Crossroads Systems Reports Fiscal Fourth Quarter and Fiscal Year 2019 Financial Results

DALLAS, Dec. 12, 2019 /PRNewswire/ -- Crossroads Systems, Inc. CRSS, a holding company focused on investing in businesses that promote economic vitality and community development, reported financial results for its fiscal fourth quarter and the year ended October 31, 2019.

The overall performance for the quarter and for fiscal 2019 was consistent with expectations. Portfolio growth remained in line with historical growth. The results of additional homes in inventory converting to additional sales volume has begun and to date, we are pleased with the sales volumes experience.

Fiscal Q4 2019 Financial Highlights

• Total property sales income was $6.6 million for the quarter compared to $4.1 million for the comparative period of 2018
• Total interest income was $3.2 million up from $2.7 million from the comparative period of 2018
• Operating income of $1.0 million, up from $476,000 for the comparative period of 2018
• Cash EPS (operating income less income to non controlling interests) increased to $0.14 from $0.06 for the comparative period of 2018
• Held 128 properties in inventory compared to 79 at the same time in 2018
• Added $5.6 million in new single-family mortgages during the quarter
• Book Value of $51.0 million or $8.54 per share
• Cash balance of $1.7 million

Fiscal 2019 Financial Highlights

• Total property sales income was $25.3 million for the fiscal year compared to $19.3 million for the comparative period of 2018
• Total interest income was $12 million up from $8.9 million from the comparative period of 2018
• Operating income of $4.4 million, up from $2.6 million for the comparative period of 2018
• Cash EPS (operating income less income to non controlling interests) increased to $0.63 from $0.36 for the comparative period of 2018
• The company booked $688,000 of state and federal income tax expense for the fiscal year which will be offset against the deferred tax asset. In addition, the company recorded a tax valuation allowance of $1.3 million related to unusable tax carryforward losses. This non-cash valuation allowance will swing year over year as we grow earnings and are able to utilize additional losses.

Eric A. Donnelly, Chief Executive Officer at Crossroads Systems, said, "With an almost 75% increase to EPS and 69% increase to operating income, we are excited about the momentum going into the recent announcement of our bank acquisition and what that means for our shareholders and customers later this year and beyond. We will continue to be prudent with inventory management and managing our liability sensitive balance sheet. The Texas economy continues to perform at a high level and interest rate outlook remains favorable for responsible scaling of our company and continued social impact throughout our markets."

About Crossroads Systems

Crossroads Systems, Inc. CRSS, is a holding company focused on investing in businesses that promote economic vitality and community development. Crossroads' subsidiary, Capital Plus Financial (CPF), is a certified Community Development Financial Institution (CDFI) and certified B- Corp which supports Hispanic homeownership with a long term, fixed rate single family mortgage product.

Important Cautions Regarding Forward-Looking Statements

This press release includes forward-looking statements that relate to the business and expected future events or future performance of Crossroads Systems, Inc. and Capital Plus Financial and involve known and unknown risks, uncertainties and other factors that may cause its actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, "believe," "expect," "anticipate," "estimate," "intend," "plan," "targets," "likely," "will," "would," "could," and similar expressions or phrases identify forward-looking statements. Forward- looking statements include, but are not limited to, statements about Crossroads Systems' and Capital Plus Financial's ability to implement their business strategy, and their ability to achieve or maintain profitability. The future performance of Crossroads Systems and Capital Plus Financial may be adversely affected by the following risks and uncertainties: economic changes affecting homeownership in the geographies where Capital Plus Financial conducts business, developments in lending markets that may not align with Capital Plus Financial's expectations and that may affect Capital Plus Financial's plans to grow its portfolio, variations in quarterly results, developments in litigation to which we may be a party, technological change in the industry, future capital requirements, regulatory actions or delays and other factors that may cause actual results to be materially different from those described or anticipated by these forward-looking statements. For a more detailed discussion of these factors and risks, investors should review Crossroads Systems' annual and quarterly reports. Forward-looking statements in this press release are based on management's beliefs and opinions at the time the statements are made. All forward-looking statements are qualified in their entirety by this cautionary statement, and Crossroads Systems undertakes no duty to update this information to reflect future events, information or circumstances.

©2019 Crossroads Systems, Inc., Crossroads and Crossroads Systems are registered trademarks of Crossroads Systems, Inc. All trademarks are the property of their respective owners.

Investor Contact: Crossroads Systems ir@crossroads.com 

Press Contact: Matthew Zintel Zintel Public Relations matthew.zintel@zintelpr.com 

Dear Shareholder:

As we complete our second successful fiscal year at the helm of Crossroads, we look to our third year as hugely transformative to our business. Before we expand on the proposed bank acquisition, we'd like to summarize the 2019 financial results.

During the year, we successfully sold 179 properties, ending the year with a mortgage portfolio balance of $122 million.  To further impact our communities, we made a decision to decrease our operating margins on property sales as a means to drive more volume and loan growth. This is especially significant in a bank structure where loan growth and interest margin are key metrics. Our operating income for the year continued to grow to $4.4 million compared to $2.6 million in the prior year.  As a result of our focus on volume and loan growth, we have been able to increase our inventory of available homes from 79 homes at October 31, 2018 to 128 homes at October 31, 2019, which should result in higher sales for 2020.  We feel strongly that the margin reduction will result in long-term portfolio growth and increased earnings for the company.

In addition, we continued to evaluate new markets opportunities and chose to expand into McAllen, Texas by acquiring three individual lots and another group of 22 in a new residential development.  We have partnered with a local builder to build the homes and have sold and closed on one to date.  The delivery of these homes will have a longer cycle than our usual single-family product in our existing markets but have a lower risk profile as the homes will be built after qualified buyers are under contract. We will offer financing to qualified buyers of these homes as we do on our existing inventory of homes. 

We continue to operate with social responsibility at the forefront, and we are quite proud of the work our team has done.  A copy of our Social Impact report can be found on our website.

On November 18^th, we announced our definitive agreement to purchase Rice Bancshares Inc. (the "Bank"), a Texas community bank located just outside of our DFW market and 8 years away from celebrating its 100^th year serving it communities. We will acquire the Bank for approximately $32M in cash which will result in merged bank book value of just under $60 million dollars.  We anticipate that the combination of our operating subsidiary, Capital Plus Financial ("CPF"), and the First State Bank will result in one of the best capitalized and highest performing Community Development Financial Institution ("CDFI") banks and Minority Depository Institutions ("MDI") in the country. Our goal is not only to lead in our corner of the industry but to be one of the best performing banks in the country. With a holding company board comprised of experienced bank board directors and a bank board actively supporting the success of the combined companies, we are confident in our ability to execute on our growth plan.

While the timing for regulatory approval is unknown; the acquisition and merger with the Bank is expected to be immediately accretive to our shareholders. The Bank's current cost of funds is less than 100 basis points which will result in a decrease to our current cost of capital of greater than 300 basis points. Moreover, we anticipate growing the deposit base of the Bank considerably to broaden the shorter end of the liability side of the balance sheet in today's favorable interest rate environment. On the longer end of the curve and to better match fund the longer dated assets of the combined entity, we intend to complete our CDFI Bond Guarantee Application in 2020 which was carried over from last year.

In addition, we are projecting historical originations for CPF and conservative loan growth at the Bank. While there will undoubtedly be efficiencies gained from the merger and increased quality commercial loan production, we expect our return on average assets and return on equity to be far in excess of average bank metrics. We expect our return on assets to be in excess of 2.5% and our return on equity in excess of 18% with a capital ratio of at least 15%, all of which compare favorably to peers and demonstrate a highly profitable and well capitalized bank. We hope to be able to realize further savings from collaborating with our bank partners to share important compliance services. One of our goals is to continue to help them achieve their Community Reinvestment Act ("CRA") qualifications by sharing services and excess deposits with our bank, for example.  

Not surprisingly, our deposit strategy will focus both on earnings and social impact. We plan to grow the Bank organically in our markets by banking quality C&I customers but we will also leverage on the trust we've developed in our markets to offer basic financial services to the underbanked and unbanked in Texas which by some estimates represents 25% of the population. As a proven social enterprise and B-Corp, we believe we can close the trust gap which often prevents people from depositing with traditional banks. The third deposit strategy will be to solicit excess deposits from larger institutions in our markets who will receive CRA credit for supporting a CDFI and MDI. A recent House Financial Services Sub Committee meeting on MDIs highlighted the push for collaboration between large banks and MDIs. A common form of this collaboration is the placement of deposits into the MDI.

We expect to file our regulatory application with the Federal Reserve this quarter for Crossroads to apply for bank holding company status and to the FDIC and Texas Department of Banking for the bank acquisition. The resulting transaction will merge CPF and the bank with CPF's real estate activities done through a wholly owned subsidiary of the bank in a community development corporation ("CDC"). The CDC will continue CPF's mission of providing affordable housing throughout its markets and will look to expand its social impact throughout its markets.

To that end, CPF consummated a licensing agreement with SG Blocks, Inc. SGBX in the fourth fiscal quarter of 2019 to license SG Blocks' residential technology under the name SG Residential ("SGR"), a public welfare investment of the CDC. Our agreement provides exclusive rights to the residential construction pipeline in the United States and its territories. Our licensing agreement allows us to develop residential home and multifamily projects in an efficient and profitable manner to help scale the real estate vertical of our business. The public welfare investment will focus initially on Opportunity Zone eligible projects. We do not believe this will be a capital intensive endeavor however it does help us to fulfill our mission to improve low to moderate communities.

We believe in the SG Blocks technology, its efficiency and the benefits it can provide to low to moderate income homeowners often most at risk in natural disasters. We view this as a very low cost opportunity to expand our housing mission and one which leverages our expertise in project management and bidding accuracy to create a low risk, high return vertical for the company using our existing overhead.

In summary, we're honored that you're on this journey with us as we continue to transform Crossroads into a well-capitalized financial holding company. We will continue to come up with innovative solutions to maximize shareholder value and social impact equally. Thank you for your continued support.

Saludos Cordiales,

Robert H. Alpert & Eric A. Donnelly

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SOURCE Crossroads Systems