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spk10: Good morning and welcome to CFB third quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation or opportunity to ask questions, please note that this event is being recorded. I'd like to turn the call over to Ms. Heather Worley. Please go ahead.
spk00: Good morning, and welcome to the Cross First Bank Shares third quarter 2022 earnings conference call. I'm Heather Worley, Director of Investor Relations. Before we begin, please be aware this call will include forward-looking statements, including statements about our business plans, the acquisition of Central, 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. 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 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 non-GAAP financial measures are not meant to substitute for or superior to financial measures prepared in accordance with GAAP. This presentation will include remarks regarding the third quarter financial results from Mike Maddox, President and CEO of Cross First Bank Shares, Randy Rapp, President of Cross First Bank, and Ben Klaus, CFO of Cross First Bank Shares. At the conclusion of our prepared remarks, our operator, Nick, will facilitate a Q&A session. At this time, I would like to turn the call over to Mike, who will begin on slide four of the presentation. Mike?
spk04: Thank you, Heather. Good morning, everyone. Thank you for joining us as we discuss Cross First's third quarter operating results. Before we dive into the details from the third quarter, I'd like to share a historical milestone with all of you. On October 1st, we celebrated our 15th anniversary as a company. The growth of our organization in the past 15 years is nothing short of remarkable. What started as a de novo bank in 2007 with $15 million in assets has grown to over $5.8 billion in assets with nine full service locations across Kansas, Missouri, Oklahoma, Texas, Arizona, and we are looking forward to adding Colorado and New Mexico to our footprint. As I reflect on the first 15 years, I see a dynamic group of talented individuals coming together every day to deliver extraordinary service and make a difference in the lives of our clients, one another, and in the communities where we live and work. Simply put, this is and will be the legacy of our organizations. I want to thank and congratulate our founding shareholders and board members who had the courage to invest in a startup bank 15 years ago. We work hard every day to make you proud and continue our legacy of entrepreneurship and extraordinary service. People are our most important asset. And while competition for talent continues to remain a top challenge for all businesses, we must stay keenly focused on culture, strengths, engagement and performance to recruit and retain the best talent in our industry. From new training and professional development opportunities, expanded awards and recognition programs, and a clear line of sight regarding career advancement, we reward people for doing the right things for our team, our clients and our shareholders. As we announced last quarter, We promoted Randy Rapp as president of the bank in July. He has been instrumental in enhancing our leadership team and positioning our company for future growth. He will speak shortly about some of the changes during his comments. Turning to our financial performance, we reported $17.3 million in net income, and our team produced $149 million of net loan growth during the quarter, which is an annualized rate of over 13%. While a level of uncertainty remains in the economy, we are optimistic that we will see continued loan growth through the remainder of 2022, although the growth could slow from the pace that we have seen so far this year. We are highly focused on credit quality, which is key to sustainable results and earnings. We will not compromise quality for growth. We've made improvement in our credit quality with our non-performing assets down to 31 basis points. The team is closely monitoring the impacts of rising rates and a changing economy. Our goal is to take a balanced approach as we monitor risk and build long-term value for our shareholders. With another quarter of solid earnings, we maintained our strong capital position while investing for our future. We have added to our stock buyback initiative and invested in technology and talent. We are optimistic that Central Bank will become a part of Cross First Bank with a transaction close in the fourth quarter. We are excited about what this merger will bring to serve the business and professional banking needs of their clients and the expanded mortgage and SBA capabilities that will be scaled across all of our markets. We will work to become extraordinary together. After closing, it will be business as usual for their clients while we work to integrate systems. This combination will advance our market expansion, bring experienced leaders to our team, accelerate our growth strategy, and enhance and add shareholder value. It will be immediately accretive and puts a portion of our excess capital to work. As we focus on long-term sustainable growth, I am proud to highlight our second annual Cross First Impact Report. In our second annual report, which covers calendar year 2021, we share an update on the progress we are making across numerous benchmarks through the ESG lens, diversity, inclusion, employee satisfaction, and philanthropic support. Last year, the ESG oversight responsibility of our board of directors we established a management-level ESG committee to develop, implement, and oversee the foundation of our sustainability and ESG program. In a rapidly changing and complex world, we are committed to making a positive impact. 2022 has been a year of acceleration for Cross First. We were again recognized by the Kansas City Business Journal as the best place to work. This type of independent acknowledgement is based on employee surveys and confirms what those of us at Cross First already knew. Our culture and the company we are building is truly special and unique. As we look to 2023, our focus will shift to optimizing the investments we have made in 2022. This will range from leveraging our new digital banking platform to serve our personal and business clients, to expand the reach of our newly formed specialized industry groups to scale the investments we have made in Arizona, Texas, New Mexico, and Colorado. I will do all I can to make sure our team has the right tools and the right resources in place to succeed. And with that, I'd like to turn the call over to our president of Cross First Bank, Randy Rapp.
spk05: Thanks, Mike, and good morning, everyone. As Mike mentioned, In September, we announced the promotion of several current leaders who are taking on expanded roles and responsibilities within our company. To lead our community banking model, Steve Fosken has been promoted to regional president and will oversee our Oklahoma City, Tulsa, and Wichita markets. Steve joined Cross First Bank in 2015 as the Oklahoma City market president and has recruited an exceptional team of bankers. Steve will coordinate strategy within the markets and assist with talent recruitment and business development. With the expansion of Steve's responsibilities, Amy Bailey has been promoted to Oklahoma City Market President. Amy has been an integral part of our Oklahoma City team since 2015, most recently overseeing the commercial and real estate teams serving as Managing Director, Commercial Banking. Amy brings extensive banking and market knowledge to her new role. To enhance another key part of our business, we are dedicating specific expertise to serve as a resource for our consumer and small business deposit and lending areas, which we refer to as relationship banking. Tiffany Hatcher, who joined our company in 2017 and currently serves as our Tulsa market president, is taking on a new role as Executive Director, Relationship Banking. This new role reflects our commitment and strategic focus on relationship banking and will have a strong focus on deposit generation. In addition to relationship banking, we are also dedicating expertise to serve as a resource for our commercial real estate teams. Kent Howard, is taking on a new role as Executive Director, Real Estate Banking, to oversee the bank's commercial real estate portfolio. Kent joined Cross First Bank in 2017 as Managing Director, Dallas Real Estate, and has built a commercial real estate portfolio of over $800 million. In his new role, Kent will coordinate concentration management, deal selection, structure, pricing, and underwriting guidelines. We are excited to recognize these team members who are taking on expanded roles within our company as we continue to grow and evolve. Turning to Q3 highlights, we reported loan growth of 3.3% or $149 million. Loans have increased 11% or $445 million over the past four quarters. Loan growth in Q3 was balanced between CNI and commercial real estate and also geographically diversified over the majority of our markets. Total loans increased despite a $53 million decrease in the energy portfolio, which ended the quarter at $173 million. During the quarter, average CNI line utilization increased was 45%, consistent with the prior quarter, and portfolio churn decreased slightly but remains above the historical average level. Our loan portfolio remains diversified with a 43% concentration in commercial real estate and 44% concentration in CNI and owner-occupied real estate. There's also good diversity within each of those portfolios with the highest CRE property type accounting for 15% of total CRE exposure and the largest industry segment in C&I being manufacturing at 11%. We are adhering strictly to our underwriting standards to reflect the higher level of economic and interest rate uncertainty that exists in the markets today. For the quarter, average deposits increased 8 percent to 4.9 billion, up 372 million from the previous quarter. Over the past four quarters, average deposits have increased 11 percent. Average non-interest-bearing deposits decreased 1 percent during the quarter to 1.1 billion and represent 22 percent of total deposits. In Q4 of this year, we are moving forward with an upgrade to our digital banking platform that we believe will enhance our deposit growth strategy. Moving to credit highlights, for Q3, we reported a drop in non-performing assets of $12.6 million to $18.2 million, resulting in a non-performing asset to total asset ratio of 0.31 percent. The decrease was primarily due to upgrades or refinances within the portfolio and the charge down referenced below. This ratio is down from 0.54% in Q2 and 0.92% in Q3 of 2021. Classified assets to capital plus combined reserves was 11.2% down from 12% in Q2 and 17.3% in Q3 of 2021. For the quarter, we reported net charge-offs of $1.9 million resulting in an annualized charge-off rate of 16 basis points and a trailing 12-month charge-off rate of 11 basis points. The charge-offs in Q3 were primarily related to the charge-down of a previously identified substandard CNI transaction. At September 30th, we reported an allowance for credit loss to total loan ratio of 1.19%, and combined allowance for credit loss and reserves for unfunded commitments of 1.34%. We are focused on strong portfolio monitoring and maintaining good credit metrics moving forward. We continue to closely monitor the local, U.S., and global economies, changes in interest rates and inflation rates, and the potential impact those factors could have on our loan portfolios. We are fortunate to operate in many markets and states, continuing to show positive job creation, continued low unemployment rates, positive population migration, and increasing gross domestic product. We are directing our bankers to actively engage with our clients and prospects to better understand the effects these macro-level issues are having on their individual businesses and financial performances. I will now turn the call over to Ben to cover financial results in more detail. Ben?
spk06: Thanks, Randy, and good morning, everyone. As Mike indicated, net income expanded this quarter to $17.3 million, or $0.35 per share, and we maintained solid loan and deposit growth. Quarterly return on average assets was 1.19%, and return on average equity was 11.18%. These ratios were the result of strong performance driven by balance sheet growth and expanding margin and continued future investments. We are executing our strategy to grow loans, deposits, ROA and ROE, and are striving to gain scale as we approach $6 billion in assets. Our interest income in the third quarter increased 24% from the prior quarter to $65.6 million. This was driven by rate increases, loan growth, and accrual improvements. Interest income also included an additional day in the quarter, which added 0.6 million. NIM for Q2 and Q3 included accrual improvements of 0.7 million and 1 million, respectively, which we do not expect to be in the run rate going forward. These accrual improvements impacted margin by five and seven basis points in Q2 and Q3, respectively. Our average loan balances were up 4% quarter over quarter, and average yield was up 80 basis points. Interest expense was up $9.7 million for the quarter as we increased deposit rates to fund loan growth. Our percentage of demand deposits was 22%, reflecting the competitive rate environment and some deployment of liquidity. Average deposits increased 8% for the quarter, driven by money market and time deposits primarily. Our total cost of deposits was 1.2% for the quarter, our first meaningful increase since rates declined in early 2020. FHLB borrowings were down 91 million from second quarter, and brokered funding declined by 89 million from second quarter. Our total deposits beta against the rate increases this year was about 50 through the end of the third quarter, in line with our target. We continue to target a beta of around 50 for the rest of the year. We are assuming rates will end the year in a range of 450 to 475, although if that moves up or down 25 basis points, it would not necessarily change our beta target. Net interest margin was up to 3.56% on a fully tax-equivalent basis. We expect margin to be in a range of 345 to 355 for fourth quarter, with expansion of our loan yields offset partially by potential deposit migration away from DDA and higher rates needed to fund growth. Our balance sheet has moderate sensitivity with 69% of our earning assets repricing or maturing over the next 12 months, with much of that being in the first 90 days. Non-interest income for the quarter was $3.8 million. and declined due to lower credit card transaction volume and lower letter of credit fees. We are focused on increasing credit card volume and driving diversification in our client base, and we were able to offset part of the concentration decline with growth in new credit card clients during this quarter. Non-interest expenses for the quarter were $28.5 million. down $0.8 million from the second quarter and within our expected range. During the quarter, we added nine new producers in a very competitive environment. We anticipate non-interest expense to be in a range of $28 to $29 million for the fourth quarter, outside of additional merger costs. We plan to manage our cost base tightly, given the current environment, and we'll strike a balance between growing earnings, and investing for the future. Our efficiency ratio improved from the second quarter, and we are focused on driving it into the low 50s. Our tax rate was 20.3% for the quarter, down slightly from last quarter, and in the range we expect for the rest of the year. Our capital ratios remained strong as we generated significant earnings and continued to grow. We experienced some additional unrealized losses to the securities portfolio as longer-term rates moved up again, but we believe this will resolve in the longer term as the interest rate environment moves through the cycle. We have elected the option to exclude the unrealized loss from regulatory capital. Our AFS securities provide significant liquidity as they can serve as collateral for borrowing if needed. Even with unrealized losses, our tangible common equity ratio was 10% at quarter end, well above the median of our peers, and our total capital-to-risk-weighted assets ratio that we use for regulatory purposes remains above 12%. We repurchased 794,000 shares in the third quarter for $10.8 million. and we intend to continue our buyback under the existing $30 million board authorization. With deposit growth in excess of loan growth this quarter, our loan to deposit ratio decreased slightly to 94%. We are focused on driving deposit growth to fund loans, and we have significant capacity for borrowing or wholesale funding if needed. We had another great quarter, and are well positioned going into the end of the year. Operator, we are now ready to begin the question and answer portion of the call.
spk10: Thank you. We now begin the question and answer section. To ask a question, you may press star then one on your touchtone phone. For using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. This time we'll pause momentarily to assemble the rosters. First question comes from Ryder Gailey, KBW. Please go ahead.
spk03: Hey, thanks. Good morning, guys. Good morning, Brady. Good morning. I wanted to start with kind of the growth outlook for next year. You guys are a high-growth company, but growing at a high pace on the funding side can be kind of painful nowadays. I was just wondering how you think about you know, growth next year? And, you know, do you see that growth start to slow a little bit?
spk04: Yeah. I mean, it's, that's the question we're all asking, trying to figure out, you know, what's going to happen with the economy and, and rising rates and, and what opportunities are going to be provided us. Um, we, uh, um, you know, we believe we will continue to grow, but I don't know that it will be at the pace that we've grown this year. Um, Obviously, funding is becoming more challenging and expensive, so that will be a driving factor for us. And obviously, credit quality and what happens in the economy is something we're looking at closely. Having said that, we're still pretty excited about the markets we're in. Dallas, Phoenix, Denver... are still pretty dynamic growing markets. And we think with some of the investments we've made in 2022 and some of those new markets, there's still a reasonable amount of room for us to continue to provide some quality growth.
spk05: You know, Brady, this is Randy. The other thing I would add to what Mike said is one of the things we're watching is churn within the portfolio. We have quite a bit of real estate commitments this year that are unfunded. So we're sitting with a decent portfolio unfunded that we'll fund up next year. The churn rate in the CRE book has been at an elevated level. If that were to slow, that will definitely impact the growth rate as well. So we're watching that. As Mike also said, we've made some investments in some new markets, Frisco, Fort Worth, that we expect to hit some stride next year in addition to our other good markets.
spk03: All right. That's helpful. Then my second question is just on the central acquisition. Any updates there? I know rates have kind of moved around from today relative to announcement day. So any updates on how you're thinking about EPS accretion or tangible book value per share dilution? And can you just remind us where you are on the regulatory approval process? Do you have all those? I think I heard you guys say you're still planning to close the deal at some point before year end.
spk04: I'll let Ben address some of the financial metrics, but from a regulatory standpoint, we believe we're in the ninth inning of that process. It's gone smoothly. We've provided the FDIC with all the requested information that they've asked for, and we're hopeful that we may hear something in the near future. We're hopeful that we can continue to move the process forward at a reasonable pace, and we don't foresee any big roadblocks. Ben, you want to talk about the financials?
spk06: Yeah, sure. Good morning, Brady. In regard to the financial aspects, we are still on track for the amount of accretion that we outlined, which was between 11% and 12% for 2023. No change there. No change in our tangible book value dilution assumptions. definitely our pro forma capital ratios have moved a little bit because our capital ratios have moved, but, um, central continues to perform in line with, with our projections through, um, uh, through the third quarter.
spk03: All right. And then last question for me, um, you guys have been pretty active on the buyback for the last couple of years. I mean, you're, you're today you've repurchased over 4% of the company. Um, As we potentially head into a recession, does that change your stance on the buyback?
spk04: Well, we will be conservative as it relates to our capital positions. But we continue to drive pretty strong earnings. And as long as our stock continues to trade at a level we think is very undervalued, we're going to do everything that's prudent to continue to buy it back at, we think, a low price. So we're keeping an eye on capital levels and we'll always be conservative as it relates to capital. We've been that way from the very beginning. We are a faster growing company and we understand that it's important for us to keep good capital levels.
spk06: Yeah, and I would add one thing to that, Brady, which is just a reminder that we have complete flexibility with the buyback. So as Mike said, we will obviously monitor that ongoing and adjust it accordingly if that feels prudent. Okay, great. Thanks, guys.
spk10: Thanks, Brady. Thank you. Our next question will be for Michael Rose. Raymond James, please go ahead.
spk07: Hey, good morning, guys. Thanks for taking my questions. I just wanted to circle back. Hey, good morning. I just wanted to circle back to some of the deposit comments. It sounds like brokerage came down, but maybe you did some specials out in the market. I think I saw that in some of the posted rates. Can you just kind of talk about the interplay between kind of loan growth and the ability to fund at increasingly higher rates? you know, deposit rates and how we should think about the NIM. I think there were seven basis points of interest accrual recoveries this quarter that you said will kind of come out. So it seems to me that we're probably at or near a peak for the margin as we get into the fourth quarter. Is that kind of a way to think about it? And then how should we think about the deposit funding strategies going forward? Thanks.
spk06: I think that's the right way to think about it, Michael. You're correct. Seven basis points of of accrual gain this quarter and the range I gave 345 to 355 to reinforce would suggest we see opportunity for some expansion in NEM, but I don't think a great deal. I think your assumption is accurate. We are probably nearing or near the top that we would see. Our number one goal, of course, is to fund our loan growth with relationship deposits, and we will continue to make relationship decisions, which we do every day. That's the way we operate. And we will We will fund our growth with the best mix that we can. Our number one goal, of course, being core deposits, but we have a huge amount of flexibility in wholesale or brokered or borrowing should we need to go there. But we think about that as a safety valve. We had great growth in deposits this quarter, as you heard us say, and so we hope to continue that momentum.
spk04: You know, Michael, I also think that we are going to see more opportunity on the loan side for pricing. We are seeing better opportunities that are more favorably priced than we have in the last couple of years. And so we're taking the approach of maybe being a little more selective on the credit side and And I think the lenders are starting to get a little pricing power.
spk05: The final thing I'd add, Mike, oh, sorry, Mike, I was just going to add on deposit strategy. Looking forward, you know, there's no one big thing. I think it's just a bunch of smaller things put together. But, you know, part of it is just focus and making sure that our bankers are laser focused on deposit growth and DDA expansion. Two is, as I put in my comments, putting Tiffany Hatch in her new role, one of the things she'll do is help guide our go-to-market deposit strategy. Three is just to make sure everybody's aligned, building that into our banker's incentive model to make sure that they're focused on that. And then four, we do think our digital banking platform conversion will help enhance the strategy. So I think all those things combined is really what we're thinking about as our deposit strategy looking into Q4 into 2023.
spk07: Very helpful. Maybe just switching gears on a separate topic, you know, credit looks, you know, great. I think when you guys IPO'd, though, there was definitely some concerns that I heard voice just around, you know, some of the verticals that you were in, whether it be kind of energy or enterprise value lending. Obviously, everything looks great here, and you've right-sized some of those portfolios, but can you just give us an update on kind of like the SNCC portfolio, enterprise value, tribal lending? uh, energy lending kind of, et cetera. And then, you know, are you, you know, a little bit more cautious there as we get into maybe a choppier waters here? Thanks.
spk04: Well, yeah, I'll start and I'll let Randy fill in. Um, you know, we are very proud of our credit quality. I think it's improved dramatically. Um, And we've worked very hard at that, and we're pleased with the movement downward in classified assets and in non-performings. You know, we, like every bank, I mean, we're diving deep into our portfolio and making sure we're trying to stay on top of any arising issues. And, you know, so far, you know, we're just not seeing – a lot of problems yet. And as far as it relates to some of our verticals, our tribal lending business is good. It's a small part of our portfolio today. As you know, energy, I think, is down under 5% of our portfolio and performing very well today with commodity prices where they're at. And we think that's probably an opportunity to maybe see some growth. Our franchise lending business portfolio is performing well. I'm trying to think of any other words you talked about.
spk05: I'd add to that that you'd ask specifically about the SNCC portfolio, and that's not ever been a really big number for us. That's about $120 million, and it's been pretty consistently at that lower level. You talked about some of the credit issues around the IPO. We really feel like those were a couple of one-off transactions, and that's what we have communicated, and we feel like those are behind us. And so I look at the portfolio today. As we look into next year, I mean, there is uncertainty in the economy, but I think we don't have a big consumer portfolio, and some of the noise you're hearing early on is on the banks with the larger consumer portfolios. Our energy is reduced down to, Mike said, you know, is in the 3% to 4% range. Quite honestly, we think there's some opportunity to grow that portfolio next year, but feel very good about the quality of that portfolio. You know, CRE is a big portion of what we do. There's a vertical in there in home building. You know, there's been a lot of publicity about home building lately, but what we're seeing in our portfolio is we're in good markets. Activity has slowed. but is back to probably a 2018-type level. The builders are still profitable. They have very healthy balance sheets and have very low spec inventory and are sitting on very low lot inventories, which are some of the things that created issues in the Great Recession. So we feel good about the health of the builder portfolio. CNI is a diversified portfolio, but you would hit on a couple. Tribal, as Mike said, is small. Our leveraged lending portfolio is about $210 million, and that's a number we keep an eye on. Obviously, we're spending a lot of time visiting with our borrowers, monitoring the portfolio, looking at grade accuracy. We just had another very successful third-party loan review that did not change any loan grades, so we feel good about our internal monitoring and grading accuracy. Again, just the overall diversity of the portfolio as we head into next year. Thanks, guys. I appreciate all the callers.
spk01: Yep.
spk10: Thank you. Our next question will be from . Please go ahead.
spk01: Thanks so much for taking my question. Mike, just curious as to, you mentioned you think loan growth is going to be a bit slower over the near term. How much do you think loan growth will moderate as you get more selective?
spk04: Well, Jeff, I'm not really prepared to give guidance on what that exact number is going to be, but we're just going to have to keep an eye on it. There's just a lot of uncertainty out there, and today our pipeline remains strong and pretty consistent with what we've seen over the last couple quarters, but As we look into 2023, I can't give you enough visibility right now on where things are going. We're in the middle of our strategic planning process, and we'll be talking a lot about that. But we still believe we're in good markets and fairly strong economies in those markets. So we're hopeful that we'll continue to see solid growth.
spk05: Jennifer, we do a bottom-up budgeting process, and so as Mike said, we're in the middle of that process. We're asking our market leaders and vertical leaders to come up with what they think that looks like for next year. So we're really in the process of assembling that and can give better guidance on that in a future call.
spk01: And you mentioned you hired nine new producers in the third quarter, but I believe you said you were going to optimize your investments next year, so I'm assuming that means fewer new hires in 23 versus 22?
spk04: Yeah, I think that's a fair assumption, Jennifer. You know, we've made some investments in Fort Worth and Frisco and Phoenix, and we'll be bringing on Denver and Colorado Springs and New Mexico, so really we want to let those investments scale. We want to continue to be entrepreneurial as it relates to really talented bankers, but But we've done a lot of hiring this year that we hope to scale in 23.
spk01: Thank you so much.
spk10: Thanks. Thank you.
spk09: Next question will be from Andrew Leach of Papers for Amber. Please go ahead. Hey, everyone. Thanks for taking the question this morning.
spk04: Hey, Andrew.
spk09: Just a question, going back to credit quality here, your reference in the presentation, part of the provision was for qualitative factors. Is that just your own management thoughts on a potential recession next year, or has there been any change in anything in the CECL model?
spk05: Andrew, this is Randy. There weren't a lot of substantial Q factor adjustments this quarter. One of the drivers, and Andrew, we're learning to live with CECL as many of the other banks are and seeing the drivers there. One of the drivers for us was an increase in unfunded commitments this quarter as it relates to our real estate portfolio. That was a driver of part of the reserve. And then just overall, trying to be a bit more conservative, looking into the future, heading into some economic uncertainty. There were a few adjustments there, but one of the larger drivers, as I said, was the increase in unfunded commitments. Got it. All right. That's really helpful.
spk09: And then just going back to some of the margin outlook here, I'm wondering if you have the spot rate of the cost of funds at September 30th, or if you know what the current rate on new money market accounts is. Either one of those is fine.
spk06: Hey, Andrew. It's Ben. You know, our spot rate at the end of the quarter on the overall mix was about 165. Okay. I'd call that our jump off for the quarter. Gotcha.
spk09: All right. That's helpful there. And then new loans, sounds like there's quite a bit of opportunity to have some pricing pressure there. I guess where are new loans coming on? And I guess what activity did you see during the quarter as far as the trending up and the pace of improvement in loan yields?
spk05: Yeah, and here's Randy again. We did see widening margins, and it actually moved fairly quickly, especially as it relates to the CRE book, where we might have been looking at a 250 margin previously. We're seeing now a three-handle on that margin with a little more fee potential. And so Ben referenced that in his comments. Some of what's funding now was booked during the more competitive periods. I think you're seeing across the industry a little more pricing power within the banking. And so the opportunities we're seeing today, the things we're booking today, are definitely at wider margins and higher fees than we've seen over the last 18 months.
spk06: Andrew, I would just add to that maybe to put a little color on that. As you heard us say, our loan yield for the quarter was 508, but the weighted average for new loans added in the quarter was 542. And I agree with Randy. We will see that expand now that pricing has started to move a little bit. Gotcha. All right.
spk09: That's really helpful there. And then just on the expense run rate going forward, it looks like there was maybe some severance costs that hit salaries and benefits line. I'm just curious from this, call it $28.4 million, where's a good run rate, not including central, of course, but jumping off into the fourth quarter?
spk06: Yeah, I would say between $28 and $29 million, Andrew, is our expected Q4 rate.
spk09: Great. That's all the questions. Thanks so much for taking them. Thanks, Andrew.
spk10: Thank you. And again, if you'd like to ask a question, please press star then one. Next question will be from our own Steven. Please go ahead.
spk08: Hey, thanks. Good morning. I want to go back to the discussion around central Bancorp. Looks like we saw pretty strong growth from the bank in the second quarter, and I didn't appreciate maybe the momentum the bank had on the growth front. Curious any more color you can add to their growth in 2Q or any early expectations for them to back half the year as far as their growth.
spk06: Thanks. Maybe I'll start. I'll let Mike or Randy add, but I think I said earlier their trajectory through the last two quarters is right in line with what we modeled, and they continue to have good growth, both loans and deposits. In regard to opportunity, I would just remind you, and I'll let Mike or Randy add, you know, they are relatively new in Denver, for example. So there's huge opportunity there. And we would expect outsized growth, you know, in that market. I don't know if you guys want to add, supplement that.
spk04: I think that's right. I mean, there's still, you know, only maybe 100, 150 million assets in Denver. And We really see that as a great opportunity to expand. The other thing about this acquisition is we're very excited about the SBA and mortgage operations, which we believe will be able to scale across our franchise. And we think there's a lot of opportunity to generate fee income and growth in those platforms as well. Obviously, the mortgage business today is a bit slower with where the economy is, but The nice thing is they've scaled their expenses to adjust for that, and we really don't have to add very much incremental volume to the platform to make it profitable. So we think those two things are also big drivers.
spk08: Okay, that's helpful, Mike. And then I guess, Ben, on that note, thinking about the impact of Central on the mortgage and the SBA front, will that be very impactful initially, or is this more of a, more of a longer-term initiative for the combined company?
spk06: Well, on mortgage, Matt, that's definitely a longer-term initiative. And we, in our projections and our modeling, we didn't assume any significant lift from mortgage. We all know the environment there currently due to rates and the housing situation. And they have already right-sized their mortgage organization based on the lower volumes that we're seeing right now. In regard to SBA, similar, although I think there's more opportunity near-term there as we deploy their process and their team across our existing markets, I think there's more near-term opportunity in SBA.
spk08: Okay. That's helpful. Thank you guys very much.
spk10: You're welcome. Thanks, Matt. Thank you. This concludes the question and answer session. I'd like to turn the conference back over to Mr. Mike Maddox for closing remarks.
spk04: Well, I just want to thank everybody for joining us today. I want to thank our team. They've really worked hard this quarter and done a great job and we're really pleased with our improvement in our credit quality and our continued improvement in margin and very excited about the opportunity to bring on our team members in Colorado and New Mexico and and bring them in as a part of the Cross First team. So thank you all for joining us and look forward to talking to you. I guess it will be in January. So take care.
spk10: Thank you. This concludes the conference.
spk04: You may now disconnect.
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