Q4 2023 CrossFirst Bankshares Inc Earnings Call

Operator: Good morning and welcome to the Crossfirst Bank Shares, 4th quarter and 4th year, 2023 earnings call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded.

Michael Daley: I would now like to turn the conference over to Mike Daley, Chief Accounting Officer and Head of Industrial Relations and Crossfirst Bank Shares. Please go ahead.

Michael Daley: Good morning and welcome to Crossfirst Bank Shares, 4th quarter and 4th year, 2023 earnings conference call. Before we begin, please be aware this call will include forward-looking statements, including statements about our business plans, expansion and growth opportunities, expense and control initiatives, sources of liquidity, capital allocation strategies and plans, and our future financial performance. These comments are based on our current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from these statements.

Michael Daley: Our forward-looking statements are as of the date of this call and we do not assume any obligation to update or revise them except as required by law. Statements made on this call should be consistent together with the risk factors identified in today's earnings release and our other filings with the SEC. We may also refer to adjusted or non-GAP financial measures. Our reconciliation of non-GAP financial measures to GAP financial measures can be found in our earnings release. These non-GAP financial measures are not meant to be a substitute for or superior to your financial measures prepared in accordance with GAP.

Michael Daley: Our presentation will include prepared remarks from Mike Maddx, President and CEO of Crossfirst Ventures, Randy Rap, President of Crossfirst Vent, and Ben Klaus, CEO of Crossfirst Ventures. At the conclusion of our prepared remarks, our operator, Linya, will facilitate a Q&A session. At this time, I would like to turn the call over to Mike, who will begin on slide 7 of the presentation available on our website and follow up with our earnings release. Mike, thank you and good morning.

Michael Maddox: I appreciate everyone joining us today to discuss Crossfirst fourth quarter and full-year financial performance. Our results continue to refract our focus on growing profitably and responsibly as we scale the strategic investments we've made in dynamic markets and verticals, best-in-class technologies, and experienced bankers delivering extraordinary service. We reported nearly $20 million in adjusted net income for the quarter, and $73 million in adjusted net income for the year. This equates to a record, full-year adjusted earnings per share, $1.47.

Michael Maddox: Despite a challenging macro-environment, Crossfirst had an incredible year. We closed on our chief-line acquisition, opened two prominent taxes locations, launched our new digital banking platform and grew earnings by 6% on an adjusted basis for the year. This was all inside of an historic rise in rates that put significant pressure on margin. As I reflect on the previous year, I continue to be extremely proud of our team and the way they managed to determine what was in our industry with a focus on serving our clients and continuing to build franchise value. State.

Michael Maddox: Unprecedented times like these create opportunities for us to show our clients what serving in extraordinary ways really means, improves that our core strategy of building trusted relationships has long-term value. In 2023, operating revenue was a record $246 million, an increase of $35 million or $16% for the year. Total assets grew to a record $7.4 billion, of $780 million or $12% from a year ago. Our asset increase was driven by strong organic growth and deposit growth, and we continue to see growth in fee income.

Michael Maddox: We grew tangible book value meaningfully this year by $75 million or $12% without AOCI, and $90 million or 15% including the AOCI improvement. One of the most important things is that our asset quality remains strong due to different point credit underwriting and our overall risk management framework. We entered 2023 with a theme of optimization.

Michael Maddox: To build on our solid foundation and maximize the investment we made to benefit our clients and drive operating leverage to improve profitability for our shareholders. Despite the challenging environment, our team remained focused and executed on our balance sheet optimization initiatives, drove operating leverage and grew our capital levels, all of which contribute to long-term growth of shareholder value. We also continue to show the health and strength of our loan portfolio, and our view into the future reinforces my belief that our diversification, our prudent underwriting, and our dynamic high growth metro markets will continue to differentiate us.

Michael Maddox: This year will mark our fifth full year as a public company. Over the past five years, we've operated through unprecedented times. We've all lived for a pandemic, supply chain challenges, the largest rise in inflation and interest rates for years, and a liquidity crisis.

Michael Maddox: Despite the unique operating environment, we have made dramatic improvement as a company. Since our IPO in 2019, we have grown our balance sheet by $2.5 billion or 50 percent. Through 2023, including tremendous loan growth across our markets. In that same period, we have made huge improvements in a number of metrics, including credit quality, with MPAs declining from 0.97 percent to 0.34 percent. Non-interest growing deposits, growing from 13 percent in the pre-pandemic environment to 15 percent today.

Michael Maddox: Operating revenue growth with more than 60 percent adjusted net income more than doubling, and our adjusted ROI increasing from 5.2 percent to 11.23 percent. We have worked hard to deploy the capital we raised during the IPO, through organic balance sheet growth, share buybacks, and tooth successful acquisitions. Our business model is also significantly expanded and become more diverse. We have entered new high growth metro markets, such as Fort Worth, Phoenix, and Denver, and we added an expanded industry verticals to include sponsor, restaurant, and SBA.

Michael Maddox: First, we plan to leverage opportunities to grow efficiently by truly managing expenses. We will continue to focus on optimizing operations while also leveraging key technology and infrastructure investments. A great example of this is our new collaboration with Nimbus, a leading CINC tech company providing cloud-based banking and core services. Leveraging Nimbus' technology platform, we intend to build out a digital offering to expand our geographic reach to more and more small-to-medium-sized businesses. I am very proud of our team and very optimistic about our future.

Michael Maddox: We are much better positioned today than we were five years ago. We have a highly experienced team of bankers who remain focused on our clients as we continue to evolve and scale our operations for the future while enhancing grants our value.

Randy Rap: And now I would like to turn this call over to our president of Crossfirst Bank, Randy Rap. Thanks Mike and good morning everyone.

Randy Rap: In Q4, we continue to show good organic loan and deposit growth while maintaining solid credit metrics. I am proud of the results across first team delivered in 2023 against a number of challenging external factors and believe we have the bank well-positioned for 2024. In Q4, we reported total loan growth of 182 million resulting in a growth rate of 3.1 percent for the quarter. Growth in the quarter was balanced primarily between C&I and commercial real estate.

Randy Rap: We continued to focus on increasing loan yields and the average loan yield on new production in the quarter was a strong 8.43 percent. For 2023, we reported total loan growth of 755 million or 14 percent including the two fund acquisition. The organic loan growth rate for 2023 was 12 percent.

Randy Rap: The increase was primarily attributable to a $371 million increase in CRE Outstanding, a $350 million increase in C&I and over occupied real estate balances and a $41 million increase in energy exposure. Loan growth through the year was broad-based across our markets and lines of business led by the Dallas Fort Worth, Kansas City and Phoenix markets and specialty lines of business. At your end, average C&I line utilization increased to 52 percent which is above the historical usage percentage rate of 47 percent. This increase is partially attributable to our focus on right sizing line commitments.

Randy Rap: Portfolio churn decreased and is now below the historical average level. We expect Portfolio churn to increase slightly over the next several quarters, primarily in the commercial real estate portfolio as the interest rate environment stabilizes bringing more clarity to expect expected cap rates and permanent interest rates. Our loan portfolio continues to remain balanced with 44 percent in commercial real estate and 44 percent in C&I and over occupied real estate. Energy outstanding were 214 million or 3.5 percent of the portfolio, on four-eyed line, you can see the remains of good diversity within each of those portfolios, with the highest CRE property type, industrial accounting for 21% of total CRE exposure, and the largest industry segment in C&I, now being restaurant, at 11% of C&I exposure and 3.7% of total loans.

Randy Rap: As you will recall, we launched a restaurant finance lending vertical in 2022 that gained significant traction in 2023. This group is led by a veteran banker in the space, and typical clients are experienced to mid-sized multi-unit quick serve operators.

Randy Rap: In the CRE portfolio, total office exposure is now $292 million, relatively flat compared to $294 million at the end of Q3, and is 4.8% of total loans. The average office loan size remains $7 million, and the largest is $25 million. The average loan to value is 60% and the majority of the portfolio is suburban class A and B office. Approximately half of the portfolio is set to mature in the next two years, however, 74% of these maturities are loans with floating rates, which have been repricing up through this rate cycle.

Randy Rap: We feel confident in the commitment of our sponsors to these projects and do not anticipate upcoming maturities to be a catalyst event towards defaults. As we have previously stated, we have followed our strongest sponsors to other markets, but the majority of this exposure is in our footprint centered in North Texas, Kansas City, and Colorado.

Randy Rap: Moving to credit highlights on slide 10 for Q4, we reported non-performing assets to total asset ratio of 34 basis points, which is down from the 50 basis points reported at the end of Q3. The decrease was primarily due to the past due CNI credit we discussed on the third quarter call that resolved in early October as expected. The remaining non-performing loans are primarily CNI with one fully secured commercial real estate transaction, ORE balances remain at zero.

Randy Rap: Classified assets to capital plus combined reserves ended Q4 at 14.8%, which is relatively flat with the 14% at the end of Q3 and remains at an acceptable level. At year end, classified loan totals are comprised 65% in the CNI space, 22% in commercial real estate, and 8% in owner-occupied real estate. Classified loans in the energy portfolio are negligible.

Randy Rap: For the quarter, we reported net charge off of 1.9 million, resulting in a charge off rate of 12 basis points on an analyzed basis, and 9 basis points on a trailing 12 month basis. Charge off of the quarter were primarily attributable to 1 CNI credit. At quarter end, we reported an allowance for credit loss to total loan ratio of 1.2%, which is flat compared to the end of Q3. The combined allowance for credit loss and reserve for unfurringed commitments totaled 1.3%, which is also consistent with the prior quarter.

Randy Rap: Provision was slightly higher than Q3 due to loan growth and charge off activity during the quarter, with a total ACL of 73.5 million, our current ACL to non-performing loan ratio is 296%. We remain highly focused on maintaining good credit metrics moving forward. Turning to slide 11 for Q4, deposits increased 3% to 6.5 billion, up 159 million from the previous quarter. Non-interestering deposits decreased slightly during the quarter to 990 million and now represent 15% of total deposits.

Randy Rap: For the year total deposits increased 840 million or 15% including this Tucson acquisition. Organic deposit growth was 675 million or 12%. We are pleased with the overall performance of the company in 2023 against the challenging environment and in 2024 we'll continue to focus heavily on deposit generation, deposits next, fee income growth, with treasury management and credit card products and loan growth on transactions with accretive yields and fees. We plan to continue heightened monitoring of the loan portfolio looking for negative trends while adherence to our established underwriting guidelines will also remain at top priority.

Randy Rap: We are fortunate to be located in high growth, high quality markets and believe we will continue to benefit from the investments we have made in talent, new markets and lines of business over the past several years.

Ben Klaus: I will now turn the call over to Ben to cover the financial results in more detail. Ben, thanks Randy and good morning everyone.

Ben Klaus: Gap net income this quarter was 17.7 million or 35 cents per deleted share. Adjusted net income was 19.6 million or 39 cents per deleted share. Both Gap and adjusted net income improved from the prior quarter with a 3% increase in net income and lower non-interest expenses which more than offset a modest increase in provision expense. On a whole year basis we achieved 66.7 million in earnings or $1.34 earnings per deleted share. On an adjusted full year basis earnings were 72.8 million or $1.47 earnings per deleted share.

Ben Klaus: As Mike noted this is an all-time high for us in EPS on both a reported and adjusted basis as we focus on driving profitable growth. Quarterly adjusted return on assets was 1.07 percent and adjusted return on average equity was 11.9 percent. Both increasing nicely from Q3. We realized a good organic balance sheet growth in the quarter as Randy outlined and we are pleased to see profitability improving as our prior expense management actions and continued positive operating leverage were evident in the quarter's results.

Ben Klaus: Net interest income expanded this quarter with a balanced contribution from both higher yields and higher average earning assets. The yield on early assets increased 16 basis points to 6.63 percent due to re-pricing as well as higher yields on new loans and no interest accrual adjustments this quarter. Carter.

Ben Klaus: Better yields on our investment security portfolio also contributed. Average earning assets increased to 134 million compared to the prior quarter, with most of the net increase from loan growth. Twenty to page 12 are total costs of deposits with 3.74% for the quarter, increasing 15 basis points. Our total non maturity deposit data against the entire weight cycle through the 4th quarter remained at 57 in line with our expectations and the pace of the increase in our cost of deposits moderated in the 4th quarter. Our deposit base remained consistent with the prior quarter in terms of diversification and composition. Our loan to deposit ratio remained at 94%.

Ben Klaus: We also decreased borrowings during the quarter and kept wholesale funding flat as a percentage of assets. 40 tax equivalent net interest margin expanded 4 basis points compared to the prior quarter to 3.23%. Our core name, adjusting out noise from the cruel impacts, has remained stable in the low 320s since the second quarter, and we continue to believe this is the bottom of the trough.

Ben Klaus: Our balance sheet is only slightly sensitive through any potential weight moves in 2024, especially through the less than 100 basis point ramp scenarios up and down as 69% of our earning assets reprice or mature in the next 12 months. We expect margin to be in a range of 320 to 325 for 2024 with the most pressure earlier in the year, and the potential for expansion under our assumption of 2 rate plus impacting the last half of 2024. Given this backed up, our expectation for loan and deposit growth in 2024 is in a range of 8% to 10%. Non-interest income was 4.5 million for the quarter, including the bond loss of 1.1 million.

Ben Klaus: The remaining small decrease compared to Q3 was due to a decline in mortgage activity and lower service charges, as well as some tax incentives and other gains in the third quarter that did not occur. We did continue to feed growth in our credit card program. On a mirror over your basis, excluding the bond loss, we grew non-interest income by 26% or 4.5 million, with contributions from treasury, credit card, and SBA loan sales being the largest drivers. These will be continued focus areas of growth in 2024. Moving to slide 13, adjusted non-interest expense decreased 1.3 million compared to the prior quarter due primarily to lower compensation.

Ben Klaus: We remain highly focused on our efforts to drive additional efficiencies and gain operating leverage, and we will continue our focus on cross-control in 2024. Our adjusted efficiency ratio improved 3% to 52% of this quarter. Our headcount declined in the quarter after we completed our integration efforts for the three-star and a half position. William.

Ben Klaus: Notably, we drove non-interest expenses down to 1.92 percent of average assets, which is now below the level prior to our two acquisitions. We expect non-interest expenses to be in a range of 36 for 37 million per quarter in 2024 with compensation rising in Q1 due to the reset of taxes, benefits, and incentives, as well as merit increases. Our tax rate was 21 percent for the quarter, and we expect the tax rate to remain in a range of 20 to 22 percent in 2024.

Ben Klaus: On 514, our liquidity remains strong, consistent with the prior quarter at 34 percent of assets. We have significant liquidity of approximately 2.5 billion from on-and-off balance sheet sources. We have continued to increase the liquidity in our investment portfolio with an ongoing moderate shift in the ratio of unions that we were able to accelerate this quarter with a modest restructuring of the portfolio. We expect the transaction to be accreted in 2024 and result in less than one year earned back.

Benjamin Russell Clouse: It also improves our risk-based capital ratio due to deployment of the proceeds into lower risk-weighted assets. We continue to evaluate all of our options to improve the yields on our earning assets. We continue to advance our goal of building capital this quarter, as we saw moderate asset growth, strong earnings, and a continued decline in unfounded commitment. We achieved our goal of reaching an 11 percent total risk-based capital ratio ending the year at 11.2 percent.

Ben Klaus: We also increased our CET-1 ratio to 10 percent. We intend to continue to focus on building capital from here, balanced with our focus on shareholder return. In 2024, with continued strong earnings growth, we will evaluate strategic return capital to shareholders, which we believe can be achieved while still building capital. In summary, 2023 was a very successful year for cross-first. We continue to increase profitability and grew capital, all while positioning our balance sheet for continued success in the future.

Operator: Operator, we are now ready to begin the question and answer portion of the call. We will now begin the question and answer question. To ask a question, you make our star than one on your touchstone phone. Please remind yourself to one question and a single follow-up. If you're using the speaker phone, please pick up your handset before pressing the keys. To answer your question, please press star then two. At this time, we will pause momentarily to assemble our roster.

Brady Gailey: Our first question comes from Brad Galey with KBW. Please go ahead. Yes, Brady. Good morning, Brady.

Brady Gailey: Maybe just to start with the net interest margin. Guy, I think I heard Ben talk about maybe the margin being under pressure early in 2024 than seeing expansion towards the latter part of 2024. Should we expect the Miriam to contract a little bit from the 4Q level into early 24, or do you think the 4Q name is the bottom?

Brady Gailey: Now, Brady, we think it will be pretty flat in the beginning of the year, and as I said, with some potential for a little bit of expansion with a couple great cuts towards the end. Like most others are assuming June, September and December cut to December not really having much impact on results. I think I heard you say at this point, you guys are close to rate neutral.

Brady Gailey: So, if we see more relaxed rate cuts, will that impact this demand guidance by much? More cuts and faster cuts would be an upside for, as you can see on the sensitivity graph there, we have a little bit of liability sensitivity. The other component, two other components, going into that, of course, are our deposit mix as a huge impact on our NIM. And as Randy said, that's been pretty stable in the quarter. We also have a couple of very modestly sized on-balance sheet derivatives, one on the deposit side, one on the loan side. The deposit side is in the money, the loan side is out of the money.

Brady Gailey: It's a pretty long term focus. It will provide a little bit of pressure in the beginning of the year as well. Finally, for me, just heal on capital. You got to the targets that you guys laid out.

Brady Gailey: You didn't buy back any stock in 2023. It sounds like you're maybe open to the word for buybacks this year in 2024, and the stock is sitting right at one-time change for both values. Should we expect some buybacks this year? Great. I think we'll evaluate our ability to continue to return some money to shareholders. Buybacks are certainly not, and we still have plenty of authorization there to execute on. We believe our earnings are stable and are going to continue to grow. We do want to continue to build our capital levels from here, but we think we have room to do that as well as return some money to our shareholders. All right, great. Thanks, guys. Thanks, ready?

Michael Vose: The next question is from Michael Vose of Raymond James. Please go ahead.

Michael Vose: Hey, good morning, guys. Just a couple of follow-up questions on the margin first. You know, I know that if I look at the down 100 basis points, it went from about 40 to 865 Q-on-2. What strategies do you guys have in place to make the increase that you're planning to and what actions should we think about? You know, should we think as we contemplate, you know, at least a couple cuts in your guidance as we think about the year. Thanks. Michael, I might just, you know, in a down rate scenario, we feel really good about our balance. University.

Michael Vose: We have a really good percentage of our deposits in our index that will move quickly and we will aggressively cut the positive rates in a rate quicker than the 57-beta then talked about on the way up. As you know in our modeling, we modeled the same beta on the way up as the way down and I think our balance sheet will react a little more favorably in a down rate environment. Ben is taking a conservative approach.

Michael Vose: I feel good about our margin. I feel really good about the rates at which we are putting new loans on the books. Our team is doing a good job with our deposit growth. We are hopeful that we are using the bottom of the margin and we may start to see a little bit of expansion. Michael, I might just add a couple things. Mike is correct.

Michael Vose: We are about 25% index, so that will absolutely help us significantly on the way down. We continue to get really good pricing on new loans. Again in our targeted range of 8% to 10% balance sheet growth, we believe the pricing on that will continue to be good for the quarter on new loans. We remain in the 8.4, 8.5 range generally on the portfolio, so that will help as well. Our looks continue to be really good.

Michael Vose: We remain right around 70, 30, variable 6, but we do a little bit more variable on new lending that we are doing, which helps us as well. Ben brings up a good point. Growth is really important and if we can grow 8% to 10%, we are putting newly priced assets on the books. We believe we can keep our funding costs flat.

Michael Vose: That ought to help us expand margin this year. Very helpful. One of the questions, Ben, I think you guys had about 10 million in purchase planning, increasing remaining at the end of the third quarter, and I think they had the increase in the third quarter and the third quarter is 650,000. If you just give us an update on what that was for the fourth quarter and what this schedule of creation at least is for 2024.

Michael Vose: Thanks. Sure, Michael. You were correct about 650 last quarter, about 450 this quarter with a remaining balance of 9.4 million. That generally then is spread over up three to four year period as our current assumption and of course influenced by an accelerated payoff for refinancing that might occur in that time period. Okay, helpful.

Michael Vose: And then maybe just finally for me, you guys had a step down in service charges this quarter that was maybe a little bit greater than I was expecting, just given the trajectory over the past three or four quarters. Anything in there of no or any changes you guys made and and you know, sort of expectations for fees as we think about 24. Thanks. Yeah, Michael, that was really an anomaly, not anything related to the base rate and all that, maybe Randy expand on it, but we intend for to continue to drive some significant growth in fee income in 2024 as we take a look at pricing and some of the things Randy's team is doing in the sales area. Yeah, Michael is Randy.

Michael Vose: It has been said we do expect the income to increase in 2024. And over the last 12, 18 months, we've made significant investments not only in technology, process and also in talent. And we feel like there is a real opportunity to grow our treasury fees and also our credit card income. And he did push through a pricing increase on our treasury products beginning of this year, first one we've made in several years and so we think the combination of the increase in price and increase in volume will improve those fees in 24.

Michael Vose: Great. Thanks for taking my question, guys. Thanks, Michael, that. Again, if you would like to ask a question, you may plus star then one.

Thomas Wendler: The next question is from Thomas Wendler of Stevens. They go ahead. Very good morning, everyone. Good morning.

Thomas Wendler: Most of my questions have been answered, but I just wanted to go back to capital for a second. We saw 35th increase in total risk-based capital in 1423. And as you start thinking about buybacks, you give us my idea of the quarterly increase in kind of inspecting in your capital moving forward. Sure, Thomas.

Thomas Wendler: As we said, we intend to continue building capital. We'd like to see total risk-based move from its current level closer to 11 and a half. We want to continue to build CET-1 a little bit beyond its current level of 10. As Mike mentioned, you know, next year we think with this year of 2024 with continued stability and earnings, we want to make sure we're balancing our capital build the total shareholder return. We're not going to do that in a way that compromises our ability to continue building that capital towards those targets, but we think there's a balance there. All right, I appreciate the color.

Michael Daley: Thank you. I am sorry, no other questions at this time, and this will include our question and answer session. I would like to turn the conference back over to Martinatics for any closing remarks. I want to thank you again for joining our fourth quarter and four-year call today. I just want to again express my appreciation to our shareholders and also to our team. We're really, really proud of the effort in the year that we had in 2023 in the face of a very difficult banking environment, but I think we're all optimistic that as we see rates stabilized and the potential of rates declining, that will have the opportunity to have a very good year this year.

Michael Daley: We remain very, very focused on credit quality, but we're really pleased with the way our portfolio continues to perform. So thank you again, everybody, for joining us today and have a great The conference has now concluded. Thank you for attending today's presentation.

Operator: You may now.

Good morning, and welcome to the cross first Bancshares fourth quarter and full year 2023 earnings call.

All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After today's presentation there'll be an opportunity to ask questions. Please.

Please note this event is being recorded.

I would now like to turn the conference over to Mike Daly, Chief Accounting Officer, and head of Investor Relations of Cross first Bancshares. Please go ahead.

Good morning, and welcome to cross first Bancshares fourth quarter and full year 2023 earnings conference call before we begin please be aware. This call will include forward looking statements, including statements about our business plans expansion and growth opportunities.

Rent control initiatives sources of liquidity capital allocation strategies and plans and our future financial performance. These comments are based on our current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from these statements.

Our forward looking statements are as of the date of this call and we do not assume any obligation to update or revise them, except as required by law.

Statements made on this call should be considered together with the risk factors identified in today's earnings release, and our other filings with the SEC.

We may also refer to adjusted or non-GAAP financial measures a reconciliation of non-GAAP financial measures to GAAP financial measures can be found in our earnings release. These.

These non-GAAP financial measures are not meant to be a substitute for or superior to financial measures prepared in accordance with GAAP.

Our presentation will include prepared remarks from Mike Maddox, President and CEO of Cross first Bancshares.

Andy Raab President of Cross first bank and Ben Clouse CFO of cross first Bancshares.

At the conclusion of our prepared remarks, our operator linear will facilitate a Q&A session.

At this time I would like to turn the call over to Mike who will begin on slide seven of the presentation available on our website and filed with our earnings release Mike.

Thank you and good morning.

I appreciate everyone joining us today to discuss cross first fourth quarter and full year financial performance.

Our results continue to reflect our focus on growing profitably and responsibly as we scale the strategic investments we've made in dynamic markets and verticals best in class technologies and experienced bankers delivering extraordinary service.

We reported nearly $20 million and adjusted net income for the quarter and $73 million and adjusted net income for the year. This equates to a record full year adjusted earnings per share of $1.47.

Despite the challenging macro environment.

Cross first had an incredible year.

We closed on our Tucson acquisition.

Opened two prominent Texas locations.

I'll I'll start new digital banking platform and grew earnings by 6% on an adjusted basis for the year.

This was all in spite of a historic horizon rates that put significant pressure on margin.

As I reflect on the previous year.

I continue to be extremely proud of our team.

And the way they manage through the turmoil within our industry with a focus on serving our clients and continuing to build franchise value.

Unprecedented times like these create opportunities for us to show our clients what serving in extraordinary ways really means and proves that our core strategy of building trusted relationships has long term value.

In 2023 operating revenue was a record $246 million, an increase of $35 million or 16% for the year.

Total assets grew to a record $7 4 billion up $780 million or 12% from a year ago.

Our asset increase was driven by strong organic growth and deposit growth.

And we continue to see growth in fee income.

We grew tangible book value meaningfully this year by $75 million or 12% without a OCI and.

And $90 million or 15%, including the a O C I improvement.

One of the most important things is that our asset quality remains strong due to disciplined credit underwriting and our overall risk management framework.

We entered 2023 with a theme of optimization.

To build on our solid foundation and maximize the investments we made to benefit our clients and drive operating leverage to improve profitability for our shareholders.

Despite the challenging environment, our team remained focused and executed on our balance sheet optimization initiatives.

Drove operating leverage and grew our capital levels, all of which contribute to long term growth of shareholder value.

We also continued to show the health and strength of our loan portfolio and our view into the future reinforces my belief that our diversification, our prudent underwriting and our dynamic high growth Metro markets will continue to differentiate us.

This year will mark our fifth full year as a public company.

Over the past five years, we have operated through unprecedented times.

We've all lived through a pandemic supply chain challenges, the largest rising inflation and interest rates for years and a liquidity crisis.

Despite the unique operating environment, we have made dramatic improvement as a company.

Since our IPO in 2019, we have grown our balance sheet by $2 $5 billion or 50%.

Through 2023, including tremendous loan growth across our markets.

In that same period, we have made huge improvements in a number of metrics, including credit quality with M. P. As declining from point, 97% to three 4%.

Noninterest bearing deposits growing from 13% in the pre pandemic environment to 15% today.

Operating revenue growth of more than 60% adjusted net income more than doubling in our adjusted ROA, increasing from five 2% to 11, 3%.

We have worked hard to deploy the capital we raised during the IPO through organic balance sheet growth share buybacks and two successful acquisitions.

Our business model has also significantly expanded and become more diverse we have entered new high growth Metro markets, such as Fort worth Phoenix, and Denver, and we added and expanded industry verticals to include sponsor restaurant and SBA.

We plan to leverage opportunities to grow efficiently by prudently managing expenses.

We will continue to focus on optimizing operations, while also leveraging key technology and infrastructure investments.

A great example of this is our new collaboration with Nimbus.

Leading fintech company, providing cloud based banking and core services.

Leveraging nimbus as technology platform, we intend to build out a digital offering to expand our geographic reach to more and more small to medium size businesses.

I'm very proud of our team and very optimistic about our future.

We are much better positioned today than we were five years ago, we have a highly experienced team of bankers, who remain focused on our clients as we continue to evolve and scale our operations for the future, while enhancing franchise value and.

And now I'd like to turn the call over to our President of Cross first Bank Randy Rapp.

Thanks, Mike and good morning, everyone in.

In Q4, we continued to show good organic loan and deposit growth, while maintaining solid credit metrics.

I'm proud of the results. The cross first team delivered in 2023 against a number of challenging external factors and believe we have the bank well positioned for 2024.

In Q4, we reported total loan growth of 182 million, resulting in a growth rate of three 1% for the quarter.

Rose in the quarter was balanced primarily between C&I and commercial real estate.

We continue to focus on increasing loan yields and the average loan yield on new production in the quarter was a strong 843%.

For 2023 we reported total loan growth of 755 million or 14%, including the Tucson acquisition.

The organic loan growth rate for 2023 it was 12%.

The increase was primarily attributable to a $371 million increase in CRE outstandings of $315 million increase in C&I and owner occupied real estate balances and a $41 million increase in energy exposure loan growth for the year was broad based across our markets.

Lines of business led by the Dallas, Fort Worth, Kansas City, and Phoenix markets and specialty lines of business at.

At year end average C&I line utilization increased to 52%, which is above the historical usage percentage rate of 47%.

This increase is partially attributable to our focus on right sizing line commitments.

Portfolio churn decreased and is now below the historical average level, we expect portfolio churn to increase slightly over the next several quarters, primarily in the commercial real estate portfolio as the interest rate environment stabilizes, bringing more clarity to expect to get expected cap rates and permanent interest rates.

Our loan portfolio continues to remain balanced with 44% in commercial real estate and 44% in CNI and owner occupied real estate energy Outstandings were $214 million or three 5% of the portfolio.

On slide nine you can see the remains good diversity within each of those portfolios with the highest CRE property type industrial accounting for 21% of total CRE exposure and the largest in the industry segment in CNI now being restaurant at 11% of C&I exposure.

<unk> and three 7% of total loans.

As you will recall, we launched a restaurant finance lending vertical in 2022 that gained significant traction in 2023. This group is led by a veteran banker in this space and typical clients are experienced a mid sized multi unit quick serve operators.

In the CRE portfolio total office exposure is now 292 million relatively flat compared to 294 million at the end of Q3 and is 4.8% of total loans. The average office loan size remains 7 million and the largest is $25 million the average loan to.

Are you is 60% and the majority of the portfolio is suburban class a and B office.

Approximately half of the portfolio is set to mature in the next two years. However, 74% of these maturities are loans with floating rates, which had been repricing up through this rate cycle. We.

We feel confident in the commitment of our sponsors to these projects and do not anticipate upcoming maturities to be a catalyst event towards default.

As we have previously stated we have followed our strongest sponsors to other markets, but the majority of this exposure is in our footprint centered in North, Texas, Kansas City and Colorado.

Moving to credit highlights on slide 10 for Q4, we reported and nonperforming assets to total asset ratio of 34 basis points, which is down from the 50 basis points reported at the end of Q3.

The decrease was primarily due to the pass due CNI credit we discussed on the third quarter call that resolved in early October as expected. The remaining nonperforming loans are primarily C&I with one fully secured commercial real estate transaction Oh are rebalancing remain at zero.

Classified assets to capital plus combined reserves ended Q4 at 14.8%, which is relatively flat with the 14% at the end of Q3 and remains at an acceptable level.

At year in classified loan totals are comprised 65% in the C&I space, 22% and commercial real estate and 8% in owner occupied real estate classified loans in the energy portfolio are negligible.

For the quarter, we reported net charge offs of $1 9 million, resulting in a charge off rate of 12 basis points on an annualized basis and nine basis points on a trailing 12 month basis charge offs for the quarter were primarily attributable to one C&I credit.

Provision was slightly higher than Q3 due to loan growth and charge off activity during the quarter.

With a total ACL of $73 5 million, our current ACL to nonperforming loan ratio is 296%.

We remain highly focused on maintaining good credit metrics moving forward.

Turning to slide 11 for Q4 deposits increased 3% to $6 5 billion up 159 million from the previous quarter.

Noninterest bearing deposits decreased slightly during the quarter to 990 million and now represent 15% of total deposits.

For the year total deposits increased $840 million or 15%, including the Tucson acquisition.

Organic deposit growth was $675 million or 12%.

We were pleased with the overall performance of the company in 'twenty, two 'twenty three against a challenging environment and the 'twenty 'twenty four will continue to focus heavily on deposit generation deposit mix fee income growth with Treasury management and credit card products and loan growth on transactions with accretive yields and fees.

We plan to continue heightened monitoring of the loan portfolio looking for negative trends why adherence to our established underwriting guidelines will also remain a top priority. We were fortunate to be located in high growth high quality markets and believe we will continue to benefit from the investments we have made in talent new markets.

Enlighten two lines of business over the past several years I will now turn the call over to Ben to cover the financial results in more detail.

Thanks, Randy and good morning, everyone.

GAAP net income this quarter was $17 7 million or 35 cents per diluted share.

Adjusted net income was $19 6 million or 39 cents per diluted share.

Both GAAP and adjusted net income improved from the prior quarter with a 3% increase in net interest income and lower noninterest expenses, which more than offset a modest increase in provision expense.

On a full year basis, we achieved $66 7 million in earnings or $1 34 earnings per diluted share.

On an adjusted full year basis earnings were $72 8 million or $1 47 earnings per diluted share sure.

As Mike noted this is an all time high for us in E. P. S. On both a reported and adjusted basis as we focus on driving profitable growth.

Quarterly adjusted return on average assets was 1.07% and adjusted return on average equity was 11.9% both increasing nicely from Q3.

We realized good organic balance sheet growth in the quarter as Randy outlined and we are pleased to see profitability improving as our prior expense management actions and continued positive operating leverage were evident in the quarter's results.

Net interest income expanded this quarter with a balanced contribution from both higher yields and higher average earning assets.

The yield on earning assets increased 16 basis points to 6.63% due to loan repricing as well as higher yields on new loans and no interest accrual adjustments this quarter.

Better yields on our investment Securities portfolio also contributed.

Average, earning assets increased 134 million compared to the prior quarter with most of the net increase from loan growth.

Turning to page 12, our total cost of deposits was $3 seven 4% for the quarter, increasing 15 basis points. Our total non maturity deposit beta against the entire rate cycle through the fourth quarter remained at 57 in line with our expectations.

And the pace of increase in our cost of deposits moderated in the fourth quarter.

Our deposit base remained consistent with the prior quarter in terms of diversification and composition.

Our loan to deposit ratio remained at 94%.

We also decreased borrowings during the quarter and kept wholesale funding flat as a percentage of assets.

Fully tax equivalent net interest margin expanded four basis points compared to the prior quarter to $3 two 3%.

Our core NIM adjusting out noise from accrual impacts has remained stable in the low three twenties since the second quarter and we continue to believe this is the bottom of the trough.

Our balance sheet is only slightly sensitive through any potential rate moves in 2024, especially through the less than 100 basis point ramp scenarios up and down as 69% of our earning assets reprice or mature in the next 12 months.

We expect margin to be in a range of 320 to 325 for 'twenty 'twenty four with the most pressure earlier in the year and some potential for expansion under our assumption of two rate cuts impacting the last half of 'twenty 'twenty four.

Given this backdrop, our expectation for loan and deposit growth in 'twenty 'twenty four is in a range of 8% to 10%.

Noninterest income was $4 5 million for the quarter.

Including the bond loss of 1.1 million the remaining small decrease compared to Q3 was due to a decline in mortgage activity and lower service charges as well as some tax incentives and other gains in the third quarter that did not reoccur.

We did continue to see growth in our credit card program.

On a year over year basis, excluding the bond loss, we grew noninterest income by 26% or $4 5 million with contributions from Treasury credit card and SBA loan sales being the largest drivers.

These will be continued focus areas of growth in 'twenty 'twenty four.

Moving to slide 13, adjusted noninterest expense decreased $1 3 million compared to the prior quarter due primarily to lower compensation we.

We remain highly focused on our efforts to drive additional efficiencies and gain operating leverage and we will continue our focus on cost control in 'twenty 'twenty four.

Our adjusted efficiency ratio improved 3% to 52% this quarter, our head count declined in the quarter as we completed our integration efforts for the Tucson acquisition.

Notably, we drove noninterest expenses down to 192% of average assets, which is now below the level prior to our two acquisitions.

We expect noninterest expenses to be in a range of 36 to 37 million per quarter in 'twenty 'twenty four with compensation rising in Q1 due to the reset of taxes benefits and incentives as well as merit increases.

Our tax rate was 21% for the quarter and we expect the tax rate to remain in a range of 20% to 22% in 'twenty 'twenty four.

On slide 14, our liquidity remains strong consistent with the prior quarter at 34% of assets, we have significant liquidity of approximately $2 5 billion from on and off balance sheet sources.

We have continued to increase the liquidity in our investment portfolio with an ongoing moderate shift in the ratio of munis that we were able to accelerate this quarter with a modest restructuring of the portfolio.

We expect the transaction to be accretive in 'twenty 'twenty, four and result in less than a one year earn back.

It also improved our risk based capital ratio due to deployment of the proceeds into lower risk weighted assets.

We continue to evaluate all of our options to improve the yields on our earning assets.

We continue to advance our goal of building capital this quarter as we saw moderate asset growth strong earnings and a continued decline in unfunded commitments.

We achieved our goal of reaching an 11% total risk based capital ratio ending the year at 11, 2%.

We also increased our CET one ratio to 10%.

We intend to continue to focus on building capital from here balanced with our focus on shareholder return.

In 2024 with continued strong earnings growth, we will evaluate strategic return of capital to shareholders, which we believe can be achieved while still building capital.

In summary, 2023 was a very successful year for cross first we continued to increase profitability and grew capital all while positioning our balance sheet for continued success in the future.

Operator, we are now ready to begin the question and answer portion of the call.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

Please limit yourself to one question and a single follow up if youre using a speakerphone. Please pick up your handset before pressing the keys.

Australia. Your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Yeah.

Our first question comes from Brad Gailey with.

Please go ahead.

Yeah, It's Brady good morning, guys.

Barry.

Maybe just to start with the net interest margin guidance I think I heard Ben talk about maybe the margin being under pressure early in 2024, and then see an expansion.

You know towards the latter part of 2024 should we expect the NIM to contract a little bit from a for Q level into early 'twenty four or do you think you know the <unk> name as the bottom.

Brady, we think it'll be pretty flat in the beginning of the year and as I said with some potential for a little bit of expansion with a couple rate cuts towards the end you know we like most others are assuming a June September and December caused the December.

You know not really having much impact on on results.

Okay.

And Ben I think I heard you say at this point.

Guys are close to a rate neutral so if we see more or less rate cuts will that impact this NIM guidance by much.

Speaker Change: Well more cuts and faster cuts would would be an upside for US you can see on the sensitivity graph there we have a little bit of of liability sensitivity.

The other you know component going to other components going into that of course are our deposit mix has a huge impact on our NIM and as Randy said you know that's been pretty stable in the quarter. We also have a couple of very modestly sized on Bal.

That sheet derivatives, one on the deposit side, one on the loan side.

On the deposit side is in the money the loan side is out of the money its pretty long term focused it'll provide a little bit of pressure in the beginning of the year as well.

Alright, and then finally for me just.

On capital you get to the targets that you guys laid out.

You didn't buyback any stock in 2023, it sounds like you're maybe opening the door for buybacks. This year in 2024 and of the stock is.

Sitting right at one times tangible book value. So should should we expect some buybacks this year.

Yeah, Brady I think we'll evaluate them you know our ability to continue to return money to our shareholders.

Buybacks are certainly an option, we still have plenty of authorization there to execute on and.

As you know we we believe our earnings are stable and are going to continue to grow we do want to continue to build our capital levels from here, but we think we have room to do that as well as returns.

Returning some money to our shareholders.

Alright, great. Thanks, guys.

Thanks, Brian.

The next question is from Michael Rose.

James Please go ahead.

Hey, Good morning, guys, just a couple follow up questions on the margin first.

The.

If I look at the down 100 basis points. It went from about 40 bps to about 160 bps Q on Q, what what strategies do you guys have in place.

There may be increase that if youre planning to and just what actions should we think about you know as we think.

As we contemplate you know at least a couple of cuts and your guidance as we think about the year. Thanks.

Yeah. Michael This is Mike I might just you know in.

In a down rate scenario, we feel really good about our balance sheet. We have we have a really good percentage of our deposits that are indexed that'll move quickly and we will aggressively cut deposit rates are at a re quicker than the 57.

<unk> been talked about on the way up and you know as you know in our modeling we model the same beta on the way up is way down and I, just I think our balance sheet will react a little more favorably in a down rate environment. So.

You know Ben is is taking a conservative approach I mean, I I feel good about our margin.

I feel really good about the rates at which we're putting new loans on the books and.

Our teams are doing a good job with our our our deposit growth so.

We're hopeful that we've seen the bottom of margin and we may start to see a little bit of expansion yeah.

Michael I might just add a couple of things Mike is correct. We're about 25% index, so that will absolutely hell.

Help us significantly on on the way down we continue to get really good pricing on on new loans again in our targeted range of 8% to 10% balance sheet growth. We believe the pricing on that will continue to be good for the quarter, you know a new low.

Operator: Good morning and welcome to CrossFirst Bankshare's fourth quarter and full year 2023 earnings. All participants will gain a listen-only mode.

Owns we remain in a 8485 a range generally on the portfolio. So that that will help as well and our mix continues to be really good we remain right around 70, 30 variable fixed, but we skew a little bit more variable.

Operator: If you need assistance, please signal a conference specialist by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Mike Bailey, Chief Accounting Officer and Head of Investor Relations. Cross First Bank, Please go ahead. Good morning and welcome to Cross First Bank Shares' fourth quarter and full year 2023 earnings conference call. Before we begin, please be aware this call will include forward-looking statements, including statements about our business plans, expansion and growth opportunities, expense control initiatives, sources of liquidity, capital allocation strategies and plans, and our future financial performance. These comments are based on our current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from these statements.

Will on new lending that we are doing which are which helps us as well.

Ben brings up a good point I mean growth growth is really important and if we can grow 8% to 10%, we're putting a newly priced assets on the books. We believe we can keep our funding costs flat.

You know that ought to help us expand margin this year.

Very helpful and just one other question Ben I think you guys had about $10 million in purchase accounting accretion remaining at the end of the third quarter and I think that the accretion for the quarter in the third quarter was 650000 can you just give us an update on what that was for the fourth quarter and what the scheduled accretion at leases.

Michael Edward Rose: Our forward-looking statements are as of the date of this call, and we do not assume any obligation to update or revise them, except as required by law. Statements made on this call should be considered together with the risk factors identified in today's earnings release and our other filings with the SEC. We may also refer to adjusted or non-GAAP financial measures. A reconciliation of non-GAAP financial measures to GAAP financial measures can be found in our earnings report. These non-GAAP financial measures are not meant to be a substitute for or superior to financial measures prepared in accordance with GAAP.

For 2024.

Sure Michael Youre, correct about 650 last quarter about $4 50, this quarter with a remaining balance of $9 4 million.

That generally then is spread over a three to four year period is our current assumption and of course influenced by any accelerated payoffs or refinancing that might occur in that in that time period.

Michael Edward Rose: Our presentation will include prepared remarks from Mike Maddox, President and CEO of Cross First Bank Shares, Randy Rapp, President of Cross First Bank, and Ben Clout, CFO of Cross First Bank Shares. At the conclusion of our prepared remarks, our operator, Linnea, will facilitate a Q&A session. At this time, I would like to turn the call over to Mike, who will begin on slide 7 of the presentation available on our website and filed with our earnings. Mike, Thank you, and good morning.

Okay helpful. And then maybe just finally for me you guys had a step down in service charges. This quarter that was maybe a little bit greater than I was expecting just given the trajectory over the past.

Three or four quarters anything in there of note or any changes you guys made and.

Any sort of expectations for for fees as we think about 'twenty four thanks.

Yes, Michael that was really it.

Michael Edward Rose: I appreciate everyone joining us today to discuss CrossFirst's fourth quarter and full year financial performance. Our results continue to reflect our focus on growing profitably and responsibly as we scale the strategic investments we've made in dynamic markets and verticals, best-in-class technology, and experienced bankers delivering extraordinary service. We reported nearly $20 million in adjusted net income for the quarter and $73 million in adjusted net income for the year. This equates to a record full-year adjusted earnings per share of $1.47. It's quite a challenging macro environment. Cross first had an incredible year.

[noise] anomaly not anything related to the to the base rate and I'll, let maybe Randy expand on it but we intend for to continue to drive some significant growth in fee income in 2024, as we take a look at pricing in some of the things Randy's team is.

Doing in the sales area.

Yeah, Hey, Michael It's Randy I'm. It you know it's been said, we do expect fee income to increase in in 'twenty. Four you know over the last 12.

And we feel like there is a real opportunity to grow our treasury fees and also our credit card income.

Michael Edward Rose: We closed on our Tucson acquisition, opened two prominent Texas locations, launched our new digital banking platform, and grew earnings by 6% on an adjusted basis for the year. This was all in spite of a historic rise in rates that put significant pressure on margins. If I reflect on the previous year, I continue to be extremely proud of our team and the way they managed through the turmoil within our industry with a focus on serving our clients and continuing to build franchise value. Unprecedented times like these create opportunities for us to show our clients what serving in extraordinary ways really means and prove that our core strategy of building trusted relationships has long-term value.

And we did push through a price increase on our treasury products are at the beginning of this year was the first one we had made in several years and so we think the combination of the increase in price and increase in volume will improve those fees are in 'twenty four.

Great. Thanks for taking my questions guys.

Thanks for talking about.

Again, if you would like to ask a question you May Press Star then one.

Next question is from Thomas Wendler of Stephens. Please go ahead.

Hey, good morning, everyone.

Good morning.

Most of my questions have been answered, but I just wanted to go back to capital for a second we saw 30 Bips increase in total risk based capital and <unk> 23, and as you start thinking about buybacks can you give us an idea of the quarterly increase you're kind of expecting in your capital moving forward.

Michael Edward Rose: In 2023, operating revenue was a record $246 million, an increase of $35 million, or 16% for the year. Total assets grew to a record $7.4 billion, up $780 million, or 12% from a year ago. Our asset increase was driven by strong organic growth and deposit growth, and we continue to see growth and earn income. We grew tangible book value meaningfully this year by $75 million, or 12% without AOCI, and $90 million, or 15% including the AOCI improvement. One of the most important things is that our asset quality remains strong due to disciplined credit underwriting and our overall risk management framework.

Sure Thomas a as we said you know we intend to continue building capital, we'd like to see total risk base, you know move from its current level closer to 11 and a half we want to continue to build C. E T. One a little bit beyond its current level.

Of of 10 as Mike mentioned, you know next year, we think with.

This year 2024 with continued stability and earnings are we want to make sure. We're balancing our capital build with shareholder total shareholder return, we're not going to do that in a way that compromises our ability to continue building that capital toward those targets, but we think.

Michael Edward Rose: We enter 2023 with a theme of optimization, to build on our solid foundation and maximize the investments we made to benefit our clients and drive operating leverage to improve profitability for our shareholders. Despite the challenging environment, our team remained focused and executed on our balance sheet optimization initiatives, drove operating leverage, and grew our capital level, all of which contributed to long-term growth of shareholder value. We also continue to show the health and strength of our loan portfolio, and our view into the future reinforces my belief that our diversification, our prudent underwriting, and our dynamic, high-growth metro markets will continue to differentiate us. This year will mark our fifth full year as a public company. Over the past five years, we've operated through unprecedented times.

There's a there's a balance there.

Alright, I appreciate the color.

Thank you.

Yeah.

I am showing no other questions at this time and this will conclude our question and answer session I would like to turn the conference back over to Mike Madden for any closing remarks.

Well I want to thank you again for joining our fourth quarter and full year call. Today I just want to again express my appreciation to our shareholders and also to our team are really really proud of the effort in the year that we had in 2023 and in the face of.

Very difficult banking environment, but I think we're all optimistic that as we see rates stabilize and the potential of rates declining that will have the opportunity to have a very good year. This year and we remain very very focused on credit quality, but we're really pleased with the way our.

Michael Edward Rose: We've all lived through a pandemic, supply chain challenges, the largest rise in inflation and interest rates for years, and a liquidity crisis. Despite the unique operating environment, we have made dramatic improvements as a company. Since our IPO in 2019, we have grown our balance sheet by $2.5 billion, or 50%, through 2023, including tremendous loan growth across our market. In that same period, we have made huge improvements in a number of metrics, including credit quality, with MPAs declining from 0.97% to 0.34%. Non-interest-bearing deposits growing from 13% in the pre-pandemic environment to 15% today, operating revenue growth of more than 60%, adjusted net income more than doubling, and our adjusted ROE increasing from 5.2% to 11.3%. We have worked hard to deploy the capital we raised during the IPO through organic balance sheet growth, share buybacks, and two successful acquisitions. Our business model has also significantly expanded and become more diverse. We have entered new high-growth metro markets such as Fort Worth, Phoenix, and Denver, and we added and expanded industry verticals to include Sponsor, Restaurant, and SBA.

It continues to perform so.

Thank you again, everybody for joining us today and have a great day.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.

Michael Edward Rose: We plan to leverage opportunities to grow efficiently by prudently managing expenses. We will continue to focus on optimizing operations, while also leveraging key technology and infrastructure investments. A great example of this is our new collaboration with Nimbus, a leading fintech company providing cloud-based banking and core services. Leveraging Nimbus's technology platform, we intend to build out a digital offering to expand our geographic reach to more and more small-to-medium-sized businesses

Randy Rapp: I am very proud of our team and very optimistic about our future. We are much better positioned today than we were five years ago. We have a highly experienced team of bankers who remain focused on our clients as we continue to evolve and scale our operations for the future while enhancing franchise value, and now I'd like to turn the call over to our president of Cross First Bank, Randy Rapp. Thanks, Mike, and good morning, everyone.

Randy Rapp: In Q4, we continued to show good organic loan and deposit growth while maintaining solid credit metrics. I'm proud of the results the CrossFirst team delivered in 2023 against a number of challenging external factors and believe we have the bank well positioned for 2024. In Q4, we reported total loan growth of $182 million, resulting in a growth rate of 3.1% for the quarter. Growth in the quarter was balanced primarily between C&I and commercial real estate. We continue to focus on increasing loan yields, and the average loan yield on new production in the quarter was a strong 8.43%. For 2023, we reported total loan growth of $755 million, or 14%, including the Tucson acquisition. The organic loan growth rate for 2023 was 12%.

Randy Rapp: The increase was primarily attributable to a $371 million increase in CRE outstandings, a $315 million increase in C&I and owner-occupied real estate balances, and a $41 million increase in energy exposure. Loan growth for the year was broad-based across our markets and lines of business, led by the Dallas-Fort Worth, Kansas City, and Phoenix markets and specialty lines of business. At year end, average CNI line utilization increased to 52%, which is above the historical usage rate of 47%.

Randy Rapp: This increase is partially attributable to our focus on right-sizing the line commitment; portfolio churn decreased and is now below the historical average level. We expect portfolio churn to increase slightly over the next several quarters, primarily in the commercial real estate portfolio, as the interest rate environment stabilizes, bringing more clarity to expected cap rates and permanent interest rates. Our loan portfolio continues to remain balanced, with 44% in commercial real estate and 44% in C&I and owner-occupied real estate. Energy outstandings were $214 million, or 3.5% of the portfolio.

Randy Rapp: On slide 9, you can see that there remains good diversity within each of those portfolios, with the higher CRE property type, industrial, accounting for 21% of total CRE exposure, and the largest industry segment in C&I, now being restaurants, at 11% of C&I exposure and 3.7% of total loans. As you will recall, we launched a restaurant finance lending vertical in 2022 that gained significant traction in 2023. This group is led by a veteran banker in the space, and typical clients are experienced mid-sized multi-unit quick service operators. In the CRE portfolio, total office exposure is now $292 million, relatively flat compared to $294 million at the end of Q3, and is 4.8% of total loans. The average office loan size remains $7 million, and the largest is $25 million.

Randy Rapp: The average loan to value is 60%, and the majority of the portfolio is Suburban Class A and B options. Approximately half of the portfolio is set to mature in the next two years, however 74% of these maturities are loans with floating rates, which have been repricing up through this rate cycle. We feel confident in the commitment of our sponsors to these projects and do not anticipate upcoming maturities to be a catalyst event towards default. As we have previously stated, we have followed our strongest sponsors to other markets, but the majority of this exposure is in our footprint centered in North Texas, Kansas City, and Colorado.

Randy Rapp: Moving to credit highlights on slide 10, for Q4, we reported a non-performing asset to total asset ratio of 34 basis points, which is down from the 50 basis points reported at the end of Q3. The decrease was primarily due to the past due C&I credit we discussed on the third quarter call that was resolved in early October as expected. The remaining non-performing loans are primarily C&I with one fully secured commercial real estate transaction. ORV balances remain at zero.

Randy Rapp: Classified assets to capital plus combined reserves ended Q4 at 14.8%, which is relatively flat with the 14% at the end of Q3 and remains at an acceptable level. At year-end, classified loan totals were comprised 65% in the CNI space, 22% in commercial real estate, and 8% in owner-occupied real estate. Classified loans in the energy portfolio are negligible.

Randy Rapp: For the quarter, we reported net charge-offs of 1.9 million, resulting in a charge-off rate of 12 basis points on an annualized basis and nine basis points on a trailing 12-month basis, which are jobs for the quarter were primarily attributable to one CMI credit. At quarter end, we reported an allowance for credit loss to total loan ratio of 1.2%, which is flat compared to the end of Q3. The combined allowance for credit loss and reserve for unfunded commitments totaled 1.3%, which is also consistent with the prior quarter. Provision was slightly higher than Q3 due to loan growth and charge-off activity during the quarter. With a total ACL of $73.5 million, our current ACL to non-performing loan ratio is 296%.

Randy Rapp: We remain highly focused on maintaining good credit metrics moving forward. Turning to slide 11, for Q4, deposits increased 3% to $6.5 billion, up $159 million from the previous quarter; non-interest-bearing deposits decreased slightly during the quarter to $990 million and now represent 15% of total deposits. For the year, total deposits increased $840 million, or 15%, including this Tucson acquisition. Organic deposit growth was $675 million, or 12 percent.

Randy Rapp: We are pleased with the overall performance of the company in 2023 against a challenging environment, and in 2024, we'll continue to focus heavily on deposit generation, deposit mix, fee income growth with treasury management and credit card products, and loan growth on transactions with accretive yields and fees. We plan to continue heightened monitoring of the loan portfolio looking for negative trends, while adherence to our established underwriting guidelines will also remain a top priority. We are fortunate to be located in high-growth, high-quality markets and believe we will continue to benefit from the investments we have made in talent, new markets, and lines of business over the past several years. I will now turn the call over to Ben to cover the financial results in more detail. Thanks, Randy, and good morning, everyone.

Ben Clout: Gap net income this quarter was $17.7 million, or $0.35 per diluted share. Adjusted net income was $19.6 million, or $0.39 per diluted share. Both gap and adjusted net income improved from the prior quarter with a 3% increase in net interest income and lower non-interest expenses, which more than offset a modest increase in provision expense. On a per year basis, we achieved $66.7 million in earnings, or $1.34 earnings per diluted share. On an adjusted full-year basis, earnings were $72.8 million, or $1.47 earnings per diluted share.

Ben Clout: As Mike noted, this is an all-time high for us in EPS on both a reported and adjusted basis as we focus on driving profitable growth. Quarterly Adjusted Return on Average Assets was 1.07%, and Adjusted Return on Average Equity was 11.9%, both increasing nicely from Q3. We realized good organic balance sheet growth in the quarter, as Randy outlined, and we are pleased to see profitability improving as our prior expense management actions and continued positive operating leverage were evident in the quarter's results. Net interest income expanded this quarter with a balanced contribution from both higher yields and higher average earning assets.

Ben Clout: The yield on earning assets increased 16 basis points to 6.63% due to loan repricing as well as higher yields on new loans and no interest accrual adjustments this quarter. Better yields on our investment securities portfolio also contributed. Average earning assets increased $134 million compared to the prior quarter, with most of the net increase from loan growth.

Ben Clout: Turning to page 12, our total cost of deposits was 3.74% for the quarter, increasing 15 basis points. Our total non-maturity deposit beta against the entire rate cycle through the fourth quarter remained at 57, in line with our expectations, and the pace of increase in our cost of deposits moderated in the fourth quarter. Our deposit base remained consistent with the prior quarter in terms of diversification and composition. Our loan-to-deposit ratio remained at 94%.

Ben Clout: We also decreased borrowings during the quarter and kept wholesale funding flat as a percentage of assets. The fully tax-equivalent net interest margin expanded four basis points compared to the prior quarter to 3.23%. Our core NIM, adjusting out noise from accrual impacts, has remained stable in the low 320s since the second quarter, and we continue to believe this is the bottom of the trough. Our balance sheet is only slightly sensitive to any potential rate moves in 2024, especially through the less than 100 basis point ramp scenarios up and down as 69% of our earning assets reprice or mature in the next 12 months. We expect the margin to be in a range of 320 to 325 for 2024, with the most pressure on the margin earlier in the year and some potential for expansion under our assumption of two rate cuts impacting the last half of 2024. Given this backdrop, our expectation for loan and deposit growth in 2024 is in a range of 8 to 10 percent. Non-interest income was $4.5 million for the quarter, including a bond loss of $1.1 million.

Ben Clout: The remaining small decrease compared to Q3 was due to a decline in mortgage activity and lower service charges, as well as some tax incentives and other gains in the third quarter that did not reoccur. However, we did continue to see growth in our credit card program. On a year-over-year basis, excluding the bond loss, we grew non-interest income by 26%, or $4.5 million, with contributions from Treasury, credit card, and SBA loan sales being the largest drivers. These will be continued focus areas of growth in 2024. Moving to slide 13, adjusted non-interest expense decreased $1.3 million compared to the prior quarter due primarily to lower compensation.

Ben Clout: We remain highly focused on our efforts to drive additional efficiencies and gain operating leverage, and we will continue our focus on cost control in 2024. Our adjusted efficiency ratio improved 3% to 52% this quarter. Additionally, our headcount declined in the quarter after we completed our integration efforts for the Tucson acquisition.

Ben Clout: Notably, we drove non-interest expenses down to 1.92% of average assets, which is now below the level prior to our two acquisitions. We expect non-interest expenses to be in a range of $36 to $37 million per quarter in 2024, with compensation rising in Q1 due to the reset of taxes, benefits, and incentives, as well as merit increases. Our tax rate was 21% for the quarter, and we expect the tax rate to remain in the range of 20 to 22% in 2024.

Ben Clout: On slide 14, our liquidity remains strong, consistent with the prior quarter at 34% of assets. We have significant liquidity of approximately $2.5 billion from on and off balance sheet sources. We have continued to increase the liquidity in our investment portfolio with an ongoing moderate shift in the ratio of munis that we were able to accelerate this quarter with a modest restructuring of the portfolio. We expect the transaction to be accretive in 2024 and result in less than a one-year earned back. It also improved our risk-based capital ratio due to the deployment of the proceeds into lower risk-weighted assets.

Ben Clout: We continue to evaluate all of our options to improve the yields on our earning assets. We continue to advance our goal of building capital this quarter, as we saw moderate asset growth, strong earnings, and a continued decline in unfunded commitments. We achieved our goal of reaching an 11% total risk-based capital ratio, ending the year at 11.2%.

Ben Clout: We also increased our CET1 ratio to 10%. We intend to continue to focus on building capital from here, balanced with our focus on shareholder return. In 2024, with continued strong earnings growth, we will evaluate a strategic return of capital to shareholders, which we believe can be achieved while still building capital. In summary, 2023 was a very successful year for CrossFirst.

Operator: We continued to increase profitability and grow capital, all while positioning our balance sheet for continued success in the future. Operator, we are now ready to begin the question and answer portion of the call. We will now begin the question and answer session. To ask a question, you may press star, then 1.

Operator: Please limit yourself to one question. Follow us on Twitter, Facebook, and Instagram. If you're using the speakerphone, and Hanseth B. Kirkpatrick.

Operator: Press start. At this time, we will pause momentarily to assemble our raw. Our first question comes from Brad. Go ahead. Yeah, it's Brady.

Brady Gailey: Good morning, guys. Good morning, Brady. Maybe just to start with the net interest margin guidance, I think I heard Ben talk about maybe the margin being under pressure early in 2024 and then seeing expansion towards the latter part of 2024. Should we expect the NIM to contract a little bit from the 4Q level into early 2024? Or do you think the 4Q NIM is the bottom? Brady, we think it'll be pretty flat at the beginning of the year.

Ben Clout: And as I said, with some potential for a little bit of expansion with a couple rate cuts toward the end, you know, we, like most others, are assuming a June, September, and December cut, with the December cut, you know, not really having much impact on results. Okay, and Ben, I think I heard you say at this point you guys are close to rate neutral. So if we see more or less rate cuts, will that impact this NIM guidance by much? Well, more cuts and faster cuts would be an upside for us. As you can see on the sensitivity graph there, we have a little bit of liability sensitivity.

Ben Clout: The other component going into that, of course, is our deposit mix has a huge impact on our NIM, and as Randy said, you know, that's been pretty stable in the quarter. We also have a couple of very modestly sized on-balance sheet derivatives, one on the deposit side, one on the loan side. The deposit side is in the money; the loan side is out of the money.

Ben Clout: It's pretty long-term focused. It'll provide a little bit of pressure in the beginning of the year as well, for me, just, you know, on capital. You got to the targets that you guys laid out. You didn't buy back any stock in 2023. It sounds like you're maybe opening the door for buybacks this year. In 2024, another stock is sitting right at one times tangible book value.

Brady Gailey: So should we expect some buybacks this year? Yeah, Brady, I think we'll evaluate our ability to continue to return some money to our shareholders through VAT, so it's certainly an option we still have plenty of authorization there to execute on. And, you know, we believe our earnings are stable and are going to continue to grow. We do want to continue to build our capital levels from here, but we think we have room to do that as well as return some money to our shareholders. All right, great. Thanks, guys. Thanks, Brady. The next question is from Michael Rose of Go ahead. Hey, good morning guys. Just a couple follow-up questions on the margin first. At the end of the day, if I look at the down 100 base points, it went from about 40 to 160 bits, queue on queue.

Michael Edward Rose: What strategies do you guys have in place? Who may be increased if you're planning to, what actions should we think about, you know, as we contemplate, you know, at least a couple cuts in your guidance for the year? You know Michael, this is Mike. I might just, you know, in a down rate scenario, we feel really good about our balance sheet. We have a really good percentage of our deposits that are indexed that will move quickly, and we will aggressively cut deposit rates at a rate quicker than the 57 beta Ben talked about on the way up, and as you know, in our modeling, we model the same beta on the way up as the way down, and Ben is taking a conservative approach.

Michael Edward Rose: I feel good about our margin. I feel really good about the rates at which we're putting new loans on the books. And our teams are doing a good job with our deposit growth. So we're hopeful that we've seen the bottom of margin, and we may start to see a little bit of expansion. Michael, I might just add a couple things.

Ben Clout: We're about 25% indexed, so that will absolutely... help us significantly on the way down. We continue to get really good pricing on new loans, again, in our targeted range of 8% to 10% balance sheet growth. We believe the pricing on that will continue to be good. For the quarter, you know, on new loans, we remain in the 8.4, 8.5 range generally on the portfolio, so that will help as well. And our mix continues to be really good.

Ben Clout: We remain right around 70, 30 variable fixed, but we skew a little bit more variable on new lending that we are doing, which helps us as well. Ben brings up a good point; growth is really important, and if we can grow 8-10%, we're putting newly priced assets on the books; we believe we can keep our funding costs flat. That ought to help us expand margin this year, which is very helpful. And just one other question, Ben. Thank you guys out of five, and I'm free from remaining at the end of the day.

Michael Edward Rose: The third quarter, and I think the accretion for the quarter in the third quarter was $650,000. Can you just give us an update on what that was for the fourth quarter and what the scheduled accretion, at least, is for 2024? Sure Michael, you were correct about $650 last quarter and about $450 this quarter with a remaining balance of $9.4 million. That is generally then spread over a 3-4 year period, our current assumption and, of course, influenced by any accelerated payoffs or refinancing that might occur in that time period. Okay, that was helpful.

Michael Edward Rose: And then maybe just finally for me, you guys had a step down in service charges this quarter, maybe a little bit greater than I was expecting based on the trajectory of the past three or four quarters. Anything in there of note, any changes you guys made? You know, any sort of expectations for fees as we think about 24. Yeah, Michael, that was really an anomaly, not anything related to the base rate and all that.

Randy Rapp: Maybe Randy can expand on it, but we intend to continue to drive some significant growth in fee income in 2024. As we take a look at pricing and some of the things Randy's team is doing in the sales area. Yeah, Michael is the one.

Randy Rapp: It has been said that we do expect the income to increase in 24. And over the last, you know, 12, 18 months, we've made significant investments, not only in the technology process but also in talent. And we feel like there is a real opportunity to grow our Treasury fees and also our credit card income. And we did push through a price increase on our Treasury products at the beginning of this year, the first one we've made in several years. And so we think the combination of the increase in price and increase in volume will improve those fees in 24.

Michael Edward Rose: Great, thanks for taking my question. Thanks a lot, you guys. Again, if you would like to ask a question... The next question is from Thomas Wendler. Go ahead. Hey, good morning everyone. Good morning.

Thomas Wendler: Most of my questions have been answered, but I just wanted to go back to capital for a second. We saw a 30-fifth increase in total risk-based capital in 4Q23, and as you start thinking about buybacks, can you give us an idea of the quarterly increase you're kind of expecting in your capital moving forward? Sure, Thomas.

Ben Clout: As we said, we intend to continue building capital. We'd like to see the total risk base move from its current level closer to 11.5. We want to continue to build CET-1 a little bit beyond its current level of 10. As Mike mentioned, next year we think with this year, 2024, with continued stability in earnings, we want to make sure we're balancing our capital build with total shareholder return. We're not going to do that in a way that compromises our ability to continue building that capital toward those targets, but we think there's a balance there. Alright, I appreciate the cover. Thank you. I am showing no other questions at this time, and this will conclude our question.

Operator: I would like to turn the conference back over to Mike Maddox for any closing remarks. I want to thank you again for joining our fourth quarter and four-year call today. I just want to again express my appreciation to our shareholders and also to our team. Really, really proud of the effort and the year that we had in 2023 in the face of a very difficult banking environment. But I think we're all optimistic that as we see rates stabilize and the potential for rates declining, we'll have the opportunity to have a very good year this year. We remain very, very focused on credit quality, but we're really pleased with the way our portfolio continues to perform.

Michael Edward Rose: So, thank you again everybody for joining us today and have a great day. The conference is now concluded. Thank you for attending. You may now go.