CrossFirst Bankshares, Inc. (NASDAQ:CFB) is a bank holding company that has been steadily building its presence in the Midwest and Southwest regions of the United States. With a focus on serving businesses, professionals, and families, CrossFirst has carved out a niche for itself by leveraging its strong client relationships and disciplined approach to risk management.

Business Overview and History: CrossFirst Bankshares, Inc. was founded in 2010 as the bank holding company for its wholly-owned subsidiary, CrossFirst Bank, which had been established as a Kansas state-chartered bank in 2007. The company is headquartered in Leawood, Kansas and has expanded its operations beyond its home state to provide a full range of banking and financial services to individual and corporate clients through branches located across Kansas, Missouri, Texas, Oklahoma, Arizona, Colorado, and New Mexico.

In its early years, CrossFirst faced challenges in establishing itself as a new community bank and competing against larger regional and national banks. The company focused on building out its branch network, expanding its client base, and growing its commercial and retail banking operations. A significant milestone was reached in 2012 when CrossFirst opened its first branch outside of Kansas, marking the beginning of its expansion into new geographic markets.

The company continued its strategic growth by establishing a presence in Oklahoma, Texas, Arizona, and Colorado over the following years. In 2022, CrossFirst made two important acquisitions, one in Colorado and another in Arizona, which bolstered its commercial real estate lending capabilities and expanded its client base in these high-growth markets. However, these acquisitions were not without challenges, as the company worked to integrate the new operations and personnel into its existing platform.

Throughout the 2010s, CrossFirst navigated the low interest rate environment and increased regulatory requirements facing the banking industry. The company focused on developing its commercial and industrial lending, commercial real estate lending, and fee-based businesses to drive profitability. It also invested in technology and digital banking capabilities to enhance the client experience and improve operational efficiency, although these initiatives came with some additional compliance and operational challenges.

One of CrossFirst's key strengths has been its ability to attract and retain experienced bankers, who have played a crucial role in the company's growth and success. The management team has decades of collective experience in the industry and has demonstrated a strong commitment to prudent risk management and disciplined lending practices.

Financial Performance: CrossFirst has consistently delivered solid financial results, showcasing its ability to navigate various economic environments. As of the latest reported quarter (Q3 2024), the company reported net income of $19.6 million, or $0.39 per diluted share. This represents an increase of 2% from the previous quarter and a 16% year-over-year improvement.

The company's net interest margin (NIM) has remained stable, averaging around 3.20% over the past several quarters. This stability has been achieved through a balanced approach to asset-liability management, which has allowed CrossFirst to effectively manage its funding costs and maintain a healthy interest rate spread.

Loan growth has been another area of strength for CrossFirst, with the company reporting a 3% increase in its loan portfolio during the third quarter of 2024. This growth has been driven by strong demand across various loan segments, including commercial and industrial (C&I), energy, and commercial real estate.

For the most recent fiscal year (2023), CrossFirst reported revenue of $245.44 million, net income of $66.67 million, operating cash flow of $99.36 million, and free cash flow of $90.40 million. In the most recent quarter (Q3 2024), the company achieved revenue of $134.38 million, up 9.9% year-over-year, and net income of $19.65 million, up 16.4% year-over-year. Operating cash flow for the quarter was $31.75 million, with free cash flow of $33.83 million.

Solvency and Liquidity: CrossFirst's balance sheet remains well-capitalized, with a total risk-based capital ratio of 11.80% as of September 30, 2024. This ratio exceeds the regulatory requirements for a "well-capitalized" institution, demonstrating the company's financial strength and ability to withstand potential economic downturns.

In terms of liquidity, CrossFirst maintains a diversified funding base, with a loan-to-deposit ratio of 94% as of the end of the third quarter. The company has access to additional liquidity sources, such as borrowing facilities with the Federal Home Loan Bank, which provides further flexibility in managing its funding needs.

As of September 30, 2024, CrossFirst reported a debt-to-equity ratio of 0.12, cash holdings of $236.94 million, and access to a $500 million revolving credit line. The company's current ratio and quick ratio both stood at 1.14, indicating a strong ability to meet short-term obligations.

Risk Management and Asset Quality: One of CrossFirst's key priorities has been its commitment to maintaining a high-quality loan portfolio. The company's non-performing assets ratio stood at 0.34% as of September 30, 2024, reflecting the effectiveness of its credit underwriting standards and proactive risk management practices.

CrossFirst has also demonstrated its ability to navigate challenging economic conditions, as evidenced by its successful management of the COVID-19 pandemic. The company's diversified loan portfolio, coupled with its focus on relationship banking, has allowed it to weather the storm and emerge in a strong position.

Loan Portfolio and Deposits: CrossFirst's loan portfolio is well-diversified across several segments, with commercial and industrial loans accounting for 35% of total loans, commercial real estate - non-owner-occupied at 44%, commercial real estate - owner-occupied at 9%, residential real estate at 8%, and consumer loans at 4%. The loan portfolio grew 3% year-over-year, with increases across most segments. Key industries within the commercial and industrial portfolio include restaurants, manufacturing, and professional services. The commercial real estate - non-owner-occupied portfolio is primarily composed of industrial (22%), multifamily (19%), and office (16%) property types, with 70% located within CrossFirst's geographic footprint.

Total deposits reached $6.60 billion as of September 30, 2024, representing a 2% increase from December 31, 2023. This growth included a $156 million increase in time deposits and a $77 million increase in money market, NOW and savings deposits, partially offset by a $90 million decrease in non-interest-bearing deposits. Approximately 34% of total deposits were uninsured as of September 30, 2024.

Non-Interest Income and Expense: Non-interest income remained relatively flat for the three-month period ended September 30, 2024, compared to the prior year period, but increased 7% for the nine-month period. The increase was driven primarily by higher ATM and credit card interchange income, service charges and fees, and swap fees, partially offset by lower gain on sale of loans.

Non-interest expense increased 6% and 2% for the three- and nine-month periods ended September 30, 2024, respectively, compared to the same periods in 2023. The increases were primarily due to higher salaries and benefits, occupancy costs, professional fees, and other expenses, partially offset by decreases in data processing and advertising expenses.

Outlook and Guidance: Looking ahead, CrossFirst remains cautiously optimistic about the economic environment and its ability to continue delivering solid results. The company has provided guidance for the full year 2024, expecting net interest margin to be in the range of 3.20% to 3.25% and non-interest expense to be around $37 million per quarter.

The company's management team has also highlighted its focus on driving profitable growth, with a particular emphasis on expanding its fee-based revenue streams and optimizing its operational efficiency. CrossFirst's strategic investments in technology and talent are expected to support these initiatives and further enhance the company's competitive position.

CrossFirst is targeting loan growth of 6-8% for the full year 2024, which represents a moderation from its previous estimates. The company expects to see some increase in loan churn, primarily in the commercial real estate portfolio, over the next several quarters. Additionally, CrossFirst plans to continue building capital while remaining opportunistic with its share buyback program, taking advantage of opportunities when its stock price is trading below book value.

Industry Trends: The banking industry has experienced steady loan and deposit growth, with a compound annual growth rate (CAGR) of approximately 4-6% over the past three years. CrossFirst has outperformed these industry averages, growing loans and deposits at a 6-8% annual pace.

Conclusion: CrossFirst Bankshares has established itself as a well-respected and financially sound institution in the Midwest and Southwest banking markets. With a seasoned management team, a disciplined approach to risk management, and a commitment to serving its clients, the company has consistently delivered strong financial results and positioned itself for continued growth. As it navigates the evolving banking landscape, CrossFirst's focus on building lasting relationships and maintaining a high-quality asset base positions it well to create long-term value for its shareholders.