Cadence Bank Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 23, 2024

Key Takeaways

  • We reported GAAP net income of $114.6 million, or $0.62 per share in Q1, marking a significant improvement over recent quarters.
  • Loan balances grew by $385 million (4.8% annualized), driven by strong non-real estate, owner-occupied C&I, and residential mortgage origination.
  • Core customer deposits increased organically by $400 million, offsetting over $1 billion of strategic reductions in brokered and public funds.
  • Net interest margin expanded 18 basis points to 3.22%, benefiting from a Q4 securities portfolio restructuring and a slowdown in deposit cost increases.
  • The efficiency ratio improved by ~600 basis points to 60.1%, as $6.3 million of linked-quarter expense savings combined with revenue growth.
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Earnings Conference Call
Cadence Bank Q1 2024
00:00 / 00:00

There are 15 speakers on the call.

Operator

Good morning, and welcome to the Cadence Bank First Quarter 2024 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Wilbur Sakerley, Executive Vice President and Director of Finance.

Operator

Please go ahead.

Speaker 1

Good morning and thank you for joining the Cadence Bank First Quarter 2024 Earnings Conference Call. We have members from our executive management team here with us this morning, Dan Rollins, Chris Bagley, Valerie Toultsen 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 exhibit to the 8 ks that we filed yesterday afternoon. These slides are also in the Presentations section of our Investor Relations website.

Speaker 1

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 upon our presentation today. And now I'll turn to Dan for his opening comments.

Speaker 2

Good morning. We appreciate everyone joining us this morning to discuss our Q1 2024 results. I will comment on some of the key highlights and then Valerie will dive into the financials in more detail. Our executive management team will be available for any questions following our remarks. We're extremely pleased to see the efforts and hard work of teammates across our company bear fruit in the financial results we've reported this quarter.

Speaker 2

If you recall, we completed some strategic initiatives in 2023, including the sale of our insurance agency, the restructuring of our securities portfolio, the streamlining of our branch network as well as other opportunities to improve our operating efficiency. These efforts along with a continued focus on business development can be seen throughout the results that we will be discussing this morning. We reported GAAP net income for the Q1 of $114,600,006.02 per common share with adjusted net income from continuing operations for the Q1 of 114,400,000 dollars also $0.62 per common share, representing considerable improvement over each of the last several quarters. From a balance sheet perspective, our active pipelines resulted in loan balances growing just over $385,000,000 or 4.8 percent annualized. We saw good growth in our non real estate and owner occupied C and I portfolios as well as a nice pickup in residential mortgages.

Speaker 2

From a deposit perspective, we continued to strategically reduce both brokered and certain thinly priced public fund balances, which collectively declined just over $1,000,000,000 linked quarter. Importantly, we were able to organically grow core customer deposits by approximately $400,000,000 in the quarter, which offset much of this decline. Our community bank continues to perform very well in the face of continued strong competition for deposits, driving the majority of the core deposit growth in the quarter. As expected, we saw a significant improvement in our net interest margin, which was up 18 basis points compared to the 4th quarter to 3.22%. The balance sheet dynamics that I mentioned and our 4th quarter securities portfolio restructuring contributed to this improvement.

Speaker 2

Valerie will discuss the moving parts more in just a moment. Our results for the quarter also reflected considerable improvement in operating efficiency. Our adjusted expenses declined by over $6,000,000 compared with the Q4 of 2020 3, which along with our revenue growth drove close to a 600 basis point reduction in our adjusted quarterly efficiency ratio to 60.1%. We anticipate additional improvement as we move throughout the remainder of 20 24. From a credit quality perspective, we recorded a provision for credit losses of $22,000,000 while net charge offs totaled $19,500,000 or 24 basis points of average loans on an annualized basis, both of which were in line with our expectations and improved over our Q4 of 2023 results.

Speaker 2

Finally, we repurchased just over 650,000 shares during the quarter at a weighted average price of $25.65 We were able to do that while continuing to grow our capital metrics, which is reflected in CET1 of 11.7% and total capital of 14.5 percent at March 31, 2024. I'll now turn the call over to Valerie for her comments. Valerie?

Speaker 3

Thank you, Dan. After a noisy year last year, both for the industry as well as our results, it is really nice to have a good clean quarter to discuss this morning. When looking at our Q1 2024 performance, the results of our focus to deliver improved operating performance are clear. We showed improvement in virtually all of our financial results and operating metrics, including a 55% improvement in our adjusted EPS from continuing operations, a 26% improvement in our adjusted pretax pre provision net revenue and the nearly 600 basis point improvement in our efficiency ratio that Dan mentioned. There were no significant non routine items in our results for the Q1, so GAAP and adjusted net income available to common shareholders were just over $114,000,000 or $0.62 per diluted share.

Speaker 3

Turning first to margin and net interest revenue beginning on Slide 10. We reported net interest income of $354,000,000 for the Q1, an increase of $19,000,000 or 5.8 percent compared to the Q4 of 'twenty 3. Our net interest margin was 3.22 percent for the Q1, up 18 basis points. The driving factor behind the net interest margin increase was the Q4 of 20 23 Securities portfolio restructuring, which resulted in a quarterly increase of 65 basis points improvement in our Q1 security portfolio yield to 3.13%. Our net interest margin also benefited from a continued slowing in the pace of deposit cost increases and deposit mix shift and improvement in our earning asset mix.

Speaker 3

The total cost of deposits increased 13 basis points to 2.45 percent for the quarter, representing the slowest pace in deposit cost increases since the onset of this rate cycle. Non interest bearing deposit balances ended the quarter at 23.1% of total deposits, down just slightly from 24% at the end of the 4th quarter. Our yield on net loans excluding accretion was 6.46% for the 1st quarter, up 3 basis points from the prior quarter's yield. Non interest revenue highlighted on Slide 13 was $83,800,000 on an adjusted basis, an increase of $10,700,000 or 14.6 percent compared to the Q4 of 2023. This increase was driven primarily by 2 areas, service charge revenue and mortgage banking.

Speaker 3

Service charge revenue increased $7,200,000 primarily due to the 4th quarter accrual to account for deposit service charge fee changes. Mortgage banking revenue also increased notably, both production and servicing revenue as well as the MSR asset valuation. Production and servicing revenue increased $2,500,000 as we entered into the spring selling season and the MSR asset valuation was essentially flat for the quarter compared with a negative adjustment of $5,100,000 for the Q4 of 2023. Our fee businesses continued to perform well in the first quarter, representing 19.1 percent of total revenue and assets under management increased 8.5 percent to 23,000,000,000 dollars Turning to Slides 14 and 15, total adjusted non interest expense was $263,500,000 for the quarter, reflecting a linked quarter decline of $6,300,000 This decline, along with the quarter's revenue growth, contributed to material improvement in our adjusted efficiency ratio to 60.1% for the Q1 compared to 66% for the Q4 of 2023. As expected, salaries and employee benefits increased $8,600,000 compared to the 4th quarter with over half of the increase as a result of 1st quarter resets of FICA and 401 plan expenses.

Speaker 3

In addition, certain of our incentive compensation accruals were higher in the Q1 as a result of strong operating performance. Data processing expense declined $2,800,000 linked quarter impacted by seasonality and card volumes as well as other vendor expense and project timing. Advertising and public relations expense declined $3,400,000 from seasonally high 4th quarter costs and legal expense also declined $2,500,000 as the 4th quarter included some non recurring accruals. Finally, other miscellaneous expense declined $4,200,000 linked quarter as a compilation of a number of factors, including a reduction in operational losses. This Q1 improvement in non interest expenses, combined with the revenue growth resulted in pre tax pre provision net revenue of $174,200,000 a meaningful increase over $137,900,000 reported in the Q4 of 2023.

Speaker 3

Moving on to credit quality. On Slides 89, we recorded a provision for the quarter of $22,000,000 and net charge offs of 19,500,000 24 basis points of loans and leases annualized, both of which represent improvement compared to our Q4 'twenty three results. Our allowance for credit loss coverage remains flat at 1.44%. While our criticized and classified loan totals as a percent of total loans increased slightly compared to the Q4 of 2023, both have improved compared to the Q1 of 2023. Our non performing loans and non performing asset totals increased linked quarter to 73 basis points of loans and 51 basis points of assets respectively.

Speaker 3

About 25% of our non performing loans have government guarantees behind them. Factoring these out, the linked quarter increase in non performing loans was only $14,500,000 Overall, credit remains well managed and in line with the guidance that we provided in our year end earnings call. Our capital is shown on Slide 16. As Dan mentioned, opportunistically repurchased just over 650,000 shares during the Q1 under our share repurchase program. We were able to take advantage of a temporary market decline and repurchase these shares at a weighted average price of $25.65 Importantly, our strong earnings drove further improvement in our regulatory capital metrics even with our share repurchase activity, January's dividend increase and 1st quarter's loan growth.

Speaker 3

Additionally, total shareholders' equity of $5,200,000,000 at the end of March is up $700,000,000 or 16% compared to this time last year, once again indicative of our capital accretive efforts over the past year. Looking forward, we continue to be comfortable with the 2024 guidance ranges that we shared last quarter in all categories, although it does appear that net interest income will be impacted slightly more positively than anticipated given what appears to be a higher for longer rate environment. In closing, as Dan mentioned, our teammates have worked relentlessly on the planning and the execution of the strategic efforts that have driven the improved results we've reported this quarter. It truly is exciting and rewarding to see these efforts pay dividends for our company and our shareholders. But of course, we are not stopping here and we continue to work toward driving further improvement over the remainder of 2024 and beyond.

Speaker 3

Operator, we would like to open the call to questions, please.

Operator

We will now begin the question and answer session. Our first question today is from Jon Arfstrom with RBC Capital Markets. Please go ahead.

Speaker 2

Hey, thanks. Good morning. Good morning, Jon.

Speaker 4

Hey, Valerie, question for you. Can you talk a little bit about the asset repricing and what kind of a lift you're expecting in asset yields in the next quarter or 2?

Speaker 3

Yes. Thanks, John. Yes, we saw the biggest part of the lift is obviously from the Q4 to the Q1 with the securities repositioning. That really is in place. And so what we're looking at going forward is simply the more natural price lift that is inherent within our balance sheet repricing.

Speaker 3

We've got that slide in our deck on Page 12 that shows the repricing. And given just the loan repricings that we've got coming up, as well as then some of the cash flow coming up securities back and reinvesting that, We are expecting it to improve to the extent that it will keep our margin fairly stable to potentially even increasing a little bit over the year.

Speaker 2

Okay. Okay.

Speaker 4

Yes, I was looking at that 8.33 weighted average rate. It doesn't seem like you'd get a lot of lift in the near term. Is that fair?

Speaker 3

Well, there is that, but then there is the portion that is amortizing. What that chart does not include is the amortizing portion of the portfolio. And so and of course unanticipated payoffs. And so as we're able to reinvest those dollars, it does have a little bit more lift than what that would appear on the surface.

Speaker 4

Yes. Okay. Okay. And just one on the other side of the balance sheet. On Slide 4, you guys call out some of the core deposit growth of 400,000,000 dollars You talk a little bit about the drivers there and is that repeatable going forward?

Speaker 4

Thanks.

Speaker 2

Yes. This is the 4th quarter, Q3 or Q4 where we've had really good core customer growth in the community bank. We continue to see lots of competition out there in the world as you know, but I'm really proud of our team. Chris, you want to add on that?

Speaker 5

There is a lot of competition out there, but we've got great bankers

Speaker 6

across a great footprint with

Speaker 5

active and vital markets. And so I think the opportunity to continue to grow there is real for us.

Speaker 2

Yes. We're excited about what the team is doing every day.

Speaker 4

Okay. Yes, numbers have been good. Okay. Thank you. Appreciate it.

Speaker 2

Thanks, John.

Operator

The next question is from Manan Gosalia with Morgan Stanley. Please go ahead.

Speaker 7

Hey, good morning all. I wanted to touch on the NII. Well, the revenue guide really, but the NII component of that guide, how should we think about that in an environment where we get no rate cuts this year? Is that a bigger benefit? Or are you relatively neutral at this point to higher rates?

Speaker 2

Amana, good to hear from you this morning. Great question. The guidance is using the forward curve. Right. And so when you look forward, if the forward curve is wrong, there's probably benefit.

Speaker 2

Valerie's got numbers.

Speaker 3

Yes. Yes, we're using the forward curve as of March 31. And so that includes a couple of rate cuts this year, one early next year. If that ends up being flat and having no cuts this year, it's incrementally positive to our NII, just under 1%. So not hugely incremental, but definitely a positive slant to it.

Speaker 7

That's helpful. And then do you have the jumping off point for NIM at the end of the quarter? I would assume that it's higher than the average NIM for the quarter given the repositioning and the redeployment of cash?

Speaker 3

I don't have that. We have just our NIM for the full quarter. I will say if you some of the average loans actually, the loan balances came on a little bit more weighted toward the end of the quarter. And so some of the impact of the new loans and the higher yields that those are bringing was a little bit delayed. But overall, it was fairly balanced.

Speaker 3

The securities purchases that we had in the quarter were very early on, so we really pretty much got the whole impact of that securities yield in the Q1.

Speaker 7

So maybe just slightly higher than the average is what you're saying?

Speaker 3

I think that's fair. Yes.

Speaker 7

All right. Thank you.

Operator

The next question is from Casey Haire with Jefferies. Please go ahead.

Speaker 2

Casey, good morning.

Speaker 8

Yes, thanks. Good morning, everyone. I wanted to touch on the loan growth outlook. Very nice result given what's going on in the industry. Just wondering how are pipelines shaping up after a decent quarter?

Speaker 8

And the line utilization, C and I line utilization was up. Just wondering if that's sustainable or we should expect a reversal? Thanks.

Speaker 2

Yes. I think line utilization is just normal business moving around. I'm really proud of what the team is doing out there. When we look at what's happening in the company, we saw a pipeline that was filling in February, March, started the year blower and was getting bigger throughout the quarter. So we're excited about what the pipeline showing Billy.

Speaker 9

Yes, sure. So that's true and it's across most segments with the exception of SBA that one's flattish. All of our general corporate segments specifically is what I'll talk to have really picked up in the last 5 months call it. We saw some of the pull through occur like Valerie said at the end of the last quarter and our pipelines are solid across various segments. A basic comparison is our volumes peaked probably back in mid-twenty 22 from an approval standpoint and then they troughed later last year.

Speaker 9

We're 25% off of our trough in our approval volumes. So we're at a good upward trend there and we're seeing pipelines fill from there. So good trajectory. And as you would suspect, Casey, the growth is coming in the higher growth markets. We're seeing lots of activity in Texas, Florida, Georgia,

Speaker 2

which is what you would expect. Valerie, did you want to add? Yes.

Speaker 3

I was just going to share that, of that line utilization, it did tick up a little bit this quarter. But if you drill it down to the detail, it's really all coming from our construction portfolio, which is typical for that. That's the nature of that is it will fund up. So that's really what's driving that. The rest of the portfolio is fairly stable.

Speaker 8

Got it. Thanks for the color. And then just lastly, switching to capital. The buyback, you guys bottom ticked it, which is the good news. But you didn't use a ton of the authorization.

Speaker 8

I guess my takeaway, it feels like the share buyback is going to be pretty price sensitive and not necessarily going to utilize the authorization despite a very strong CET1 ratio. Is that fair?

Speaker 2

I think that's fair. I think we want to be price sensitive. We want to be opportunistic in what we're doing. That's what we've done in the past with our buyback. And so we're prepared to take action and we did.

Speaker 10

Okay. Thank you.

Speaker 11

Thank you, Casey.

Operator

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

Speaker 12

Thanks. Good morning.

Speaker 2

Hey, good morning, Catherine.

Speaker 3

A couple of follow ups

Speaker 12

on the margin. First, Valerie, on loan yields, they were only up about 3 basis points this quarter. Is it fair to say that with just your outlook for fixed rate repricing that should move higher on a kind of per quarter basis over the rest of the year? Or was there anything kind of this quarter that limited that expansion?

Speaker 3

Yes. There were some higher loan fees in the Q4 that impacted that quarter over quarter variance by probably 3 basis points. So that otherwise that would have been closer to a 6 basis point improvement. The other factor driving it was some of the timing of the loans that came on the books were a little bit later in the quarter. So those were the two factors.

Speaker 3

We do anticipate that some of the repricings combined with the continued loan growth will have a more positive impact on those loan yields as we look into the next quarter. Okay. That's great. And then

Speaker 12

how about on cost of deposits? Do you feel like you're nearing a peak for that? And maybe if

Speaker 3

you could talk about some

Speaker 12

of the kind of trends in both the non interest bearing balances and maybe cost of deposits towards the end of the quarter that may help us? Thanks.

Speaker 3

Yes. So we this quarter was absolutely the slowest quarter that we have seen on that cost of deposit increase, and it was really driven by mix shift versus inherent cost increases, if you will. In fact, we're able to tweak some of those on the softer side that helps balance that out. As we look forward, assuming where the rate and again, for all our assumptions, we're using the forward curve as of March 31, that would assume really kind of an end of the second quarter, beginning of the third quarter peak in deposit costs. But again, expecting the stability of those to be much more manageable than obviously what any of us saw last year.

Speaker 3

We are continuing to see solid growth in our CD portfolio. One interesting fact is that, we have not only the new CDs that come into that, but the rollover impact and the rollover CDs are actually coming on at a slightly or the combined new and rollover CDs are coming on to the books about 10 basis points, 15 basis points lower than they were in the 4th quarter. So that's a positive for us on the margin as well.

Speaker 2

Is that good choice you're looking for?

Speaker 12

Yes, that's perfect. Thank you.

Speaker 2

Thank you, Catherine.

Operator

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

Speaker 13

Hey, good morning, everyone. Thanks for taking my questions. Just wanted to ask one on credit. I know you guys have had some continued upward migration in criticizing classified, not surprised everybody's seeing it. But I think you guys have been pretty conservative in kind of classifying those credits.

Speaker 13

So can we just get some color there? And then maybe what drove the sequential increase? Thanks.

Speaker 2

I'd start with jump in here, Chris. I would start with the criticized. Criticized actually down year over year. So the criticized loans have been basically flat for now a year. When you're looking within those criticized categories, we've got migration moving within there.

Speaker 2

Chris?

Speaker 5

I agree. So we had what a 4 bp increase for the quarter, but it has been flat. So those loans that we've identified over the cycle over the last year, 9 months, those are what have migrated into the non performing group that we continue to work. The team is doing a great job, early identification, early action. So we've got traction there.

Speaker 5

If you look at the quarter, the increase in nonperforming, interesting when you look through there of the $20,000,000 $24,000,000 an increase $10,000,000 of that was guaranteed SBA loans. So it's pretty granular. It was one large credit, but it was really a granular move and what I would call feels a little slowing from a nonperforming migration. And so that collection cycle to get through those, we're working really hard to work on going forward.

Speaker 13

Very, very helpful. And maybe just as a follow-up question, expenses are kind of well controlled. Is there any opportunity to kind of are kind of well controlled. Is there any opportunity to kind of ramp up though investment spend as we kind of move through the year, just maybe given some of the pullback from some of your competitors, maybe be opportunistic, things like that? And then to the extent that you guys can talk about next year, would we expect a more normalized rate of expense growth just given the impacts of inflation higher for longer kind of etcetera?

Speaker 13

Thanks.

Speaker 2

Yes, I think we're constantly looking for ways to cut cost. But we're also looking for ways to invest in ourselves. We need continue to invest in our business, whether that's investing in our people, whether that's investing in the technology that we're using. We've got a pretty robust process that we're working through today. I think we're seeing the benefits of the work that we've been doing, as you said, over the last multiple years.

Speaker 2

This was just a clean quarter and so you get to see it all. Valerie?

Speaker 3

Yes. I would just add that inherent within our guidance for expenses in 2024 is a reinvestment or a continued investment, I would say, in our technology and our people. From an opportunistic hiring, that really is market by market and business by business. And if there are key opportunities where we believe that we've got a niche that we can further strengthen or fill in that perhaps we're not in before, absolutely, we're going to take a look at those opportunities.

Speaker 2

Yes, we've also got

Speaker 11

it. Thanks.

Speaker 2

Yes, that sounds good. Thanks guys.

Operator

The next question is from Brandon King with Truist. Please go ahead.

Speaker 6

Hey, good morning.

Speaker 2

Good morning, Brandon.

Speaker 6

So with updated forward curve, could you give us your updated thoughts on where you see non interest bearing deposits trending from here and kind of where do you see that mix shift being standing at by the end of the year?

Speaker 2

Yes, our modeling hasn't changed much. We may be a little more aggressive than others. Go ahead, Valerie.

Speaker 3

Sure. We actually have that mix going to about 20% non interest bearing deposits, the total deposits by the end of the year with just a gradual decline between here and there.

Speaker 6

Okay. And just are you seeing some more stabilization kind of in some of your commercial depositors accounts? Yes.

Speaker 3

I think the biggest volatility that we've seen has really just been in public funds. And so the corporate accounts that volatility was really this time last year. For the most part, there's some seasonality with bonus payments and some of the things like that, that you'll see in corporate customers from time to time. But overall, good solid performance there.

Speaker 4

Yes.

Speaker 2

I think the deposits as a whole, I don't know that we're seeing a whole lot of disruption. It's just normal customer business. The fact that rates are up five 100 basis points in the last year, there are still customers that are waking up, they're realizing, I don't want to miss some of that. And so you're seeing customers continue to make decisions. I've said for a while that I think the first time we get close to a rate drop, I think that wakes people up.

Speaker 2

And so I think you can see people react to that first rate drop by taking advantage of the rates that are there. They don't want to get left behind. So I think we've still got the same normal behavior that we've been expecting in deposits and the ability to have our 300 plus branches across our footprint along with the digital capacity and capabilities that we're building out. I think we've still got great opportunities to continue to grow core deposits.

Speaker 6

Okay. And then lastly, what's the outlook for mortgage here? Are you looking to maybe sell some more loans in secondary market or portfolio some and then kind of what you're seeing within your customer base?

Speaker 2

Yes, the inverted yield curve continues to create havoc on the secondary market in the mortgage book. Go ahead, Valerie.

Speaker 3

Yes. So I think the biggest challenge in the mortgage area is 1, the rates, although I think consumers are starting to digest that that's what it's going to take to get a mortgage. That we typically see and anticipate that to continue. And other than that, our volumes are fairly consistent with where they were last year, but we do see some opportunities as we go forward. We're not doing much at all on the refi side and we are selling more than we're portfolioing, but there is a nice mix there for both.

Speaker 2

And what's coming on the portfolio is the ARM products.

Speaker 3

It is, yes.

Speaker 5

I'll just add to that, the lack of inventory is given we've got a construction to perm product that I think plays well into that. So we're getting some nice pickups there.

Speaker 6

Okay. Thanks for taking my questions.

Speaker 2

Thank you, Brandon.

Operator

The next question is from Stephen Scouten with Piper Sandler. Please go ahead.

Speaker 2

Stephen, good morning.

Speaker 14

Thanks. Good morning. I just wanted to confirm, you were saying 20% on non expiring, which does seem extremely conservative. So presumably, if that's in your guide, if that, say, shook out at 2020, 2021, 2022 or if there was upside there, there would also be upside to overall NII guide, revenue guide?

Speaker 3

Yes, that's exactly right. That is factored into our modeling and our guide.

Speaker 10

Okay, perfect. Appreciate the clarification. And just from a competitive perspective,

Speaker 14

what are you seeing in terms of loan demand like and how other competitors are playing new loan yields? Do you feel like that competitive environment is changing in any material way, especially as 2020 and 2021 vintages of loans presumably are repricing from what I would assume was the lowest rate on your loan on your book moving forward? Just kind of wondering how that's playing out?

Speaker 2

I think there's always competition in the loan book. And again, depending upon the market, depending upon who the competition is coming from, we play across the rural south, we play in major metropolitan markets and we see different competitors in those markets and they all behave a little bit differently. We're certainly seeing some competition on the community bank side on smaller business credits where banks are willing to take some of those credits at rates that we've not played in. On the other hand, I think on

Speaker 9

the corporate side, it's been much more stable. Billy? Yes. That's a fair statement. Corporate banking pricing environment has been stable.

Speaker 9

For the highest quality and the highest, I'd say, house account, full wallet, larger corporate deals, those have started to get more competitive primarily in price, but structures have held in solid. Our non bank competitors are continuing to take the higher risk deals. The banks have stayed disciplined in that market and for the most part stayed away from those high leveraged sponsor bag buyout deals.

Speaker 14

Got it. Very helpful. Thanks for the time, Samir.

Speaker 2

I appreciate it. Thank you.

Operator

The next question is from Matt Olney with Stephens. Please go ahead.

Speaker 2

Good morning, Matt.

Speaker 10

Thanks. Good morning, everybody. Going back to the non interest bearing deposit discussion and the guidance of 20% by year end, Is there anything that's structural that would make Cadence more vulnerable to continue NIB headwinds?

Speaker 3

No, no, not at all. Maybe a conservative treasury.

Speaker 2

I just think we want to be realistic about what's happening. We're continuing to see customers migrate and I think we want to be realistic.

Speaker 3

Exactly right. There's absolutely nothing structurally different about our deposit base. In fact, we are so community driven that you might even say that it's a better structure.

Speaker 2

Yes. I like where we sit today with our deposit base and our branch network, community bank that we're driving, the digital capabilities that we have today, I think we're in really good shape.

Speaker 10

Okay. Appreciate that. And then I guess on the overnight earning assets, remind me what you consider your excess liquidity position. I think the average position for overnight was a little over $3,000,000,000 but end of period was a little bit below that. How do you guys kind of view that longer term?

Speaker 3

Yes. Longer term, it's we'd like to have it half of that at least. The reason we're holding that in excess is we've got the bank term funding at 5 or 4 point 6 7% and we're investing that at 5.40%. So we're just getting a little bit of incremental spread on that for the time being.

Speaker 2

That runs through next January

Speaker 3

ish? Exactly.

Speaker 10

Okay. So Valerie, you expect these current levels to remain elevated through the end of the year into early next year?

Speaker 3

As long as rates hold where they are, if the benefit of holding that declines to a certain point, then we'll pay it down.

Speaker 2

We could use that in the loan book.

Speaker 3

Yes, absolutely.

Speaker 10

Perfect. Okay. Thanks everybody.

Speaker 14

Thank you, Matt.

Operator

The next question is from Gary Tenner with D. A. Davidson. Please go ahead.

Speaker 2

Hi, Gary. Good to hear from you.

Speaker 11

Hey, this is Ahmad Hassan on for Gary Tenner.

Speaker 2

Good morning.

Speaker 8

Good morning.

Speaker 11

So I know you touched a little bit on credit side, NPA a little bit, but you said it was mostly because of that one SBA loan, but are there any sectors that you're seeing weakness in?

Speaker 2

No, not really. We're not seeing any trends, any themes, any geographies, any types. It's really just normalization of credit issues. Billy, Chris jump in here.

Speaker 5

Yes, I'll let Billy jump in. You see it on Slide 9, It's not a CRE story. So the CRE has held up really well. It's been more of a C and I story. And the SBA loan we referenced wasn't one SBA loan, it's a lot of SBA loans.

Speaker 5

So we have seen some migration in the SBA book. If you look through, I think $60,000,000 of that non performing, Valerie mentioned, our government guaranteed loans. The collection cycle and the application process to get paid on those, they're just it's just lengthy. That's what it is. And as through this cycle you saw some increased non performing there and part of our numbers are working through those small granular moves in the SBA book.

Speaker 9

Yes. Like we've said in recent handful of quarters, the only sector we've seen any consistency see in where there's a little bit to point to would be restaurant. And I would say that continues. And then across the sector we're hearing this, it's the kind of senior assisted living seeing some signs of stress continuing. But we're starting to come out of that it feels like.

Speaker 9

But it's those would be the only 2 sectors I would call out, but all manageable and all having been identified now for several quarters.

Speaker 7

All right, great. That's good

Speaker 11

to hear. And maybe just one more on I know you touched on loan growth even geographically, but within those high growth markets you talked about, Georgia, Texas, What sectors are you guys most excited about?

Speaker 2

Yes, we're seeing growth in the C and I book. So it's the corporate bankers, it's Florida. Our Tampa team is doing a great job, our Atlanta team is doing a good job, our Nashville team is doing a great job, Houston, Dallas, Austin, Fort Worth. We've got great bankers in those high growth markets and we're winning business. It's not any individual segment.

Speaker 2

We're just seeing good opportunities there.

Speaker 11

Great. Thank you for taking my questions.

Speaker 2

I appreciate it very much. Thank you.

Operator

The next question is a follow-up from Matt Olney with Stephens. Please go ahead.

Speaker 10

Hey guys, I don't think anybody asked about fees this quarter. Any color on the fees? I know it was noisy last quarter. It looks like a clean run rate to me, but any color on the fees in the Q1 and the outlook here?

Speaker 3

Yes. No, we're really pleased with our fee performance and your structure of that or your characterization of that as being kind of routine is absolutely spot on. There was nothing that was abnormal that showed up in those numbers. The resurgence of service charges from compared to the prior quarter was because of the accrual that we made in the 4th quarter. Mortgage had a nice quarter seeing some impact both in the production and the servicing as well as the MSR valuation.

Speaker 3

And wealth

Speaker 2

management is doing well. I would

Speaker 3

say wealth management trust really all just very consistent. We saw an increase in our assets under management, part of that's new business, part of that's market driven. So overall, we feel very good about our fee businesses. We're just under 20% of total revenue and expect that to continue to be strong for

Speaker 11

us. Thank you.

Speaker 2

Thanks, Matt.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Dan Rollins for any closing remarks.

Speaker 2

Thanks again for joining us this morning. Seeing the fruits of our team's work and our financial results is very rewarding. While much more work is still needed, our efforts are visible in virtually all of our performance metrics. We reported significant improvements across the board on EPS, ROA, ROE, efficiency, net interest margin, just naming a few, while maintaining stable credit quality and growing loans and core customer deposits. If you have you have our commitment that we will continue our efforts to further enhance our results as we move forward.

Speaker 2

Thanks again for joining us today. We look forward to visiting with you all again as we sit out on the road. Thanks.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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