Q3 2021 BancorpSouth Bank Earnings Call
Good morning, and welcome to the Bancorp, South third quarter 2021 earnings conference call.
All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions.
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To withdraw your question. Please press Star then two.
Please note. This event is being recorded I would now like to turn the conference over to will for Zachary Executive Vice President director of corporate Finance.
Please go ahead.
Good morning, and thank you for being with us.
I'll begin by introducing the members of the senior management team participating today.
We have chairman and Chief Executive Officer, Dan Rollins.
President and Chief operating Officer, Chris Bagley and.
Senior Executive Vice President and Chief Financial Officer, John Copeland.
Before the discussion begins I'll remind you of certain forward looking statements that may be made regarding the company's future results or future financial performance.
Actual results could differ materially from those indicated in these forward looking statements due to a variety of factors and or risk.
Information concerning certain of these factors can be found in Bancorp South Twenty-twenty annual report on Form 10-K.
Also during the call certain non-GAAP financial measures may be discussed regarding the company's performance.
If so you can find a reconciliation of these measures in the company's third quarter 2021 earnings release.
Our speakers will be referring to prepared slides during the discussion you can find these slides by going to the Bancorp South dot com and clicking on our Investor Relations page, where youll find them on the link to our webcast or you can view them at the exhibit to the 8-K that we filed yesterday afternoon.
Slides are also in the presentation section of our Investor Relations website.
And now I'll turn to Dan Rollins for his comments on our financial results.
Good morning, everyone. Thank you for joining us today to discuss bankruptcies out third quarter 2021 results.
I'll begin by making a few remarks regarding the quarter John will discuss the financial results and Chris will provide more color on credit quality in our other business development efforts. After we conclude our prepared comments, our executive management team will be happy to answer your questions.
Let's now turn to the slide presentation and spend a few minutes looking at our third quarter results Slide two contains the legal reminders will has already discussed before I get into the financial results for the quarter I'd like to provide a brief update on our pending transaction with cadence bank, which is highlighted on slide three.
We previously announced we have received all necessary regulatory approvals and we look forward to closing the transaction before the end of this week.
Both of our teams are very excited about our future together and are actively engaged in finalizing our merger and integration planning.
As we have discussed in the past our new combined leadership team has spent considerable time meeting and visiting with our teammates Christen I have enjoyed getting to know many of the cadence bankers and I know, Paul Hank and Valerie I've been spending time getting to know the bankruptcy team. The five of US continue to meet daily to ensure we are aligned in our planning I'm personally extremely.
Namely proud of the progress we have made since our merger announcement back in April hundreds upon hundreds of man hours have been invested in building the new cadence back.
We are all confident our teams are ready to execute and deliver the expected benefits of this merger.
Slide four provides our highlights for the quarter, while we've known the results reported in the first half of the year Werent sustainable due to elevated P. P. P income mortgage volume at a number of other factors. We continue to be pleased with our core operating performance net income available to common shareholders for the third quarter was $74 million or 65.
<unk> per diluted share.
We have a positive MSR valuation adjustment of 2 million and recorded merger related expenses of $3 4 million during the quarter. Additionally, we had a $2 $4 million charge under the pension accounting rules to record a partial planned settlement, resulting from elevated lump sum retirement payments that we incurred thus far in 2021.
When adjusting for these items, we reported net operating income excluding MSR of $73 3 million or 68 cents per diluted common share.
P P NR, which excludes the MSR adjustment and other nonoperating items totaled $90 1 million or 1.29% of average assets on an annualized basis for the quarter.
As we look at our business development efforts, which Chris will discuss more in a moment.
Another great quarter for deposit growth reporting to total deposit and customer repo growth of over 720 million or 12, 2% on an annualized basis for the quarter.
While we were able to generate a nominal positive spread the liquidity dynamics in the industry continue to be a drag on margin.
From a loan perspective, excluding the P. P. P. Forgiveness payments received of approximately 135 million, we reported net organic growth of $122 million or three 3% for the quarter. This marks the second consecutive quarter of net organic loan growth as we mentioned last quarter. The decision to sell most of our P. P P portfolio.
Has allowed our relationship managers to to have a renewed focus on calling efforts and generating new business.
Their success is clearly demonstrated in our results as the third quarter is our most successful quarter from a loan growth standpoint since prior to the pandemic.
The economies across our footprint continue to rebound and perform quite well as I said, Chris will provide a little bit more in just a moment.
Our fee income businesses also had another great quarter, our mortgage team produced almost $790 million in loans during the third quarter, which was a great quarter by historical standards.
On the insurance side, we reported commission revenue of $35 8 million for the quarter, which is an increase of over 9% compared to the third quarter of 2020.
Our insurance producers continued to win new business.
The firm premium market, but the industry is experiencing.
The next item I would like to touch on is credit quality, which continues to be one of the successes that our management team is most proud of our charge off levels continue to remain very low which is reflected in the fact that we reported net recoveries for the quarter of $2 1 million. This trend combined with stability and other credit quality metrics include.
Nonperforming and classified asset levels resulted in a provision release of $7 million for the quarter. While this isn't a sustainable revenue source, it's nice to be able to report such positive credit quality as the economic recovery from the pandemic continues.
The last couple of bullets I'd like to touch on relate to capital management and deployment.
We are pleased to have been able to take advantage of our share repurchase program to repurchase just over one 7 million shares of stock during the third quarter at a weighted average price of $28.69.
We paused our program in the first quarter of 2020 due to the economic uncertainty associated with the pandemic and have not been able to resume it until the cadence merger shareholder vote was complete.
We still have four 3 million shares remaining in our current authorization, which expires at the end of the year.
We retained a significant portion of the capital we've generated over the last year and a half and our capital metrics remain at very strong levels, which is reflected in our total risk based capital ratio of 14.27% as of September 30th.
I'll now turn the call to John and allow him to discuss our financial results John.
Thanks, Dan slides five through seven show, our summary income statement as well as details of our noninterest revenue and expenses I'll focus my comments. This morning on our net interest margin as well as a few other items that had variances compared to the second quarter of 2021.
Before we begin I would remind you that the two transactions that closed in may the first will impact the comparability of the information shown on these three slides. This is the first full quarter of financial impact for the May acquisitions.
You'll notice on slide five we reported a $1 3 million or a 0.8% increase in net interest revenue compared to the first quarter.
While we had been able to earn a small spread and protect net interest income dollars. The liquidity that dynamics that Dan mentioned continue to pressure our margin our net interest.
Margin, excluding accretion was 2.81% for the third quarter compared to $2, 94% for the second quarter of 'twenty one.
The individual yield and rate components continue to remain fairly stable as the margin trends are almost exclusively a function of mix shift, resulting from the elevated deposit growth.
Securities yields were very stable compared to the second quarter, while loan yields excluding accretion and P. P. P and our total cost of deposits both declined three basis points respectively.
We expect our funding cost to continue to decline as the total cost of time deposits remains considerably higher than our current new and renewed rates.
Additionally, we will continue to work through the repricing of higher cost public fund deposits upon renewal.
Slide six shows the breakout of our noninterest revenue components.
There's really very little to cut here, that's incremental to the come as Dan has already made regarding mortgage and insurance, we did see a nice increase of over 16% and our deposit service charge revenue for the quarter compared to the second quarter.
Slide seven provides the details around our noninterest expense.
I mentioned, the two items that we classify as nonoperating merger expense of $3 4 million as well as the pension settlement charge of $2 4 million similar to the fourth quarter of 2020. This charge was a result of elevated lump sum retirement payments exceeding the threshold for a partial planned settlement.
Beyond these items I believe salaries and benefits, which increased $4 8 million quarter over quarter is the only other significant item that warrants additional color. There are several factors contributing to this increase the additional months worth of activity activity associated with the two mergers was one contributing factor beyond that the primary driver was there any.
Compensation adjustments, which were effective on July 1st.
Finally, we continue to see significant wage pressure across the board, both geographically and across all job functions.
That concludes my comments on the financials, Chris will now provide some color on our business development activities. Chris. Thank you John Good morning, everyone Slide eight of the presentation reflects our funding mix and deposit trends for the quarter. We reported total organic deposit growth of 722 million or just over 12% annualized.
Clearly the bank and the industry as a whole continues to experience unprecedented liquidity.
Our focus remains on protecting relationships and managing deposit costs down.
John mentioned Theres still opportunity to continue that trend in.
An example of total time deposit costs for the quarter with just over 90 basis points.
Our new and renewed rates today are well below that mark.
As I've mentioned before we also have an opportunity to drive public fund costs down further but that will be somewhat lumpy, it's been mature and reprice at various times.
Moving to slide nine you will see similar trend data for our loan portfolio.
We're saved P. P T forgiveness for payments in the quarter of 135 million.
When you adjust for this north of organic loan growth for the quarter was just over 121 million or three 3% on an annualized basis.
As Dan mentioned this is the second consecutive quarter of net organic loan growth that we've experienced.
After the PPP adjustment, we saw meaningful growth in our C&I non real estate commercial real estate and consumer and mortgage portfolios from a geographical perspective, most of the growth opportunity during the quarter was in our Texas and Tennessee markets.
Additionally, our corporate C&I and syndications team had a great quarter from a loan growth perspective.
Moving to slide 10 credit quality continues to be a good story for us.
Net recoveries for the second consecutive quarter.
Recoveries of $2 1 million combined with declines in our classified asset levels contributed to a provision release of $7 million for the quarter.
Reserve coverage ended the quarter at 174%, excluding PTT loans.
Finally as shown on slide 11, we continue to monitor the lingering impact of credit decisions, we made to assist customers. During the early part of the pandemic.
Our loan totals that are either in deferral or that have been temporary temporarily converted to interest only continued to decline quarter after quarter.
As of March 30, we had $26 million in deferral and 91 million in interest on them.
And all are scheduled to return to regular payment schedule over the next few months and I view. This as really a non story at this point in the cycle unless there's a change in the economic trends. We expect this to be the last quarter that we will provide this particular disclosure.
Slide 12 provides a five quarter look at our wealth or insurance and mortgage products.
Mortgage reported origination volume of $790 million for the quarter.
65%, which was purchase money.
Slight decline in the pipeline resulted in margins being a little below what we would call them more normal or average level. These results are strong by historical seasonal standards.
Finance activity has slowed as expected, but the housing market remains strong across our footprint.
Nick noted examples around multiple quick offers above asking price on new listings have extended into our smaller markets as well historically.
Historically that type of demand has been seen primarily in a more urban geographies.
Moving to insurance total commission revenue for the quarter was $35 8 million, which marks the second consecutive quarter that we've reported near double digit revenue growth on a percentage basis, when compared to the comparable quarter for the prior year.
Very high customer retention rate and new business success and continued farm great market have combined to result in a very nice revenue growth for the insurance team.
Now I'll turn it back over to Dan for his concluding remarks.
Thanks, Chris that's a really exciting time for us and it's taken everyone working together to make the results that we've reported possible yeah.
The effort of our relationship managers are evident in the results reflected on both sides of the balance sheet all of our fee lines of business mortgage insurance and wealth management are performing very well in making meaningful contributions to our performance and perhaps most importantly, our credit quality metrics are very strong by any standard.
This is a direct testament not only to the efforts of our relationship managers, but also the quality of our underwriting and risk management processes.
Finally, the optimism around our company is at an all time high as we expect to close our merger with cadence later this week to create the new cadence back the operational support teams for both our bank and cadence had been working around the clock to prepare for the upcoming legal closing and to begin executing on our integration processes. In fact here with us today is <unk>.
Murphy, Valerie Toalson and Hank Holmes operator, our team is now ready to answer any questions.
We will now begin the 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 at this time, we will pause momentarily to assemble our roster.
Our first question comes from Brett Robinson of Hub Group you May go ahead.
Hey, good morning, everyone.
Hey, Brian good to hear from you.
I wanted to first ask you know when I look at the organic growth for Bancorp, South of 122 million and $76 million for cadence in the corner you know obviously one of the big things with the steel as a cadence brings to bancorp south.
A much stronger commercial effort and gets you guys. Originally had before you would have been can you maybe give us an update on how you think about the pipeline from here and any growth expectations on how you view that.
Sure I'll take a stab and we've got plenty of people here that can help on that I think that when youre looking at $122 million for us.
That was heavily weighted into the C&I side, we don't see it because the 135 million that went away from PPP came out of the C&I side, but C&I continues to perform well we saw a increase in CRE. Our pipelines are really looking good.
Chris do you want to tag on on the pipeline and Hank can talk about what's happening at the cadence yeah I'd just add that they are Dan mentioned it.
Our organic growth net the PPP was more heavily weighted towards C&I about 60% of that.
And our pipelines look good I think.
We're getting a look at the quite a few opportunities in them.
All across the geographies and all the different business lines and what do you guys see yeah. Thanks, Chris in our member I. Appreciate the question and I'm excited about being on the call with our Bancorp South brands and I would add to that we were seeing nice volumes in our loan committee that we haven't seen in quite some time I'd also like to report that it's really across the board there's no real geographic concentration of our specialized.
Concentration and the timing it takes to close on C&I transactions, a little longer. So we're optimistic about seeing that growth through the end of the year and into next year. We also have a strong CRE portfolio.
Quite well during COVID-19 and it.
Is trending in the same direction. This year in fact, theyre going to do better this year than they did last time and given their construction loan and we will see some nice volumes and advances out of that crew as well. So overall from a pipeline perspective and as we review those they are steady I would echo Chris's comments, you weren't getting a lot of good looks really the only headwind there as we are.
Seeing some pricing pressure, but optimistic about the growth going forward and.
And when you look at our earnings announcements are being the BSS side, I guess Theres two earnings announcements to look at when you look at the excess earnings announcements.
We break out the by state and you can see Texas had the best growth. We've had in many many quarters, we grew a little over 15% in Texas in the quarter and then while we're brand new in Georgia in the last two quarters, our Georgia, Tennessee footprint also had a little less than 10% growth. When you look at that going forward and the pickup.
The Atlanta market, the Tampa and Orlando markets in Florida, I think we feel pretty good about what's happening in Texas has been positive for us on the cadence team for a long time so.
So I think looking forward, we feel pretty good breadth.
Yeah.
Dan would you care to take a stab at thinking about the outlook for loan growth on a percent basis or is it just too early now.
Take a stab at that.
Yes, I think it's too early to talk about a percent I think but I think that as we.
Been around you heard me say a few minutes ago, we've all been making the rounds, we've been all over our footprint talking to the relationship managers that are out there and theres a lot of excitement.
Around opportunities for us to do more for our customers and we've done it in the past so I think the footprints open but when youre looking at our footprint from an economic standpoint, the markets are performing well, we're open businesses to being transacted. So I think there's opportunity for us.
Okay.
I appreciate the color there and then the other question I had was just around the liquidity.
It looks like you guys bought about 1 billion in securities This quarter, and obviously cadence has a even.
Even more liquid balance sheet and you guys do you can you talk maybe about purchases from here and once you bought in the corner and what you might do with the liquidity from the cadence cadence side of the equation.
Liquidity liquidity is not our problem right now we have plenty of that battery do you want to jump in on that side.
Yeah sure. Thanks, So yeah, obviously.
You know both both banks have had significant liquidity.
Yeah.
Bank Corp, South group has been more active in buying securities and we have I think what you'll see is one of the things that we've been.
Doing it.
Eager to get our banks merged and so.
<unk> be able to do a number of things from a balance sheet that we've been holding off.
I'm doing so far so we've got both balance sheet put together in our Alco modeling and we're looking at.
What scenarios as we go forward and obviously with our strong capital with our strong liquidity.
We are well positioned to be able to pick some of that liquidity to work in a variety of different ways genre specific was what are we buying.
Yes.
On variable rate mortgage backs.
That's one of the reasons you see the big one.
Unrealized loss in the Aoc I changed from quarter to quarter. So that's mostly what we're buying.
Hope your breath.
That's helpful. Thank you so much.
Alright, I appreciate your time.
Okay.
Our next question comes from Michael Rose from Raymond James You May go ahead.
Hey, everyone. Thanks for taking my questions.
I just wanted to start on slide three so when I look at the metrics, they're all the same except for the asset size of 48 billion relative to the.
Original slide deck, and I was just wondering with the environment, having improved and some pretty good.
<unk> out of both sides why wouldn't those numbers be higher or are they just not updated we would just love some updates on kind of <unk>.
What are the maybe some of the closing merger assumptions could be versus where they were back in April.
Yes. So the team is working really hard to be ready for the closing thats coming up in a few days. The only number that was updated on this slide when you read the footnotes was what was the asset side. So when youre looking at the other boxes.
Looking at our at announcement numbers and we haven't put out any new numbers on what we look like on a combined basis.
Mark to market accounting team is working hard the accounting team is working hard there's a lot of activity going on behind that dollar and I'll, let you jump in here again, yes.
No you're exactly right.
Those are all numbers that we'll be updating as at the close and so while theres a lot of work going on to prepare for that and a lot of analysis and a law.
Lot of trends and so forth.
Not quite ready for prime time.
[laughter].
Is it fair to characterize it though as the environment has improved and that those numbers could could ultimately prove to be conservative is that the way we should all be thinking about it.
I think some things have certainly improved the interest rate environment and the margin environment Hasnt improved for us.
But you know I think when Youre looking at what we've got from the opportunity to grow back going back to April I think there was a lot more fear in the market on the look forward economic activity in April we've talked about the mark coming down we knew we were taking a pretty hard mark in April but as you look back the markets are all improved since then both of us.
Reserve releases in the last quarter, so from a economy standpoint on a credit quality standpoint, we know we've got an improving situation from where we're going with the deposits that are flowing in and the liquidity, we can't seem to turn them off both of US had tremendous deposit growth in the quarter and so that continues to damage our net interest margin.
<unk>.
Understood. That's all I had thanks for taking my questions.
Thanks, Michael appreciate your time.
Yeah.
Our next question comes from Jennifer <unk> from Choice Securities You May now go ahead.
Thanks, Good morning.
Hi, Jenny.
Dan just wondering what your share repurchase appetite looks like over the near term we've got over 4 million shares left on the authorization.
No I think that we want to be we have excess capital. So I think we want to be opportunistic.
As we've done in the past I think we will be looking for the opportunities to deploy that capital and should the.
Pretty arrives this quarter I would expect that we would be back in that market.
Anybody want to add onto that in here and Paul are Valerie.
No absolutely. In addition to what you saw Bancorp South acquired during the third quarter cadence also acquired two 4 million shares and so we've both been active in the market when the markets are right for us. So combined it was right at a $100 million in total repurchases in the quarter.
Paul.
Yeah.
Dan can you also talk about your technology investment priorities over the near term and where were you really would have placed emphasis over the next 12 months or so.
Yes. The tech teams have really been working hard to try and make sure that we understand where we are so the process. We've gone through was to identify current state what do we both doing today what processes are we driving today, what technology are we driving what's customer facing and then also whats inside the bank for our teammates to be driving also and then we've identified what we want to be in a few.
State and so now we've got to build our roadmap to get us from current state to future state and that process is starting now so by the end of the week that process will begin executing on those plans we'll.
We will spend a big part of 2020 to consolidating the two teams together, but that'll be coming in stages and in steps, we think that our mortgage teams will be all on one platform before the end of this year. We think that we have a couple of other groups that will be converting over or operating all on one platform and <unk> and <unk> next year.
And the final phase of the Big computer conversion will be later in 2022, but when youre looking at future investments clearly, it's what the what's the consumer doing and what's the commercial customer doing so when we're looking at our Treasury management products and App features around Treasury management, that's a key product that's out there for us when youre looking at the consumer side and making sure that we.
Got the consumer App.
In place.
Both of us have been in the process of deploying Itm's, our interactive teller machines video teller machines, that's working well for us and helps us reduce cost and the branches. So theres a lot of activity going on on that front I don't know that I have any one specific item, but I would call out Paul Youre close to that well I mean, it was a good summary.
Jennifer I know, we've talked about some of these things on prior calls, but we are.
I'm pleased that the more we look at the combined organizations, it's really it's a slogan, but it's really true we are better together. So we look at for example, our digital initiative, which is substantial and has.
Subtraction, So bancorp South has a similar initiative or focusing on some things if we weren't if you look at robotic process automation initiatives that they have we have we're just going to go further faster together, because we're going to have more resources.
We'll be able to do some early conversion of the mortgage business for example, that'll be probably fourth quarter, So as Dan mentioned.
The longer term process for the conversion next fall Big conversion is on track, but it is one of the more exciting things about putting two companies together, how you can do more things faster.
Some of the things that.
Were clearly the right steps for us.
You can get to a much quicker when you have more recently.
Thank you.
Hey, Thank you Jenny good to hear from you.
We hope the Astros do really well this week.
[laughter].
Our next question comes from Kevin Fitzsimmons from D. A Davidson.
Now go ahead.
Hey, good morning, everyone.
Alright.
Just a question on expenses I know pulling pulling the nonoperating items out which.
Did we still saw.
Expense pick up linked quarter and I know there was reference to.
I believe personnel expenses being up partly due to the team's working on.
The merger activity. So I'm just trying to drill down into is any of that expense load in in third quarter was it.
Would you call. It you know maybe you didnt identified as noncore, but would you call it non run rate or pulling forward.
Yes.
Some of the expenses related to the deal are on a combined basis that that might make that expense base, a little inflated versus what we should model in going forward.
So there might be a little of that so when you look at that.
Salary benefit costs, specifically remember, we only had two months.
Last acquisitions in the last quarter, we had a full three months of those two acquisitions at the third quarter. So there is part of the increase.
John mentioned, our annual salary process.
As of July one effective time, so that's another piece of that puzzle that's got an impact on it and then we continue to experience wage inflation. So.
As long as they want to talk about transitory inflation I don't have an opinion on that but I can tell you.
From a wage.
There is wage pressure out there today, we're seeing that and we're feeling that I think that your question. Specifically is around did we have some wage cost in there that may not be future run rate. My answer is probably a little bit, but I don't know that I won't be able to identify that.
We continue to watch expenses closely and I do think we have the ability to continue to drive expenses down as a standalone entity you. Obviously when you put us together, it's a little different and we should be able to start seeing some benefit of some of that we will see some cost saves coming out of the gate on things that we can turn off the media but.
It will take a long term investor.
Or do you want to tag on.
I think you said it well and as we look at our expense savings.
Starting.
Starting to layer in into 2022 planning.
We announced that yet.
Most of that.
That would be 2023.
Absolutely.
As much of that in as soon as we can.
John would you identify anything specific that was an <unk> run rate.
No I think it's pretty much all run rate yes.
As Barry mentioned, we're in the budget process for 2022, that's really the first big step in identifying cost saves that will be achieved later on down the road.
I Hope you Kevin Okay.
Yeah No I appreciate that that's very helpful. Just one other quick one for me earlier I believe Valerie had mentioned that there were some balance sheet moves that you. All were you Wanna get past closing obviously in <unk> you were holding back doing can you give us some.
Examples of what kind of things those are that you are you could you, but youre holding back doing until you get past the close thanks.
All the liquidity would be one so we don't end up in a mark to market.
That's exactly right and one of the things we wanted to deal with.
She's a modeling get our balance sheet.
Atlanta modeling, which we have together now and to evaluate our portfolio together evaluating over balance sheet activity together.
And best Strategize on how to deploy liquidity.
As you know theres value, obviously in government securities.
The right way is something that we pay a lot of attention to.
Because of the impact of where we are on the right on the rate curve and the impact to the portfolio when rates start to increase so we're spending a lot of strategic time on that and you'll start to see it.
Talk about that a little bit more as a combined company in the very near term.
Yeah.
Okay. Thanks very much.
Thanks, Kevin I appreciate your time.
Our next question comes from Catherine Mealor from K B W.
You May now go ahead.
Thanks, Good morning.
Hi, Catherine.
I just wanted to follow up on Michael <unk> question just on.
Looking at the slide three in and the pro forma EPS accretion and tangible book value.
Christian also that we're going to see from the deal and totally appreciate that that's been updated but is there anything that we should I guess is there is there anything to be aware of that would be a negative to either better EPS accretion tangible book value accretion with the scale.
The way I would think about it is.
Credits, a lot better said and mark should be lower.
And also the balance sheets are are bigger.
The liquidity is of course impacting our margin, but still the balance sheets are bigger because they felt the liquidity.
So you know that coming together I would imagine should bring EPS accretion batteries as well so just kind of any.
Any headwinds that we should be aware of that wouldn't allow us to put the EPS accretion should actually look a lot better today than maybe it was from Mcgill with it.
I think those are I think that.
Assumption is right or a bigger balance sheet.
And better credit quality I think we have agreed all along but it's credit marks move down.
Net positive to tangible book value.
Obviously, we're seeing that happen I don't we don't know the numbers at this point, but it will be different than what we had announced back in April.
To me the biggest thing that it is as we continue to bring in deposits.
We're making very few basis points off of deposits that were written it yet but that will be able to deploy that so to go back to the <unk> ability to grow loans.
<unk> continues to improve.
But we're sitting on.
Pretty good about the opportunities in front of us dollar.
I think you said, it well and I think definitely.
In fact, there are a lot of positives.
And the fact that we are bigger balance sheet, but it's all about deploying that excess space and that will be something obviously that would be the two biggest markets that we're in the.
Markets that have the biggest presence for us from a loan perspective is Atlanta.
Houston, So I thought we were going to talk about the Braves and baskets, but both of those markets look pretty strong from a from a growth perspective.
And I'll just chime in here.
When I think about historical cadence operating results P P and our attractive top quartile, maybe get a little better efficiency ratio I mean last quarter, 56%.
Well, we arent, we arent efficient model and attractive earnings organization, and its going to merge and well and nicely with the excess.
Yeah.
Okay.
No I am not going to listen you're watching that Dan gave race Tonight.
[laughter].
And then my other question, maybe just on the expense side.
This is probably a good full quarter to look at maybe if we think about the timing of cost savings I think last you said the conversion was slated for late 2022.
Could you give us any.
Kind of thoughts on what level of cost savings, we could see upfront before we get to conversion and then.
The timing of when we'll kind of see a full quarter run rate of personal cost savings fully in the numbers.
I think you'll see a full run rate in <unk> 2023, So I think he's got a long way to go to see a full run rate, but I think youll see cost saves stepping in coming out of the gate. There are certainly things that we will be able to turn off on Friday that will that will be less expense than what were combined spending today I don't know that we have.
Run rate analysis that would tell you what we're going to see.
For Q1, Q2, Q3, Q next year, but I think it will continue to ramp up as we do exactly what all of us talking about a month ago, where we.
Start moving some things together every time, we can consolidate or.
Or convert or whatever language you want to use the different parts of the bank that we're putting together all of that turns out to cost savings for us.
Great very helpful. Thanks Debra.
Later.
Thanks Catherine.
Mhm.
Our next question comes from John Armstrong of RBC Capital markets. You May now go ahead.
Thanks, Good morning, everyone.
Yeah.
Couple of questions here.
Or it's been handled but and.
In terms of lending at both companies.
Safe to say that the growth that youre seeing as a trend.
Pipelines are improving is that a fair characterization.
I'll, let Chris jump in here on that one is yes, very fair permanent I agree with that as well.
Okay.
[laughter].
I like that kind of an answer.
Also just a question on <unk>.
Lending appetite.
Once the merger is done any changes to the approach.
As credit and risk come together for the two companies.
No John.
While changes and they were at better together as Paul said earlier so much.
Much almost everywhere, we look including credit and opportunities, we're just very synergistic.
Got some expertise and business lines.
We don't have and we have some that they don't have they fit together very well that gives us more opportunity to grow revenue in different channels at different times.
Put the two balance sheets together from a loan perspective.
I think we.
We impact the concentration levels that both banks were dealing with in certain segments.
I would work in a positive way before they de risk from that concentration perspective. That's a plan that gives you more fuel in each one of those lines to kind of drive some additional business opportunities and we're bigger. So you would expect that you would be able to even take care of some of your existing customers in a larger fashion. So I think those are all positives we've spent.
A lot of time together from a credit perspective, putting our loan policies together, we can tell you from the access side. We're very excited we had full and we have very strong confidence in the credit side of the cadence side of the house, it's been very very productive and positive journey, putting loan policies together, we feel good about where.
Our.
Underwriting parameters and views on the types of credits, we want to do going forward and so I think it's just very positive. Thanks, Manhattan well the only thing I would add to that is that I think.
Chris said it well was the bankruptcy out team was doing was getting going and doing what we like to do on the C&I side and so I think this is an acceleration of that and building on that team brings us together and I also believe that on our community Bank. There is some opportunity there to do a little more than what we have done historically at cadence bank.
And I know our teams are excited about that as well. So I think Chris said, it well and a few things I would add.
We're just a few days John from from the way in the day turning into the weeks.
Yes, John.
I know you know us both well, but one of the good things about our situation. Just a reminder is that there's very little market overlap. So really all of our bankers over the island, let's go back and call. We've got a bigger balance sheet, we have our first joy.
Joining the Board Committee meeting coming up this week and so we will be making final decisions on what exactly hold limits. We're gonna have but we're just going to inch up a little bit we're really not going to make a big move on increasing hold limits, but we will be able to lead some bigger transactions, so that will help but but again the <unk>.
Market opportunity for us so it really just double down on the calling effort.
Right before us.
Mhm Okay.
You all may have just answered this but.
Anything else, Dan you'd want to call out on revenue synergies.
That maybe you've discovered since the April announcement as you get familiar with each other.
Yes.
I don't know that Theres anything new that we would call out but the same excitement that we've been talking about all along is there. Our insurance team is just chomping at the best to get out no insurance revenues are growing today, while we know we've already won some new business in this quarter.
Think that the ability to partner up with the cadence bankers.
Soon to be cadence insurance team.
It is exciting the mortgage team as we've talked about before.
This doesn't have a big mortgage presence from the Georgia, or Florida footprint and we're active in those markets. So there's clearly opportunities.
Just need to execute.
Moving forward.
Okay.
Okay. Good luck with everything.
Thanks for thanks for that.
Yeah.
Yeah.
Okay.
Again, if you have a question. Please press Star then one our next question comes from Matt Olney from Stephens You May now go ahead.
Thanks, Good morning, I wanted to go back to operating expenses and I guess as Valerie on the cadence side kind of the same question.
About the third quarter expenses anything unusual I think you'd call out.
The merger expenses and then another settlement gets us to a core run rate of around $1 3 million in the third quarter and anything else you'd call out that's unusual that wouldn't be in the run rate from here.
Yeah. Thanks, Matt the only other factor that I would say, it's a little bit unusual.
A little bit higher incentive accruals as we look through the year and obviously excellent credit results that we've had throughout this year.
Impacts the overall antenna.
And so we factor that in and that definitely plays into what you see really is part of some of the increase in our salaries and employee benefits line.
Other than that.
It's really <unk>.
Should for the most part in the merger and then obviously the regulatory piece as well.
Got it Okay. That's helpful. Valerie and then I guess changing topics I wanted to ask more about interest rate sensitivity of the combined bank. It seems like there was some some nice upside to higher rates for each bank by itself can you speak to the banks Covid higher rates and then thoughts on the combined company.
Can you tell us when rates are going to be higher one.
Yes.
I'm going to guess a year from now Dan, but my guess isn't worth a whole lot.
Okay.
That's all I do think we're excited about the sensor can empower and you've got the specific numbers. We've been modeling the combined entity for some pilot go ahead dollar yes sure. So.
Would you take the two banks combined it actually.
The decrease you think workstyle asset sensitivity, a decrease of cadence bank sensitivity.
Probably by around half will be a little positive over neutral that being said.
That is the existing balance sheet as we leverage some of the additional liquidity into the mountains debt.
The largest portion of that those banks are seeing in our loan growth in C&I lending and so that will continue to push the asset sensitivity higher.
On the cadence side, we've got about two thirds of our loan growth that's coming in today is actually C&I driven and so all of that will certainly help as we start to increase.
Both banks do have a number of months on their floors and so the very first rate movement or so will be muted by that.
But once you get along as the first one.
Youll start to see more and more positive impact from that we also believe that where our deposits are position, we don't have significant noninterest bearing deposit levels.
And whereas the exit repriced it will also be able to.
Appropriately lag.
I was wondering if you get to pass costs, along with the industry that will certainly help.
That benefits.
When when and if we start to see some of those rates.
On the bankruptcy south side of the aisle.
We've still got downward movement in deposit cost cadence has got really good deposit costs.
<unk> seen some big drops that we've seen.
But we still have the ability to walk down our deposit cost are still all the same.
Three or four basis points a quarter for some time.
Yep, Okay, and Dan on that last point as far as downward pressure on deposit cost I think you also mentioned some pressure on overall core loan yields do you think that you can manage deposit costs lower in line with that.
Lower loan yields do you think you'd be the opposite.
I don't know that I have an answer for that with any conviction I think you know clearly monitor competitive the market is very competitive out there that everybody wants to get broad launch.
There are some folks that want price to buy credits there are some folks that may be stretching more on.
So I don't know if we have termed at all but we're certainly trying to make sure that we're protecting our customers.
We're protecting good customers that means you are getting a phone call from price. So I think that's a hard question today.
The deposit costs will do its benefits just in some way I would hope that we could keep up as you just mentioned, but I don't know that we have any models that will tell us whether we can or cannot.
I think that as you take a look at the pace of the deposit cost it will be a little bit more gradual and on the loan yield is going to depend on volumes, if we get back.
Pretty meaningful net origination volumes those lower yields are going to have an impact on us.
You said, it's going to be significantly better than the yield cash.
And also Paul.
Bancorp's outside of that what we're putting on the balance sheet drives that quarterly loan.
So while we've been growing big C&I.
C&I side, if there's opportunity to grow on the bank side, the ankle was talking about on the.
Real estate side that won't that won't move that yield up a little bit but can you just talk about where you are going to get growth from quarter to quarter.
Yeah understood.
Okay. That's all from me guys. Thank you.
Hey, Thanks, Matt appreciate all your time.
Yeah.
Okay.
Okay.
This concludes our question and answer session I would like to turn the conference back over to Dan Rollins for any closing remarks.
Alright. Thank you all for participating as you can hear I think you can hear clearly that we're really excited about what the future looks like for us as a combined company.
To start a new cadence in place on product. Thank you all very much for your time today and look forward to catching up with you again soon.
Okay.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.