Cross River Bank's recent $620 million capital raise, which valued the Fort Lee, N.J.-based bank at more than $3 billion, implies that investors rewarded Cross River for taking a fintech-friendly approach to complement its traditional banking business.
As a state-chartered bank and a member of the Federal Deposit Insurance Corporation, Cross River provides fintechs with banking functions that they would not have the authority to conduct without a charter, such as originating FDIC-insured deposits, issuing debit cards and underwriting loans.
The banking platform, which it delivers through proprietary technology, has helped it attract partners of leading fintechs including Affirm Holdings Inc., Coinbase Global Inc., Stripe Inc., and Upstart Holdings Inc.
With two branches in Teaneck, N.J. and Brooklyn, N.Y., Cross River also originates deposits and loans for its own commercial and small business lending business.
The funding round was led by Eldridge Industries LLC and Andreessen Horowitz LLC.
Robust profitability metrics
Five banks headquartered in the Northeast, Mid-Atlantic and Midwest regions of the U.S. currently have market capitalizations of $3 billion to $4 billion, and each of those had at least $15 billion in total assets as of year-end 2021. Cross River's valuation is based on a smaller total asset base of $9.13 billion, which suggests that the bank's fintech business generated a valuation premium.
Despite a smaller asset base, Cross River's profitability metrics are far ahead of the group median among the 12 publicly traded banks in $2 billion to $4 billion valuation range. The bank's return on average assets in 2021 was 3.02%, more than double that of the group median. Its net interest margin was 5.25%, higher than the group median by 77.4%. Cross River also had the lowest efficiency ratio in the group, at 34.49%.
The metrics indicate that Cross River's investments in technology have paid off with a more lucrative and efficient business model, compared to a traditional approach focused on net interest rate spread. With the new capital, Cross River plans to continue investing in a technology-focused growth strategy, including building out solutions for embedded payments, cards, lending and cryptocurrency transactions, the company said in a March 30 news release.
Operating metrics fluctuated during COVID-19 pandemic
In 2021, Cross River grew deposits by 30% year over year, the second largest jump in its peer group. Its loan volume dropped by 12.4%, compared to the group median of a 2.2% decline. In the fourth quarter of 2021, its operating revenue was down more than 30%.
The weakness was partly a result of Cross River's large presence in the Paycheck Protection Program. In the fourth quarter of 2021, the bank was the second-largest holder of outstanding PPP loans at $5.28 billion, down 31.1% from the prior quarter.
