CFB - CrossFirst Bankshares Inc. (CFB) Q3 2022 Earnings Call Transcript
CrossFirst Bankshares, Inc. (CFB)
Q3 2022 Earnings Conference Call
October 18, 2022 11:00 AM ET
Company Participants
Heather Worley - Director, Investor Relations
Mike Maddox - President and Chief Executive Officer
Ben Clouse - Chief Financial Officer
Randy Rapp - President
Conference Call Participants
Brady Gailey - KBW
Michael Rose - Raymond James
Jennifer Demba - Truist Securities
Andrew Liesch - Piper Sandler
Matt Olney - Stephens, Inc.
Presentation
Operator
Good morning and welcome to CFB's Third Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note that this event is being recorded.
I would like to turn the call over to Ms. Heather Worley. Please go ahead.
Heather Worley
Good morning, and welcome to the CrossFirst Bankshares 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.
These presentation -- this presentation will include remarks regarding the third quarter financial results from Mike Maddox, President and CEO of CrossFirst Bankshares; Randy Rapp, President of CrossFirst Bank; and Ben Clouse, CFO of CrossFirst Bankshares. 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 4 of the presentation. Mike?
Mike Maddox
Thank you, Heather. Good morning, everyone. Thank you for joining us as we discuss CrossFirst third quarter operating results. Before we dive into the details from the third quarter, I'd like to share historical milestone with all of you. On October 1, 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 9 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 organization. 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 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 in earnings. We will not compromise quality for growth. We've made improvement in our credit quality with our nonperforming 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 CrossFirst 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 CrossFirst 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 CrossFirst. 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 CrossFirst 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 CrossFirst Bank, Randy Rapp.
Randy Rapp
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 Foskin has been promoted to Regional President and will oversee our Oklahoma City, Tulsa and Wichita markets. Steve joined CrossFirst 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're 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 CrossFirst 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 C&I 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 C&I line utilization 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 C&I 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% to $4.9 billion, up $372 million from the previous quarter. Over the past four quarters, average deposits have increased 11%. Average noninterest bearing deposits decreased 1% during the quarter to $1.1 billion and represent 22% 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 nonperforming assets of $12.6 million to $18.2 million resulting in a nonperforming asset to total asset ratio of .31%. The decrease was primarily due to upgrades or refinances within the portfolio, and the charge down referenced below. This ratio is down from .54% in Q2 and .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 C&I transaction.
At September 30, 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 portfolio.
We're 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 performance.
I will now turn the call over to Ben to cover financial results in more detail. Ben?
Ben Clouse
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 5 and 7 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 increase the 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're 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.
Noninterest 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.
Noninterest 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 9 new producers in a very competitive environment. We anticipate noninterest expense to be in a range of $28 million 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 will 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 remain strong as we generated significant earnings and continue 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 total -- 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.
Question-and-Answer Session
Operator
[Operator Instructions] First question comes from Brady Gailey, KBW. Please go ahead.
Brady Gailey
Thanks. Good morning, guys.
Mike Maddox
Good morning, Brady.
Ben Clouse
Good morning.
Brady Gailey
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 is can be kind of painful nowadays. So I was just wondering how you think about growth next year? And do you see that growth start to slow a little bit?
Mike Maddox
Yes, I mean, it's -- that's the question we're all asking, trying to figure out what's going to happen with the economy and rising rates and what opportunities are going to be provided us. 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. 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 in some of those new markets, there's still a reasonable amount of room for us to continue to provide some quality growth.
Randy Rapp
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, unfunded that will fund that next year. The churn rate and 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 are -- that 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 and in addition to our other good markets.
Brady Gailey
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.
Mike Maddox
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. So we're hopeful that we can continue to move the process forward at a reasonable pace, and we don't foresee any big roadblocks. But, Ben, you want to talk about …?
Ben Clouse
Yes, 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 Central continues to perform in line with our projections through the third quarter.
Brady Gailey
All right. And then last question for me. You guys have been pretty active on the buyback for the last couple of years. Year-to-date you've repurchase over 4% of the company. As we potentially head into a recession, does that change your stance on the buyback?
Mike Maddox
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 a -- we'd 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.
Ben Clouse
Yes, 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.
Brady Gailey
Okay, great. Thanks, guys.
Mike Maddox
Thanks, Brady.
Operator
Thank you. Our next question will be from Michael Rose, Raymond James. Please go ahead.
Michael Rose
Hey, good morning, guys. Thanks for taking my questions.
Mike Maddox
Hi, Michael.
Michael Rose
Just wanted to circle back -- hey, good morning. Just wanted to circle back to some of the positive comments. It sounds like brokerage [ph] 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 deposit rates, and how we should think about the NIM? I think there were 7 basis points of interest accrual recoveries this quarter 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 the way to think about it? And then how should we think about the deposit funding strategies going forward? Thanks.
Ben Clouse
I think that's the right way to think about it. Michael, you're correct. 7 basis points of accrual gain this quarter and the range I gave 345 to 355 to reinforce would suggest we see opportunity for some expansion in NIM, 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 fund our growth with what -- 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 [indiscernible] we had great growth and deposits this quarter as you heard us say and so we hope to continue that momentum.
Mike Maddox
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 I think the lenders are starting to get a little pricing power.
Randy Rapp
Final thing I would add, Mike -- oh sorry, Mike, I was just going to add on deposit strategy looking forward. There's no one big thing. I think it's just a bunch of smaller things put together. But 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 Hatcher in her new role, one of the things she'll do is, is help guide our go-to-market deposit strategy. Three is just to make sure everybody's aligned, building that into our bankers 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 is our deposit strategy looking into Q4 into '23.
Michael Rose
Very helpful. Maybe just switching gears on a separate topic, credit looks great. I think when you guys IPOed, though there was definitely some concerns that I heard voice just around some of the verticals that you were in, whether it would 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 [indiscernible] portfolio, enterprise value, tribal lending, energy lending, kind of et cetera? And then are you a little bit more cautious there as we get into maybe a choppier waters [ph] here? Thanks.
Mike Maddox
Well, yes, I'll start and I'll let Randy fill in. We are very proud of our credit quality. I think it's improved dramatically and we've worked very hard at that and we're pleased with the movement downward in classified assets and in nonperformings. 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 rising issues. And so far, we're just not seeing a lot of problems yet. And as far as it relates to some of our verticals, tribal, 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 portfolio is performing well. I can't think of any other words you talked about.
Randy Rapp
I'd add to that, that you had asked specifically about the [indiscernible] portfolio, when 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 and 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, 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.
CRE is a big portion of what we do. There's a vertical in there in homebuilding. There's been a lot of publicity about homebuilding lately, but what we're seeing in our portfolio is we're in good markets, activity has slowed, but its back to probably a 2018 type level. The builders are still profitable. They have very healthy balance sheet and have very low spec inventory, and are sitting on very loan -- 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.
C&I is a diversified portfolio. But you had hit on a couple, Tribal, as Mike said is small. Our leverage lending portfolio is about $210 million and that's the number we keep an eye on. And so obviously we're spending a lot of time visiting with our borrowers, monitoring the portfolio, looking at great 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. And again, just the overall diversity of the portfolio as we head into next year.
Michael Rose
Thanks, guys, I appreciate all the color.
Mike Maddox
Yes.
Operator
Thank you. Our next question will be from Jennifer Demba of Truist. Please go ahead.
Jennifer Demba
Thanks so much for taking my questions. Mike, just curious as to you mentioned, you think loan growth is going to be a bit slower over the near-term. Do you think loan growth will moderate as you get more selective?
Mike Maddox
Well, Jennifer, I'm not really prepared to give guidance on what that exact number is going to be. But we're just going to keep an eye on it. There's just a lot of uncertainty out there. And today, our pipeline remains -- remain strong and pretty consistent with what we've seen over the last couple of quarters. But as we look into 2023, I just -- 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.
Randy Rapp
Jennifer, we do a bottom up budgeting process. And so we, 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 future call.
Jennifer Demba
And you mentioned you hired 9 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?
Mike Maddox
Yes, I think that's a fair assumption, Jennifer. 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 we've done a lot of hiring this year that we hope to scale in '23.
Jennifer Demba
Okay. Thank you so much.
Mike Maddox
Thanks.
Operator
Thank you. Next question will be from Andrew Liesch, Piper Sandler. Please go ahead.
Andrew Liesch
Hey, everyone. Thanks for taking the question this morning.
Mike Maddox
Hey, Andrew.
Andrew Liesch
So just a question going back to credit quality here you've referenced 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 there have been any change in anything in the [indiscernible] model?
Randy Rapp
Hi, Andrew. This is Randy. There were 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.
Andrew Liesch
Got it. All right. That's really helpful. 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 30? Or, if you know like what the new -- with the current rate on new money market accounts is [indiscernible]?
Randy Rapp
Andrew, it's been -- our spot rate at the end of the quarter on the overall mix was about 165.
Andrew Liesch
Okay.
Randy Rapp
I'd call that our jump off for the quarter.
Andrew Liesch
Perfect. All right. That's helpful there. And then new loan sounds like there's quite a bit of opportunity to have some pricing pressure there. I guess where new loans coming on and I guess what then what activity did you see during the quarter as far as the trending up and the pace of improvement millennials?
Randy Rapp
Yes, this is 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 [ph] handle on that margin with a little more fee potential. And so, Ben referenced 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 things -- the opportunities we're seeing today, the things we're booking today are at -- are definitely at wider margins and higher fees than we've seen over the last 18 months.
Ben Clouse
Yes, Andrew, I would just add to that, maybe to put a little color on that. As you heard us say, our loan yields 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.
Andrew Liesch
Got you. All right. That’s really helpful there. And then just on the expense run rate going forward [indiscernible] 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?
Randy Rapp
Yes, I would say between 28 million and 29 million, Andrew, is our expected Q4 rate.
Andrew Liesch
Great. That's all the questions. Thanks so much for picking up.
Mike Maddox
Thanks, Andrew.
Operator
Thank you. [Operator Instructions] Next question will be from Matt Olney of Stephens. Please go ahead.
Matt Olney
Hey, thanks. Good morning. I wanted to go back to the discussion around Central Bank Corp. Looks like we saw a 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 anymore color you can add to their growth in 2Q or any early expectations for them the back half of the year as far as their growth? Thanks.
Ben Clouse
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, they are relatively new in Denver, for example. So there's huge opportunity there. And we would expect outsized growth in that market. I don't know if you guys want to add -- supplement that.
Mike Maddox
I think that's right. I mean, there's still only maybe $100 million, $150 million of 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 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.
Matt Olney
Okay, that's helpful, Mike. And then I guess, been 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 longer term initiative for the combined company?
Mike Maddox
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 that the environment there currently due to rates in 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.
Matt Olney
Okay, that's helpful. Thank you guys very much.
Mike Maddox
Thanks, Matt.
Operator
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.
Mike Maddox
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 bring them in as a part of the CrossFirst team. So thank you all for joining us and look forward to talking to you. I guess it'll be in January. So take care.
Operator
Thank you. This concludes the conference. You may now disconnect.
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CrossFirst Bankshares, Inc. (CFB) Q3 2022 Earnings Call Transcript