Cadence Bank Q3 2024 Earnings Call Transcript

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Provided by Quartr
October 22, 2024

Key Takeaways

  • Adjusted EPS of $0.73 up 6% sequentially and 37% year-over-year, reflecting solid profitability.
  • Core customer deposits grew over 11% annualized while deposit costs remained essentially flat (+2 basis points), driving funding stability.
  • Net interest margin improved to 3.31% in Q3 (up 4 basis points) and net interest income grew 10% year-over-year.
  • Despite $1.7 billion in new loan commitments, total loans were flat as payoff activity offset originations, though management expects loan growth to outpace payoffs going forward.
  • Credit quality stayed stable with net charge-offs at 26 basis points and allowance at 1.38% of loans, while capital ratios remain robust (CET1 12.3%), underpinning share buybacks.
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Earnings Conference Call
Cadence Bank Q3 2024
00:00 / 00:00

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Operator

Good morning, and welcome to the Cadence Bank Third Quarter 2024 Webcast and Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad, and to withdraw from the question queue, you may press star, then two. As a reminder, this conference is being recorded. I would now like to hand the call to Will Fisackerly, Director of Corporate Finance. Please go ahead.

Will Fisackerly
Will Fisackerly
Director of Corporate Finance at Cadence Bank

Good morning, and thank you for joining the Cadence Bank Third Quarter 2024 earnings conference call. We have members from our executive management team here with us this morning, Dan Rollins, Chris Bagley, Valerie Toalson, and Billy Braddock. Our speakers will be referring to prepared slides during the discussion. You can find the slides by going to our investor relations page at ir.cadencebank.com, where you'll find them on the link to our webcast, or you can view them at the exhibits at the 8-K that we filed yesterday afternoon. These slides are also in the presentation section of our investor relations website. I would remind you that the presentation, along with our earnings release, contain our customary disclosures around forward-looking statements and any non-GAAP metrics that may be discussed. The disclosures regarding forward-looking statements contained in those documents apply to our presentation today.

Will Fisackerly
Will Fisackerly
Director of Corporate Finance at Cadence Bank

Now I'll turn to Dan for his opening comments.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Morning. Thank you for joining us to discuss our third quarter 2024 financial results. After I've covered a few highlights and Valerie provides additional detail on our financials, our executive management team will be available for questions. We are proud to report third quarter results that reflect continued positive momentum for our company. GAAP net income was $134.1 million, or $0.72 per diluted common share, with adjusted net income from continuing operations for the third quarter of $135.6 million, or $0.73 per diluted common share, an increase of $0.04 or 6% compared to the second quarter of 2024. From a balance sheet perspective, our deposit performance was a real highlight for the quarter.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Our teams across the footprint have done a great job of retaining and expanding our deposits, resulting in significant growth in core customer deposits, over 11% on an annualized basis, while holding deposit costs essentially flat, up just two basis points in the quarter. We also generated meaningful new loan commitments, although loans were flat for the quarter as payoff pressures offset the growth due to active capital markets activities, creating paydowns as companies sell or refinance in permanent markets. Looking to the rest of the year, we are optimistic that our new loan originations will outpace the payoff pressures as our loan pipeline remains robust and diverse, and the economies in our footprint are performing very well.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Stabilized deposit costs and continued upward repricing of loans also drove fourth quarter, our fourth consecutive quarter of improvement in our net interest margin to 3.31%, up four basis points from last year. Importantly, credit quality continued to remain stable and in line with our expectations. Our net charge-offs were consistent with the prior quarter, and we maintained a solid allowance for credit losses at 1.38% of loans. While we did see an increase in non-accrual loans, primarily as a result of migration of a handful of previously criticized credits, our criticized and classified level have remained relatively consistent as a percent of loans during the year, and we are not seeing signs of concern or weakness. We're also pleased with our continued performance and operating efficiency, as reflected in our adjusted efficiency ratio of 57.7% for the quarter.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

As expected, our total expenses did increase as a result of merit increases, as well as a few items that benefited our second quarter expenses. Valerie will dive into these details as well as our expectations more in just a moment. Finally, we again took advantage of market swings and repurchased just over 323,000 shares of our stock. Our capital metrics remain strong, including CET1 of 12.3% and total capital of 14.5% as of September thirtieth. Finally, our tangible book value per share increased by $1.60, while our tangible equity to tangible assets ratio ended the quarter at 8.28%. I'll now turn the call over to Valerie for her comments.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

Thank you, Dan. It is good to be here this morning discussing another great quarter for Cadence Bank. As Dan mentioned, we reported adjusted EPS from continuing operations of $0.73, up 6% from the second quarter of 2024 and up 37% from the same quarter last year. The adjusted items for the third quarter were minor, only a $0.01 net EPS impact, and included a $1.2 million reduction of the FDIC's special deposit assessment asset estimate and $2.9 million of securities losses as we adjusted certain portfolio positions. As Dan noted, deposit growth was a real highlight for the quarter. Total deposit growth was approximately $985 million for the quarter, or 10.4% annualized.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

As laid out on slide four, this included growth of core customer deposits of $1.4 billion, offset by declines in public funds. The core customer growth consisted of approximately $775 million in interest-bearing deposits and $600 million in non-interest-bearing, of which $435 million was in temporary inflows of customer balances at quarter end that swept out the next day. Even excluding the impact of the temporary inflows, our non-interest-bearing deposits as a percent of total deposits was stable in the quarter at 22.7%, and the teams did an incredible job of retaining maturing time deposits and building customer balances. Loan balances were essentially flat for the quarter, with net declines in non-real estate C&I offsetting about a 2% overall loan growth in our other loan segments as we ended the quarter with loan-to-deposit ratio of 86%.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

The impact of the balance sheet activity on our margin continued to be positive as we increased net interest income by $5.1 million in the quarter to $361 million, and our net interest margin increased compared to last quarter by four basis points to 3.31%. Slide 10 details our steady improvement in net interest margin over the last year. Compared to the third quarter of last year, our net interest margin has increased 33 basis points, and our net interest income has grown 10%. Even with the decline in SOFR in the third quarter, we continued to see increasing loan yields, as only 29% of our loans are floating rate, with about half of those being prime-based.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

A combination of new fundings and variable loan repricings and renewals coming on at rates higher than the overall portfolio led to our yield on net loans improving five basis points in the third quarter to 6.64%. As Dan commented, our deposit costs have really stabilized, even with the balance growth increasing only two basis points to 2.55% for the third quarter. Additionally, average loans increased approximately $335 million linked quarter, funded by securities cash flows, which further improved the mix of interest-earning assets. The third quarter also benefited from our retirement of $139 million of sub debt at the end of the second quarter, and we have another $215 million in sub debt with a 4+% coupon that we plan to call in November.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

Additionally, we paid down $1.5 billion of our BTFP borrowings with excess cash just earlier this month. We expect to repay the remaining $2 billion of BTFP during the fourth quarter, replacing it ideally with core deposits, supplemented with wholesale sources as needed. Overall, due to all of these factors, we expect continued improvement in our net interest margin in the near term, even with the forward curve interest rate reduction expectations. Non-interest revenue, highlighted on slide 12, was $88.8 million on an adjusted basis, increasing $3.2 million or 3.7% in the third quarter, as broad-based fee growth was softened by a decline in mortgage banking revenue.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

The quarter's increase in deposit service charges of $1.1 million was primarily in account analysis fees, and the increase in other non-interest revenue of $7.1 million, excluding the gain on sale of businesses in the second quarter, included growth in credit-related fees, customer swap fees, SBA income, and other miscellaneous revenue, really across the board. These increases were partially offset by a $5 million decline in mortgage banking revenue in the third quarter, as changes in the rate environment, combined with payoffs and paydowns, resulted in a mortgage servicing rights valuation adjustment of -$7 million. This was offset by mortgage production and servicing income of $8.2 million, reflecting growth of 3% compared to the prior year's quarter.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

Stepping back to a year-over-year perspective, total adjusted non-interest revenue had solid growth during the year, up 10% compared to the same quarter in 2023. Moving on to expenses, total adjusted non-interest expense was just over $260 million for the quarter, up $9.2 million or 3.7%, which was expected given the July 1st annual merit cycle, as well as the tailwinds of several items impacting second quarter expenses favorably. As laid out on slides 13 and 14, compensation costs increased $4.3 million compared to the second quarter on an adjusted basis, that is due almost entirely to the merit cycle impact.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

Legal expense increased $2.9 million, and other miscellaneous expenses were at $3.9 million last quarter, with both increases simply a result of those lower second quarter expenses that included legal, fraud, and operational loss recoveries, as well as other benefits that were unique to the second quarter. On an overall basis, we continued to experience solid, broad-based expense management, resulting in the quarterly efficiency ratio of 57.7% and our year-over-year reduction in quarterly adjusted expenses of 1.5%. Given our strong expense management and our outlook for the remainder of the year, we are updating our full year 2024 adjusted expense guidance to a range of down 1%-3% compared with the 2023 full year.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

While very pleased with the reduction in expenses this year, we continue to invest in our growth, teams, and technology and expect a more normalized expense growth rate to resume for 2025. Turning to credit results detailed on slides eight and nine, net charge-offs for the third quarter were $22.2 million, or 26 basis points annualized, down slightly from the 28 basis points for the second quarter. A significant portion of these charge-offs were previously specifically reserved, and we recorded a provision for credit losses for the third quarter of $12 million, bringing our ACL coverage to 1.38% at the end of the quarter.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

Non-accrual loans increased by $56 million in the third quarter, and as a reminder, $82 million, or 30% of our $273 million in non-accrual loans, represent guaranteed portions of SBA and FHA credits. We don't expect collection issues with the guaranteed balances, but while they are in process, they do weigh negatively on our non-accrual, criticized, and classified balances. Even so, our classified and criticized loans as a percent of total loans has been relatively consistent through the year. Classified loans as a percent of total loans were flat at 2.09% linked quarter, and criticized loans increased slightly in the third quarter to 2.64%, but tracked lower than the same quarter last year. Our capital, detailed on slide 15, continues to build and remain strong, supporting growth and the ability to be opportunistic. Dan mentioned this quarter's share repurchases.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

Year to date, we have repurchased 1.2 million shares at a weighted average price of under $27. I commented earlier on our plans to call our $215 million in subordinated debt in November. This debt is currently included in Tier 2 capital, so that will create a slight dip in Tier 2 in the fourth quarter, but we anticipate that to be temporary and replaced in the near term through ongoing earnings growth. In closing, it really was a positive quarter for our company, and it was particularly pleasing to see the very strong deposit growth results, both in terms of growth as well as in managing costs. Beyond that, our net interest margin and fee businesses have continued to grow.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

Credit remains stable and in line with our expectations, and our teams have just done a fantastic job in improving operating efficiency over the year. We are optimistic and working hard to continue this momentum throughout the remainder of 2024 and into 2025. Operator, we would like to open the call to questions, please.

Operator

Thank you. We will now begin our question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. As a courtesy to the others, please limit yourself to one question and one follow-up. We will now pause momentarily to assemble our roster. Today's first question comes from Manan Gosalia with Morgan Stanley. Please go ahead.

Manan Gosalia
Manan Gosalia
Executive Director and Senior Equity Analyst at Morgan Stanley

Hey, good morning, all.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Good morning, Manan.

Manan Gosalia
Manan Gosalia
Executive Director and Senior Equity Analyst at Morgan Stanley

I wanted to go through some of the puts and takes on NIM in the near term versus the medium term. So maybe to start on the asset side, can you talk about how we should think about the net impact of the floating rate loans repricing in the near term? Plus, you know, it looks like you have some variable rate loans that you have coming due at a higher rate over the next one to 12 months. How should we think about that? And then finally, the fixed rate loan piece that you have repricing over the next year, because it seems like you've got a nice uptick in loan yields again this quarter, despite rates not being up.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

Yeah, I'm happy to take that. I would just point you all's attention to. We did have a correction on that slide 11 that has our repricing maturity, and so there is an updated slide deck that was posted this morning that details out really the categories of the rates. But you're exactly right. Our loan yields did continue to tick up even in spite of having 27% floating rate securities, and that, again, is because the overall portfolio at 6.41%, we're putting on the new loans at rates higher than that. We also have loans that are variable rate or fixed rate that are repricing or renewing, coming back in at higher yields. And so when you take a look, you know, you mentioned the coming on in three to 12 months.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

The weighted average rate of the loans that are to reprice over the next three to 12 months is 6.34%. We're putting on loans higher than that today, and so it's that incremental bump that we believe will continue to support loan yields increasing modestly as we look forward over the coming quarters.

Manan Gosalia
Manan Gosalia
Executive Director and Senior Equity Analyst at Morgan Stanley

Got it. So you're saying even the variable rate loans reprice at a slightly higher rate than what they are on the books at today?

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

Yes, absolutely, because they'll come on and effectively they're yielding the rate today, but when they come on for repricing, it's market pricing.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

So variable rate.

Manan Gosalia
Manan Gosalia
Executive Director and Senior Equity Analyst at Morgan Stanley

Got it.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

It's a one-year ARM. Variable rate just is, it's gonna reset further out than instantly.

Manan Gosalia
Manan Gosalia
Executive Director and Senior Equity Analyst at Morgan Stanley

Understood. And then maybe on the liability side, you know, you noted that you paid down some BTFP. You have more BTFP payments coming up. How should we think about deposit betas on the downside, given your comments that you would eventually want to replace that BTFP with core deposits?

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

Yeah. So, you know, you've likely noticed that we had a deposit cost increase of two basis points this quarter. Of course, the rate declines that did come in the quarter were late in the quarter. So I would expect that this quarter is actually our peak in deposit costs. We are working aggressively to be able to bring those deposit costs down and still continue to have the growth in deposits that we saw this quarter. That is on, you know, some of the exception prices, et cetera, that we're working hard on that. The other factor that I think is important to note is we had over, you know, almost a billion or $3 billion rather, in time deposits that renewed this quarter.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

We've got another $3.5, $3.6 billion that renew next quarter. They're.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Next quarter, as in fourth quarter.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

Yeah, in fourth quarter. Thank you, Dan. Yeah, I forget my quarter on end. And they're actually at just shy of 5%, and so those will reprice at a lower rate, depending on the term that they come on and renew at. And so there is, you know, a little bit of tailwind for the repricing of some of that CD book that is coming up over the next three to six months.

Manan Gosalia
Manan Gosalia
Executive Director and Senior Equity Analyst at Morgan Stanley

Got it. Thank you. Just to clarify, in terms of the deposit betas on the downside, what do you think you should get over the next couple of quarters?

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

Yeah, you know, the rates just started coming back down, so we're kind of in that new cycle of reporting deposit betas. I'm not sure we're ready to talk about a specific number there, other than we are working hard to be as aggressive as we can to bring those down while retaining deposits. So a little more on that, I think, as we come in the coming quarters.

Manan Gosalia
Manan Gosalia
Executive Director and Senior Equity Analyst at Morgan Stanley

Appreciate it. Thank you.

Operator

The next question comes from Brett Rabatin with Hovde Group. Please go ahead.

Brett Rabatin
Brett Rabatin
Director of Research at Hovde Group

Hey, good morning, everyone. Wanted to ask first, just on Dan. I know you mentioned the strong loan pipeline. Can you guys talk about the level of commitments, maybe linked quarter, and then maybe just gross versus net for 3Q in terms of actual production?

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Gross versus net, so yeah, so we saw new loans coming on in the quarter was $1.7 billion-ish, and it was. That's pretty close to where we were in 2Q. And the pipelines are full. Chris and Billy are both sitting right here. I mean, the team is busy. We are running hard, and I think we're winning a lot of business. We just can't keep it on the balance sheet. It comes, it gets paid off too fast. Billy or Chris?

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Go ahead, Bill.

Billy Braddock
Billy Braddock
EVP at Cadence Bank

Yeah, so a couple of segments, you know, energy being the primary one, where we've had more churn than normal, midstream, specifically. In the quarter alone, we had almost $200 million in kind of refinances, paydowns. That has a lot to do with the M&A market and bond market activity that has since slowed some, but our origination activity has not. What Dan's pointing to is pipeline activity in that space specifically has been robust. We just haven't kept up with the paydowns, but I think over a period of quarters, we will, and we will catch up. More broadly, and just general corporate C&I specifically, and we saw some of the same as more M&A activity driven that has created payoffs of our existing borrower, but pipelines are filling back up.

Billy Braddock
Billy Braddock
EVP at Cadence Bank

It's just, you know, any given point in any given quarter, it might be up or down. At the end of last quarter, it was flat.

Brett Rabatin
Brett Rabatin
Director of Research at Hovde Group

Okay. That's helpful. Yeah, that's helpful. And then just on the guidance for total adjusted revenue, when you think about the margin being a little better going forward, I totally agree with the change in the expense guidance, but I was a little surprised you didn't tweak higher maybe the total adjusted revenue number higher. If the margin's going to expand in the fourth quarter, you know, is there anything that would not have that 5%-8% be on the higher end of that range, you know, fee income? Is there some other component that I'm missing on that?

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

I think that that's certainly a possibility. You know, I tend to still be a little bit conservative, I would say, on where we may end up with deposit costs. There's a lot of competition out there in deposits, but I do think that all else being equal, if we continue to see the trends that we're seeing, then you know, the higher end range of that is not to be unexpected.

Brett Rabatin
Brett Rabatin
Director of Research at Hovde Group

I'm sorry, Valerie, the higher end is not to be unexpected?

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

Yeah. Yeah, I think that's a reasonable assumption.

Brett Rabatin
Brett Rabatin
Director of Research at Hovde Group

Okay. Great. Fair enough. Thanks for all the color.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Thank you, Brett.

Operator

The next question is from Catherine Mealor with KBW. Please go ahead.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Good morning, Catherine.

Catherine Mealor
Catherine Mealor
Managing Director of Equity Research at KBW

Thanks, great quarter. Good morning. Wanted to ask, Valerie, you mentioned that you think expense growth should normalize next year. We can put a big range around what normalized means. Is there any way to narrow that kind of conversation and maybe talk about it relative to revenue growth, or what kind of level do you think is an appropriate level of expense growth?

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

We agree. It's hard to know what normalized is. We agree with that statement. I think we look at what inflation is doing to us. You know, we're continuing to invest in our franchise. We're continuing to invest in our people. You know, we're looking at the inflation rates. I don't know that we have a number today. Valerie, you may have more color than that.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

Yeah, no, I think that says it well, and you know, we'll be updating our expectations for the overall income statement as we report next quarter, as we look into 2025. But normal as in, we don't anticipate the declines that we saw this year, but we're normalized with inflation and with continuing to obviously invest in our teams and technologies.

Catherine Mealor
Catherine Mealor
Managing Director of Equity Research at KBW

Great. So it's fair to assume as we move into next year, if your margin is expanding, maybe at a moderate pace, but still expanding, and the origination volume you're seeing continues to drive loan growth, and then mortgage rebounds and, you know, all that, it's fair to assume that we should be in an environment in 2025 where revenue growth is faster than expense growth. Is that fair?

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

I think that's fair.

Catherine Mealor
Catherine Mealor
Managing Director of Equity Research at KBW

Okay. Great. Thanks for the clarity. Appreciate it. Great quarter, guys.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

Thanks for the new slide, too. Yeah, thanks for the new slide, too, Valerie. I, I was panicking over the variable rate loan declining, so thank you for replying.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Oops.

Catherine Mealor
Catherine Mealor
Managing Director of Equity Research at KBW

Thanks.

Operator

The next question is from Michael Rose with Raymond James. Please go ahead.

Michael Rose
Michael Rose
Managing Director at Raymond James

Hey, good morning, guys. Thanks for taking my questions. Maybe just following up on the expense question. You know, we've heard more and more banks talking about, you know, kind of leaning in on hiring efforts in order to kind of drive, you know, some additional loan growth next year. Can you just talk about, you know, maybe your hiring pipelines and if you'd expect that to be kind of a greater contributor, you know, to kind of a normalized expense growth next year as we would think about it and what that impact might be? Thanks.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Yeah, Michael, I appreciate that. I think the question is, what's normalized? It's been so many years that that hasn't been normal. You know, what's normalized is the question for everyone, and we certainly are hiring people. We've got a new leader on the ground in a couple of markets. We've got a leader on the ground in Fort Worth that just joined us, we're excited about. You know, we continue to look for, and we think we've got people in the pipeline that you called to come on board here in the near future. But I don't know that there's anything outsized. I think that, you know, I would call that just normal investing in our franchise.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

I don't know that there's anything that we would call out that says, "You know, we're going to hire this big team of people that are going to do something." That's not been our normal process. We haven't seen that opportunity present itself. That doesn't mean in the middle of next year that the something doesn't come up, but right now, that's not what we're looking for, and we're not plugging that into budgeting numbers as we look forward. I think normalized for us is going to be in inflation on most things, and we're going to continue to invest in technology, and we're going to continue to invest in our people.

Michael Rose
Michael Rose
Managing Director at Raymond James

Helpful. And maybe just as my follow-up, you know, obviously nice, you know, build in capital this quarter. You guys bought back some shares. The earn back on the buyback, though, is getting up a little bit higher after the recent move in kind of all bank stocks, which has been nice to see. But can you just kind of outline your kind of, you know, near term, you know, buyback appetite? And then, you know, how should we think about the prospects of M&A as we move forward, especially once we get past the election? Thanks.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

That's two different questions. So buyback, we've been consistent all year long on the buyback. You've seen us do the same thing three quarters in a row. The market has hiccuped in some way, we've backed up, and we've taken advantage of that. Our buyback is in place. You know, we've got an annual process that we roll through on our buyback program, and I would think that we continue to play, Valerie, in the same rules that we've been playing in all year. I don't think we change anything there. On the M&A front, there continues to be conversations. You know, I think we continue to be one that would like to see expansion in footprint.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

We continue to see more opportunities, or we continue to see more announcements with footprint expansion, and that's less attractive to us. We would like to grow within the footprint. You've heard me talk for a while. We would like to grow in the markets we're already in. You know, in no particular order, we'd like to get bigger in Tampa and Orlando and Nashville and Atlanta and Houston, Dallas, Austin, and Chattanooga. And you know, we can - I can go on and on with the markets that we serve today, where we would like to be bigger within those markets. And so that's where we're focused, and we're having conversations. I don't know that anything comes about, you know, immediately, but we want to be in the game.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

We think today, from where we're trading capital-wise, where we sit from a capital number, we think we're sitting in a really good spot to be able to execute.

Michael Rose
Michael Rose
Managing Director at Raymond James

All right. That's a good list of markets there, so I think you'll have lots of opportunities. Thanks, guys, for taking my questions.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Thank you.

Operator

The next question comes from Ben Gerlinger with Citi. Please go ahead.

Ben Gerlinger
Ben Gerlinger
VP of Equity Research at Citi

Hey, good morning.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Hey, good morning, Ben. Yeah.

Ben Gerlinger
Ben Gerlinger
VP of Equity Research at Citi

Just curious if we could kind of just talk through about loan yields a little bit more here. I know you kind of answered it originally. So, we just had a 50 basis point cut, and the market's projecting a few more here in the next six months. Just kind of curious, like, how responsive have loan yields been to the most recent 50? Is everything priced in, and kind of going forward, any sort of color you can give, a little bit more granular on kind of, new loan yield rates or anything to that extent?

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Yeah. Valerie's pulling that one up. The chart on page 11, we break it out that way on purpose. But the floating rate that shows the $9 billion, $9.1 billion, 27% of the portfolio at 8.06%, that's virtually instant change, within 30-day change.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

Yeah. Yeah, yeah, within 30 days, you're right, because it's both prime and LIBOR and SOFR.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Yeah, right. Yeah, but that's going to happen very short. That nine billion dollars is going to change very quickly. The variable rate structure that's behind it, some of that could change in the next quarter, some of it could change a couple of years out. So that's a much longer variable rate reset process. And the fixed rate, that $8.7 billion in fixed rate, some of that's going to mature in this quarter and get repriced also. So some of each, mostly all of the floating rate stuff will reprice this quarter if rates change, and some of the other two quarters will reprice. So that's why we're breaking it out the way we're showing it to you that way.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

If you look back at this past quarter, the new loans came on at around a 7.70-7.75 level, from what we're seeing come in.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Remember, the rate change was late in the quarter.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

Yeah, absolutely.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

So a lot of that was before the rate change.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

Yeah. No, that's a fact. Yeah, and the spreads have been pretty wide, but I would expect some of the rate reductions.

Ben Gerlinger
Ben Gerlinger
VP of Equity Research at Citi

Gotcha. Okay, that's.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

Does that help?

Ben Gerlinger
Ben Gerlinger
VP of Equity Research at Citi

Yeah, yeah. No, that's a lot of color. Appreciate that. And then, on, fee income. So I get the MSRs accounting, and you have really no insight into that until someone in accounting tells you what it's going to be. But then if you back out securities gain, you kind of get to the, let's call it $95-ish, $96 million. Is that a fair run rate? Like, kind of backing into here, is core or excuse me, is other sustainable? Is $96 million a good kind of starting point for next year as a base, or is there something that we might be missing here behind the scenes?

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

Yeah, I mean, we had a good, solid performance, I mean, if you set aside the MSR. But I will say, you know, if rates do come down, we expect the mortgage revenue to actually pick up on the production side of things and the ability to sell those into the markets and, and drive some non-interest income. So I would expect that, you know, that's one variable that's really going to be rate dependent. You know, included in other NII was a little elevated this quarter compared to some of the prior quarters. I mentioned a slew of other items, you know, kind of miscellaneous positive moves in a variety of categories. It can bounce around a little bit quarter to quarter.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

I mean, it can bounce around $5 million quarter to quarter or more, simply because there's some fair valuation that occurs within those numbers. Some of our FDIC investments, we have some other fund investments that get fair value quarter to quarter, so it can impact that, and that's a little harder to predict. But other than that, we feel really good about our non-interest income. The various sources, the wealth teams are doing well. Like I said, with the interest rates and the mortgage, we anticipate that that should see some uptick as we look forward.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

The mortgage team is cued up for success. As we look at one of the things we've invested in this year is the mortgage team has done a good job of making sure that we've got great producers on the ground. They're ready to roll if rates, if the door opens for them, we're going to be able to, you know, harvest some mortgage revenue. On the wealth management side, the team's doing a fantastic job there. We're clearly asset priced, so if there's a change in valuation, you know, we would be impacted there. But right now, things look really good on both of those lines of business.

Ben Gerlinger
Ben Gerlinger
VP of Equity Research at Citi

Gotcha. Okay, sounds good. I appreciate the color. Thanks.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Thanks, Ben.

Operator

Thank you. The next question comes from Matt Olney with Stephens. Please go ahead.

Matt Olney
Matt Olney
Managing Director at Stephens

Hey, thanks. Good morning, guys. Want to go back to the expected paydown of this Bank Term Funding Program in the fourth quarter. It sounds like a portion of this is going to be from just, you know, holding lower levels of overnight liquidity. And I think that overnight liquidity level has been between $2-3 billion for most this year, but it was below $2 billion last year. So I'm trying to anticipate if we should be assuming lower levels of overnight liquidity next year once we see the full impact of this BTFP paydown.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Yeah, I think that's a fair assumption because we were actually earning dollars by holding what was out there.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

Yeah.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

We were earning more on cash than we were paying for it, and I think that's a fair assumption on your part.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

Yeah, exactly right. That $1.5 billion that we paid down in October was purely with excess cash. And so, you know, depending on where deposits go over the rest of the quarter, it'll be either funded the rest of it by deposits or funded by some wholesale funding. But I expect that we'll normalize, if you were, we've used that word a couple of times. Our cash levels may be $1.5 billion-ish-$1 billion within that range.

Matt Olney
Matt Olney
Managing Director at Stephens

Okay, perfect. Thanks. And then on the credit side, I think you mentioned the non-accrual uptick was just from a handful of credits that were previously identified. Any more color on industry or just general commentary on kind of what, what migrated?

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

It's just generic, normal flow. You know, I think when you're looking back at, at the criticized asset number, it's been up one quarter, down a quarter, up a quarter, down a quarter. We're basically where we were a year ago today. Chris, Billy?

Chris Bagley
Chris Bagley
EVP at Cadence Bank

No, that's, that's well said. Exactly, criticized loans are staying kind of flat. Normal migration of loans that were identified, that we've been working through. Team's done a great job of working out of credits. I think you see that in the, you know, the ORE numbers and the net charge-offs numbers, but normal flow, no industry specific, you know, systematic or systemic issues. It's, it's just one-off issue, if you will.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Yeah, it's hard to find cracks, weaknesses, concerns in any general area. It's just business as normal.

Matt Olney
Matt Olney
Managing Director at Stephens

Okay. Thanks, guys.

Operator

Thank you. The next question comes from Gary Tenner with D.A. Davidson. Please go ahead.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Hi, Gary.

Gary Tenner
Gary Tenner
Managing Director at DA Davidson

Hey, thanks. Good morning. So you'd mentioned that, you know, you're working diligently, obviously, on the deposit side, but it's still pretty competitive out there. Can you talk about what you were able to do in terms of deposit rates following the September rate cut, and what type of receptivity, or pushback you've experienced on the customer side?

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Well, it's probably too early to answer the.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Yeah

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Pushback piece because this happened, you know, three weeks ago, but the team was pretty aggressive in making sure that we made changes the day that the rates dropped, so we reset our CD rates. Chris drives that process for us. You know, we look at our exception pricing. The team has been doing a fantastic job all year long of hand-to-hand combat on the exception pricing, a process that we have within our bank, and we made sure that everybody was focused on that. We spent weeks coming into the drop, being prepared, and we've moved. Chris, any feedback that you've heard in the last couple weeks? I haven't.

Chris Bagley
Chris Bagley
EVP at Cadence Bank

You know, it's still competitive out there. Most banks dropped, you know, different amounts. We took, you know, theoretically, kind of, the Fed dropped fifty. We were looking at fifty across a number of our products as the drop. Some banks dropped a little bit less than that and some more, so I think we're right in the middle of the pack. We're competing, we call it hand-to-hand combat, with our clients. I think we've got the tools to retain the deposits and still grow deposits with the pricing that we have out there. Dan's right, I think it needs to settle down a little. The rates have been bouncing a bit around, and we're seeing our competition adjust. They're adjusting, you know, rate and also terms, so competing on term.

Chris Bagley
Chris Bagley
EVP at Cadence Bank

Everybody's kind of ran to the short side, now you're seeing some folks step out a little bit farther on the term, because that- that's attractive to the client from a deposit acquisition perspective. So we're on top of all that, watching it, ready to compete.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

We're measuring in the field on both new production, what's new coming in the door, and then we're also measuring on retention. The team is doing a really good job on retention.

Gary Tenner
Gary Tenner
Managing Director at DA Davidson

Great, appreciate that. And just a follow-up, I don't think I saw in the deck or heard it in the prepared remarks, but, do you have, as a jumping-off point, kind of a September thirty interest-bearing deposit spot rate?

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

One more time. September thirty what?

Gary Tenner
Gary Tenner
Managing Director at DA Davidson

Do you have a interest-bearing deposit spot rate as of September thirty?

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

I don't. That's out.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

Yeah, I don't think that we've put that in. We had it, obviously, for the quarter, you know, the interest-bearing deposits at 3.30, but not a spot rate, but obviously, to Chris's point, it.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Rates changed, like, three days before that.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

Right. Right. But we dropped it fairly significantly, actually, the very day that rates were announced.

Gary Tenner
Gary Tenner
Managing Director at DA Davidson

Okay, fair enough. Thank you.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Thanks, Gary.

Operator

Thank you. The next question is from Jon Arfstrom with RBC Capital Markets. Please go ahead.

Jon Arfstrom
Jon Arfstrom
Managing Director at RBC Capital Markets

Hey, thanks. Good morning.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Good morning, Jon.

Jon Arfstrom
Jon Arfstrom
Managing Director at RBC Capital Markets

Most of my questions have been handled, but I wanted to go back to loan growth a little bit, and I hear you on energy, but that general C&I you know has really been under pressure. Do you have any more color on that as to why that's happening and what could change that? I know, Chris, you said maybe that changes in a couple of quarters, but any more color on that?

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Yeah, I think when you talk to the team, they feel like they're paddling really hard to not see growth hit, as we've looked at that. I think the team, when we were talking about it coming into the end of the quarter, Jon, we actually thought that we had a likelihood that we would see some fundings and see some growth in that category before the end of the quarter, and that didn't materialize, Billy.

Billy Braddock
Billy Braddock
EVP at Cadence Bank

Yes, so Jon, we've got our pipelines are great. We had some awarded transactions that we've got, you know, we were hoping would close at the end of the quarter. They didn't, and they're pushing. We're still in a good position on those. Some of the payoff activity is coming from kind of sponsor-backed, owned companies. The benefit we get from that is a lot of them are going to, you know, private credit lenders where we're keeping deposits. I mean, our corporate teams are able to have net core deposit growth, and a lot of it is because, you know, where we lost in loans, we kept treasury and depository accounts. They no longer have a revolver, and now they overfund working capital accounts. We'll take that trade from an earnings standpoint.

Billy Braddock
Billy Braddock
EVP at Cadence Bank

But from a real loan growth, it's a fantastic pipeline that we see across the entire market spectrum, and across various product groups as well, that are specialized. So I feel good about where we're gonna end the year. It just, you know, the payoff pressure was real, and I don't think that'll necessarily slow, but I think the pipeline will prove up.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Okay, does that help you, Jon?

Jon Arfstrom
Jon Arfstrom
Managing Director at RBC Capital Markets

Yep, that does help. I get it. Again, I asked you this a couple of quarters ago, and I think you, at the time, you maybe preferred higher for longer run rates. Do you have an opinion today? The Dan Rollins crystal ball, is there something you'd like to see the-

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Yeah. I think stability is the key at this point. You know, slower moves is better, just stability.

Valerie Toalson
Valerie Toalson
CFO at Cadence Bank

We're really pretty neutral. Looking at the change in the curves between September and October, I mean, it's negligible on what we're anticipating looking forward, simply, because of the way our balance sheet is positioned. To Dan's point, if rates are moving at 25 basis point increments, that's a lot easier for customers to digest, and it's a lot easier to try to capture more of that beta as we go forward, so you know, if we had a preference, it would certainly be that they're a little slower pace in what they're going to do.

Jon Arfstrom
Jon Arfstrom
Managing Director at RBC Capital Markets

Okay. Okay. All right. Thank you for the help. I appreciate it.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

Thanks, Jon.

Operator

Thank you. Seeing no further cues in the line, this concludes our question and answer session. I would now like to turn the call back over to management for any closing remarks.

Dan Rollins
Dan Rollins
Chairman and CEO at Cadence Bank

All right. Thanks again, everybody, for joining us this morning. I'm sure you can sense the excitement and the optimism that our team shares regarding both our results we've discussed this morning as well as the path ahead. We think we're firing on all cylinders. Our bankers have done a tremendous job of protecting and growing our core deposit relationships, as well as managing an active loan pipelines. Our fee businesses are reporting key success, as well as including our mortgage and wealth management teams. And our administrative and operations teams are continuing to strive daily to improve our processes and efficiency and support our frontline teammates. It really is an exciting time and a rewarding time to be on the Cadence team. Thanks for your time today. We appreciate you joining us, and we look forward to seeing you on the road real soon.

Operator

The conference has now concluded. Thank you for your participation. You may now disconnect your lines, and have a great day.

Executives
    • Dan Rollins
      Dan Rollins
      Chairman and CEO
    • Billy Braddock
      Billy Braddock
      EVP
    • Will Fisackerly
      Will Fisackerly
      Director of Corporate Finance
    • Chris Bagley
      Chris Bagley
      EVP
    • Valerie Toalson
      Valerie Toalson
      CFO
Analysts
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