanced, with 44% in commercial and industrial and owner-occupied commercial real estate, and 44% in non-owner-occupied commercial real estate. As of September 30, 2024, the allowance for credit losses increased to $77.8 million, up from $73.5 million at the end of 2023, reflecting loan growth, economic factors, and an increase in specific reserves.

Guidance and Outlook

In the wake of the announced merger with First Busey, CrossFirst Bankshares has not provided specific financial guidance for the combined entity. However, the company has expressed confidence in the strategic rationale and potential synergies of the transaction, which is expected to enhance the company's growth prospects and long-term profitability.

The merger is subject to customary regulatory approvals and is anticipated to close in the first or second quarter of 2025. Once completed, the combined entity will leverage CrossFirst's strong presence in high-growth markets, such as Kansas City, Wichita, Dallas-Fort Worth, and Denver, to drive further expansion and capitalize on emerging opportunities.

Risks and Challenges

As with any financial institution, CrossFirst Bankshares faces a variety of risks and challenges that could impact its future performance. These include:

1. Interest Rate Risk: The company's net interest margin and profitability are vulnerable to fluctuations in interest rates, which could squeeze its lending margins and affect its ability to generate consistent earnings.

2. Credit Risk: CrossFirst's loan portfolio, particularly in the commercial real estate and energy sectors, could be exposed to elevated credit risk, especially in the event of an economic downturn or industry-specific challenges.

3. Regulatory Oversight: As a regulated financial institution, CrossFirst is subject to extensive compliance requirements and scrutiny from various government agencies, which could lead to increased operational expenses and potential penalties.

4. Integration Risks: The successful integration of First Busey and CrossFirst's operations, systems, and corporate cultures will be critical to realizing the anticipated benefits of the merger and maintaining a seamless customer experience.

Conclusion

CrossFirst Bankshares has established itself as a regional banking powerhouse with a strong presence across the Midwest and Southwest regions of the United States. Through a combination of organic growth and strategic acquisitions, the company has steadily expanded its asset base, diversified its service offerings, and delivered consistent financial performance.

The announced merger with First Busey Corporation represents a transformative opportunity for CrossFirst, as it positions the combined entity for accelerated growth and enhanced market share in high-potential markets. By leveraging Busey's expertise and resources, CrossFirst can further strengthen its competitive position and capitalize on emerging opportunities in the banking industry.

As CrossFirst Bankshares navigates the integration process and the broader economic landscape, its proven management team, disciplined risk management practices, and commitment to community-focused banking will be crucial factors in determining its long-term success. The company's recent financial performance, including strong revenue and net income growth in the most recent quarter, demonstrates its ability to execute on its strategic initiatives and deliver value to shareholders.

Investors interested in the financial services sector would be wise to closely monitor the progress of this strategic merger and the performance of the combined entity. With its diversified loan portfolio, strong market presence, and potential for synergies through the merger, CrossFirst Bankshares appears well-positioned to capitalize on future growth opportunities in the banking industry.

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