Q4 2021 Cadence Bank Earnings Call
Good morning, and thank you for being with us.
Begin by introducing the members of the senior management team participating today.
We have chairman and Chief Executive Officer, Dan Rollins Executive Vice Chairman, Paul Murphy, President, Chris Bagley, Chief Financial Officer, Valerie Toalson, and Chief Banking Officer Hank Holmes.
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 <unk> risks.
Information concerning certain of these factors can be found in the legacy Bancorp's out 2020 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 appendix to the presentation as well as the company's fourth quarter 2021 earnings release.
Our speakers will be referring to prepared slides during the discussion you can find the slides.
Going to our Investor Relations page at IR Dot cadence bank Dot com.
You'll find them on the link to the webcast or you can view them at the exhibit to the 8-K that we filed yesterday afternoon.
Slides are also in the presentations section of our Investor Relations website.
And now I'll turn to Dan Rollins for his opening comments.
Good morning, everyone. Thank you for joining us today for the first consolidated earnings report for the new cadence back formerly known as Bancorp South back as you. All know we completed our merger with the former cadence Bancorporation on October 29, 2021, and immediately changed our name to cadence back today, we will be discussed.
Cadence banks fourth quarter and full year 2021 results, Paul and I will make a few comments. This morning on our merger progress and our views on our company and the economic activity around our footprint Valerie will discuss the financial results and updated purchase accounting disclosures and Chris and Hank will cover our frontline efforts.
After we conclude our prepared comments, our executive management team will be happy to answer questions.
Our slide deck. This quarter has been expanded to include additional information over and above our normal quarterly disclosures in an effort to give our shareholders more insight into the new guidance.
We will reference certain slides and our remarks this morning, but we will not be covering them all.
It's obviously, a very exciting time for our company I Hope you all saw our announcement yesterday unveiling the new cadence Bank logo. We shared this news internally last Friday, which created considerable buzz around our company. While this project has taken many months and was led by our marketing and corporate communications teams. It's just the beginning of our journey as we strive to.
Create a brand that reflects the combined cultures and values of two great companies.
We will continue to unveil other parts of our brand identity in the coming months as we work towards full integration. This fall.
Our operational support teams led by our executive Steering Committee continue to make tremendous progress in our conversion planning and implementation.
We have a number of integration activities that are already taking place across the company. For example, effective back in December all new mortgage loan applications for the combined company began flowing through one consolidated systems. This.
This is just one of many examples of smaller conversion projects that are occurring across the company prior to our main core conversion, which is still on track for this fall.
Our operational support teams have done a tremendous job of continuing to adequately support our frontline teammates while working through the conversion planning process I.
I would also like to recognize the efforts of our accounting and finance teams over the past few weeks they've worked very hard in order to be able to provide our consolidated financial information closing late in the year certainly created a time crunch and I personally appreciate their efforts on our behalf.
Finally, I will conclude my opening remarks by briefly mentioning our business development in frontline efforts, Paul Kris and Hank will provide more detail and color, but our results for the fourth quarter and for the full year speak for themselves with the exception of industry headwinds associated with mortgage our fee income business units produced record results in 2021 the success.
<unk> of our banking relationship managers also stand out, particularly in the fourth quarter with that I'll turn to Paul for his comments Paul.
Thanks, Dan and good morning to everyone joining us.
We're not look at new cadence bank today, there really is a lot to like I've been a banker for 40 years and from a shareholders' perspective, I think new cadence bank as the best Bank I've ever been part of.
First we are in some very attractive markets alike are non state footprint and I like the outlook for economic and job growth in our markets.
We have a diverse revenue stream and numerous complementary business units for the full year 2021 by 32% noninterest income number is a pretty good number.
Our 62% efficiency ratio should improve as the conversion is completed and growth resumes.
I will look at our mortgage team, it's really pretty impressive first they run a tight ship, we have roughly 2 million mortgage loan originators, we have financial literacy training initiatives throughout the footprint that's focused on helping first time homebuyers.
Training and qualifying more people our team is increasing the size of the market for low to moderate income census tracks and majority minority neighborhoods. This is an initiative that we are all very proud of.
Looking at the 145 year old legacy Bancorp South community Bank is a major strength. These.
These teams are deeply ingrained in their communities and this business brings a steady source of diverse revenue and profit to the table each year.
<unk> cadence CNI model is a nice complement to the community bank and over time, we will see meaningful synergies.
I'm looking forward to getting the conversion done and having one brand throughout the footprint clients will be pleased more branches means more convenience just last week I had breakfast with a prospect who lives in Texarkana. He would not have considered as previously now with local branches our chances are good.
When I look at our $22 billion in assets under management and our wealth management platform, we see much opportunity for continued growth there our client retention rates in this business are best in class Bank referrals have been and will be a meaningful part of the growth in revenue and profitability of this business.
The 140 year old insurance business is impressive.
This is going to tell you more about that in a minute, but it is a consistent provider of attractive revenue and profitability.
My job is to see the referrals from our bankers increase and they should because the insurance team is very experienced good at what they do.
Our combined operations team is extremely capable.
Putting the two companies together is a plus for long term talent retention.
Our operation backbone Tupelo is strong and our go forward plan is enhanced by having meaningful presence in Birmingham and several other important satellite locations.
Perhaps most importantly of all of this credit.
Sam I'm really impressed with our results. This year, we came through Covid, we're flying colors. The credit culture is mature and we did well in the most significant stress tests ever taken from.
In 2021 legacy K credit improved significantly, including a number of large pay offs and recoveries late in the year.
These serve to reduce the preliminary more significantly so closing day marks are much less and preliminary remarks due to positive credit results all year long.
This difference increases tangible book value materially relative to a preliminary expectations.
So our healthy capital ratios and liquidity ratios give us confidence to increase our dividend and to continue the share buyback program.
In the past.
Operating a bank are often worried about being too small years ago worry for hurricane hit Houston impact a significant portion of our customers and our operation Center.
As we grew this was less of a concern that even at $18 billion. We had concentration issues that were a hindrance.
Today, the diverse revenue stream and the granular profile new cadence is very comforting.
Today, we have room to grow all business lines.
I feel very fortunate to report that we have high retention of key bankers from both legacy organizations. Our cultures are similar we have very little over ground overlap geographically or in business lines.
And the reality is our banker truly have more opportunity now than ever before.
Value of our teammates and we're constantly working on ways to continue to be a great place to work.
I never take that for granted.
Last the senior management team is working well together, we all like and respect each other.
Maybe I shouldn't put words in their minds.
I can respect them I guess you can ask them later, if they'd like me.
I can tell you that we are all adjusting to our new roles.
And as a reminder, the senior management team, we all have a material portion of our net worth invested in this company and we're pulling together as a cohesive team and the.
The years ahead, we have a significant opportunity to build on these strengths that we've mentioned.
And I can assure you our team is determined to do so.
I'll now turn it over to Valerie.
Thanks, Pal that merger admittedly it makes the results a little complicated to unwrap, but at a high level I see three key highlights for the quarter first and foremost completed the merger of Bancorp, South and cadence Bank Corporation, and we are now combined and well positioned as we enter into 2022.
Second our credit quality continued to improve notably with significant declines in our combined nonperforming loans and classified assets net recoveries for the quarter and a lower credit Mark EMEA plan portfolios Adam.
Finally, we experienced meaningful organic loan growth in the quarter and pipelines are robust.
This growth combined with an asset sensitive balance sheet positions us well as we enter into what is expected to be a period of rising rates.
Turning to the quarter's results slide five provides a view of our summary income statement on both an annual and a quarterly basis.
I'll focus my comments this morning, specifically at our fourth quarter results.
And just as a reminder, with the October 29th closing of that merger. These results include a full quarter of legacy Bancorp south activity in only two months of legacy cadence activity.
Given the impact of day, one provisioning and other merger related items, we reported a net loss on a GAAP basis for the quarter at $37 million or 22 per share.
Adjusted basis, which excludes the day with the provisioning merger related expenses and other adjustments.
Our fourth quarter adjusted net income available to common shareholders was $102 million or 62 cents per share.
Adjusted pretax pre provision net revenue or <unk> was $134 million or 129% of average assets.
While <unk> as a percent of assets were flat compared to the prior quarter. It included the impact of seasonally lower insurance revenues and declines in mortgage revenue.
With that said, we are very pleased with our performance from a PNR standpoint relative to our expectations for the quarter.
A little bit more on the adjusted items.
$32 1 million up $133 6 million provision for credit losses in the quarter less the day, one provision on acquired loans and unfunded commitments.
Commonly referred to SSA sub count.
Fourth quarter, excuse me fourth quarter merger and incremental merger related expenses totaled $49 5 million.
<unk> expenses reflected as a separate line item on the income statement were $44 8 million and represent one time costs to complete the mergers that have no future benefit to the company.
Primarily advisory and legal fees and certain compensation related items.
Incremental merger related expenses represent cost to complete the merger for which the company received some future benefit and are included in the individual expense category line items.
$4 7 million in the quarter and represented primarily merger related employee retention costs.
Slide six of the presentation contains some highlights on our net interest margin as well as the asset sensitivity of the combined company.
We reported a net interest margin of two 9% for the fourth quarter.
Primarily due to the increased accretion revenue from the merger.
Fourth quarter net interest income included $16 4 million in accretion income, which added about 18 basis points to the reported margin.
The yield on loans and leases for the fourth quarter was $4 three 4% in total and four 6% excluding the accretion income.
The relative size of the legacy cadence variable rate C&I portfolio was primarily responsible for the decline in the reported loan yield but it also serves to increase the asset sensitivity of the combined company that I'll speak to in a moment.
The lower funding cost of legacy cadence also contributed to the decline in total cost of deposits to 17 basis points for the fourth quarter.
And we do believe we have additional opportunity to manage those costs down in our publics and the time deposit portfolio.
Turning to asset sensitivity of the combined company at year end about two thirds of our loan portfolio is variable or floating rate was approximately 37% of total loans floating meaning they reprice on a monthly basis or less.
Our internal outcome modeling process reflects an increase in net interest income of about 3% over a 12 month period, and a plus 100 basis point shock scenario.
Note that our organic loan growth this quarter nearly two thirds of it with C&I, driven which will add to the asset sensitivity of the balance sheet over time.
I'll refer you to slide seven and eight in our presentation for additional color on our noninterest revenue and noninterest expense on these slides we've combined the historical results of each legacy company for prior quarters.
In an effort to provide some additional context around the combined earnings strength and the expense base as a new cadence.
The last topic I'd like to cover this morning is provisional purchase accounting marks and valuation slide 15 through 17 in the appendix to the presentation contains summary schedules and disclosures I'll first touch on the key non credit related items, and then come back to the landmark.
We recorded goodwill at $452 million in conjunction with the merger, which is a result of the purchase price and the net fair value at the remainder of the balance sheet.
The preliminary intangible asset value as reported at $152 million, which includes a little over $100 million in core deposit and customer relationship intangible both of which are amortized over a 10 year period using an accelerated method.
It also includes about $50 million associated with trademarks that are not amortized.
Finally, slide 17 provides the detailed components of the provisional loan mark of $147 million or one 3%, which includes both the credit and the interest rate component.
The credit related component of the Mark came in at one 6% the acquired balances again, reflecting the meaningful improvement in credit. We noted earlier with about 40% of the Merck related to PCB purchase credit deteriorated loans and 60% related to non PCB mode.
The initial allowance for PCB allowance was established at $65 million with Ian that netted through goodwill.
As mentioned previously the non PCB day, one allowance was established during the fourth quarter loan provision of $119 million for loans and $13 million funded commitments.
I would again just to remind you that all of the purchase accounting items are professional as we continue to work through and validate our assumptions.
Now can I have your head spinning with some of those purchase accounting I'll turn it over to Chris for a little bit more on our business activities.
Valerie and good morning, everyone slide.
Slide nine is a graphical presentation of the loan portfolio at year end compared to both the third quarter of 2021 and the fourth quarter of 2020 as presented historical data is on a combined basis for both legacy institutions for comparison purposes.
Year over year comparisons are skewed due to the combined PPP loans totaling $1 9 billion from year end 2020.
Only $50 million remaining at year end 2021.
One when you look at fourth quarter activity, we reported net combined organic loan growth of $400 million or 6% annualized on a combined basis there.
There was a slight decline in our cash balances, but otherwise the growth for the quarter was spread fairly evenly across each of the respective loan categories and business lines.
We are very pleased to be able to have continued positive loan growth in the quarter. When we merged the two companies. This is a testament to the bank's focus on customers and relationships and the excellent talent, we have across the company keeping the business moving as usual, even while we plan and execute on integration.
Slide 10 of the presentation reflect similar data for our deposit base.
Year over year combined bank comparisons clearly show the impact with respect to the unprecedented liquidity in the system a couple of points to note as we look specifically at the fourth quarter, the pre announced divestiture of the seven bank branches resulted in a $417 million decline in legacy cadence deposits when adjusting for this divestiture.
As posits declined approximately $470 million on an organic basis during the quarter.
Driven by routine volatility in some of our larger municipal deposit accounts.
Other than these factors our deposit base remains stable and the combined company will benefit long term from the core funding and our community Bank franchise.
Moving to credit quality Slide 11 contains a summary of several key credit metrics and highlights the.
The purchase accounting considerations are obviously, a big piece of the credit story for the quarter Valerie has already touched on that in addition to the previously discussed provision we reported net recoveries of $4 8 million or 88 basis points of net loans and leases annualized for the quarter, which marks the third consecutive quarter of reported net recovery on.
A combined basis, the bank's nonperforming loans declined $38 4 million or 20% during the quarter, bringing period and npls to net loans and leases to 57 basis points.
Combined nonperforming assets declined $42 3 million or 18% during the quarter.
With period end NPA to total assets at 39 basis points.
Nonperforming assets as a percentage of total assets declined from 55 basis points of total assets to 39 basis points of total assets year over year.
Additionally, on a combined basis classified assets declined 15% in the fourth quarter and nearly 40% in the past year as credit story is a good one and one of continued improvement.
Slide 18 provides a five quarter look at our reserves results for insurance and mortgage products insurance reported total commission revenue of $32 6 million and while the fourth quarter is the seasonally adjusted lowest revenue quarter from our policy renewal cycle standpoint. This is now the third consecutive quarter that we've reported near <unk>.
Double digit revenue growth on a percentage basis compared to the comparable quarter of the prior year.
Mortgage reported origination volume of $818 million for the quarter with two thirds of this being purchased by.
Pipeline declined compared to September 30, which is consistent with the annual seasonal trends in home prices activity as well as we as we view the impact of increasing long term rates. However, we are excited about the addition of some very strong housing markets in Georgia, and Florida to our footprint in connection with the merger.
I should also mention our wealth and trust revenue for the quarter of $16 4 million, reflecting the addition of what's come in Williams and the legacy cadence Trust and investment services. We're very excited about the addition of these quality fee businesses to our wealth product mix.
I'll turn the call over to Hank for some comments on the commercial side of the bank, but before I do yes, Paul we like <unk>.
Thanks, Chris as previously mentioned, we are seeking seeing a meaningful resurgence of organic loan growth with a number of nice wins on the commercial side of the bank supported by continued good volumes and our loan approval pipelines.
About two thirds of the organic growth this quarter was driven by broad based growth in our C&I.
Sorry mortgage and consumer buckets.
We have good pipelines and originations in construction and development loans will provide a nice tailwind for growth in 2022 as these construction loans fund over time.
As we turn our focus to 2022, we're seeing balanced opportunities with regards to loan growth throughout our footprint and within our specialty lending groups.
I would anticipate a combined portfolio growth rate in the mid single digits and would suggest it's a nice feeling to see growth resuming.
As we've said in the past we are very proud of the team we have in place and I am very pleased with our ability to retain its highly experienced competitive bankers as well as our ability to hire and attract new talent across our footprint.
A great example is the addition of Orlando C&I team.
We were able to have a very talented group of bankers and I am pleased to report they have hit the ground running and are off to a great start.
We also recently added a community banking team in Fort worth and are actively seeking additional markets within our footprint to drive revenue revenue growth in future quarters.
In summary, our teams are working well together actively calling in leveraging our expanded product base as we bring our two organizations together.
I'm very pleased with the progress we have made on the merger and I am optimistic about cadence in 2022.
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 Touchtone phone.
You are using a speakerphone please pick up your handset before pressing the keys.
Dan Your question has been addressed and you would like to withdraw your question. Please.
Please go ahead.
Thank you at this time, we will pause momentarily to assemble our roster.
Our first question comes from Michael Rose with Raymond James. Please go ahead.
Hey, good morning, everyone. Thanks for taking my questions.
Just wondering good morning back to.
Just wanted to go back to the original merger assumptions clearly a lot has changed and that's reflected in some of the day. One marks you guys had talked about 17% EPS accretion I think 14, 75% of the cost savings have changed but obviously theres been a lot of changes since mid April when this was announced so can you give us any.
Sort of updates for accretion expectations timing of cost saves.
The other model inputs that may have changed from.
More materially from from mid April .
So I'll take a stab at that write off everybody might want to jump in when you talk about cost saves I think we still feel confident that we're on track with what we had planned all along I think when we look at.
The timing of all that we're still on for <unk> operational integration that means that those cost saves will.
We will be carrying that cost through most of this year and in the last quarter of this year cost will continue will begin to drop off in a big way. So as we start 2023, we should really be a pretty good shape.
Valerie Valerie can answer a lot more of that but I can go.
Go ahead, Yeah, Hi, Michael.
So I think Dan said it as well, we're really focused on that total expense saves capture for 2023, and as Dan mentioned with the fourth quarter conversion.
That pace is going to be less in the earlier part of 2022, and then more obviously once we get through that conversion, but that was a part of our original plant. Yes. It was although the dollar amount that we get in 2022, I think it will be less than what we actually.
In April .
But because of the timing of that conversion on the accretion standpoint, we arent looking when you.
<unk>.
Look out in 2022 kind of for the entire company on an updated accretion estimate thats going to be closer to about a $40 million number now that includes the cadence acquisition as well as the prior acquisitions and doesn't assume any.
Prepaid type of activity on the portfolio as you know can vary materially from that.
Really what did new numbers are shaking out to look like.
Okay. That's helpful and then maybe as a follow up it looks like.
The purchase accounting accretion this quarter was a little elevated if I'm reading the press release right. It looks like you've got about 78.
Remaining any sort of way that we should be thinking about just the way the accretion income flows in over the next couple of quarters I assume it's going to be lower just given that the 778 million base. Thanks.
Yes, Yes, I think if you look at the 40 million that I spoke to in 2022, it will actually be.
Fairly balanced in the first three quarters and a little bit less in the fourth quarter and again that doesn't reflect any.
Any prepayments at this point.
Perfect and then maybe finally for me so big buyback.
Ounce.
Last month or at least bigger than I think where the street was modeling.
Can you just talk about how.
How you guys think at this point about intrinsic value it looks like your stocks around 10 times forward numbers.
A little bit more expensive on tangible but it does seem like a good tool here can you just talk about.
The thoughts around the buyback in that size and how it came to be.
Yes, I think we've looked I think size was.
It's probably not that far as a percent of shares outstanding as we've had in years past. So when youre looking at shares outstanding. Its a similar cases, we've had in years past and I think our plan has really not changed Michael I think we want to take advantage of the market when the market gives us advantages.
We want to make sure our can be five one plan is ready to execute when the market backs up on us.
And we wanted to take advantage of all the tools that we have for capital management.
Youre right. The 10 times forward earnings I think we all agree that those of us that all owned shares which everyone. In this room does in a big way.
That's low.
The increase in tangible book value that we saw with the merger and in this quarter helps us on that front too.
Sure.
Very helpful. Thanks for taking all my questions.
Thanks, good to hear from you.
The next question comes from Jon <unk> with RBC capital markets. Please go ahead.
Hey, Thanks, good morning, everyone.
Good morning, John .
Maybe one quick follow up on expenses.
So what's what's kind of your near term what would you give us a starting point on Q1 expenses.
I understand the step down in Q4, but.
How would you guide us on the.
The pace of expenses or what we should expect between now and Q4.
Sure.
Yes so.
One thing when you are looking at the fourth quarter numbers keep in mind that there's only two months of cadence in those numbers, but you've got to kind of normalize for that the other thing that I would encourage you to think about in the first quarter is that all the FICA tax there is the 401K match. There is all of those things that typically bump up expenses, a little bit in the first quarter.
So kind of see the reflection of all of that but beyond that.
Not a whole lot of change in the first quarter.
<unk>.
But as we as we continue to work toward <unk>.
Emerging integrating.
Identifying efficiencies that is going to be the trend as we work through 2022.
So they'll be able to know.
Yes, it helps but I guess I'm curious.
Youre not seeing any kind of material expense pressures.
Conversion.
What do you mean by expense pressures anything unusual other than the compensation related items that I said soon is that yes exactly okay.
Oh, yes.
We're clearly feeling wage pressures.
Whole world's feeling wage pressures. So we're clearly feeling wage pressure, but I think when we look at what's out there today.
Spending money on the integration the tech team is focused on making sure we've got quality technology behind us.
We're actively looking to make sure that we've got our cost saves in the pipeline coming through.
I think we're not far off of where we were when we talked about this over the last six months yes.
I would say that we do anticipate merger related expenses to continue throughout the year and so youll see it.
Capturing those and identifying those separately.
Yes. The reason I ask is it seems like your revenue environment looks pretty good.
Trying to get a gauge on expenses.
In terms of the margin anything you wanted to do differently.
From an asset sensitivity perspective are you thinking about putting some cash to work or is it just you're comfortable with the status quo. What you have today.
Yes, so we put a lot of cash to work in the fourth quarter.
See that necessarily as a full quarter result, because it was throughout the fourth quarter and they are pretty short term asset so it's pretty low, but it's certainly better than zero.
I will say when you start thinking about the margin.
The net loan growth is certainly opportunistic we're not looking to build the securities debt beyond where it is today in fact, some of that run off cash flow could actually help fund some of those loans and obviously that NIM.
Support it.
The other thing I would say is.
Our deposit costs, while they'd come down, notably do tend to be higher than some of our peers and so there is opportunity there as rates go up to be able to lag.
So in the release, we talked about an asset sensitivity plus 100.
Just shy of 3%, if we're able to lag those deposit cost, 50%, we anticipate that that's.
Plus 100 shock number can actually more than double so there is definitely opportunity there that we're going to be looking hard at.
That's helpful.
That's all.
I'll step out of the queue, but congrats on getting the full close together.
Okay. Thanks, John I appreciate your support.
Our next question comes from Catherine Mealor with <unk>. Please go ahead.
Thanks, Good morning.
Hey, good morning, gentlemen.
Valerie you mentioned that you already put some of your cash to work in the fourth quarter and kind.
And what you did with very short term in nature.
Is there a way to think about how quickly your securities portfolio.
Cash flow and be able to be reinvested once we get to a higher rate environment in the next couple of quarters.
So what maybe what that reimbursement.
Yes.
How that can impact.
I'll say that 3% NII.
<unk> guided 100 basis point up scenario it feels like as that bond book is reinvested.
That's really a big opportunity for you all just any kind of color you can give us on that would be awesome.
Absolutely.
<unk>.
Between $3 happens for.
Year duration on the portfolio that of course, there is a lot of cash flow on that that come through every quarter.
Adam.
I'm not sure I have the updated numbers, but I think it's well north of $5 billion in cash flow that comes off of that portfolio, It's a big number and so.
That absolutely Walter.
That is factored in to some of these NII numbers.
What's not factored in is as I mentioned.
Is.
If we're able to use some of that to help fund some of the loan growth.
That provided a little bit more pickup as well.
And we think about a starting point for the margin next quarter with the full quarter impact.
Of cadence.
I mean, you've got kind of yes.
A few moving parts right, you've got a full quarter impact of the lower loan yield.
But Dan you looks like you put some of the liquidity to work do you think net your core margin.
Further in the fourth quarter or the first quarter or do you think actually we have already hit a bottom and that will start to move higher next quarter.
Remember most of the investments that we're talking about came on really from late November through December . So you really only had a month of some of that cash deployed and the numbers that were just going to tag on to that.
Yeah, Yeah, no I mean, obviously there is a lot of moving parts that can.
You have a different directions, but we do feel pretty good that we're we've probably hit a bottom for our margin and.
So I think that.
Both positive for 2020.
And beyond and beyond.
Great very helpful. Thank you.
Thanks, Kevin.
Our next question comes from Brad Milsap with Piper Sandler. Please go ahead.
Hey, good morning.
Good morning.
I just wanted to follow up on the deposit beta discussion I was curious what deposit beta are you guys using to drive.
The two 8% increase.
Net interest income with with a 100 basis point move.
It's a 28% deposit beta and that again, its really based on historical behavior.
Never in I think one of our history have we had this lowered our loan deposit ratio and BMD lash with with our deposit the cash.
And for the whole industry and so that is why we speak to some optimism and being able to lag some of that on the way up hopefully more favorably than the beta that we've got built in.
Okay, Great and then.
I know you addressed some of the assumptions.
Back in April to now one of them was.
I think just under a 15% ROE TCE in 2022.
Curious if that contemplated.
As much capital returned as you guys could potentially have in terms of the share buyback and if you still feel pretty good about that Aro TCE target this year.
Yes, I don't think that we have any suggested.
Significant revision to that estimate.
Okay, and then finally I think initially you outlined maybe 150, some odd million of merger costs.
I know you've taken maybe a third of those.
Cadence today, some legacy cadence is that also still a pretty good estimate of where you think you can do do better.
Yes, I think that one is going to be hard to some of that was incurred pre closing on the cadence side I don't know where that number for you we will incur some significant merger cost over the back half of this year or the first three quarters of this year.
Remember the big number that was in this time was a lot of the closing cost comp cost.
And advisory fees legal fees.
The one time cost.
Got it so the remainder.
Telecom I think Kate legacy Cade, maybe took $14 million or so maybe prior to <unk>.
Two.
Closing something like that but those are still to come.
I think that's a reasonable expectation.
Okay, great. Thank you guys.
Thank you Brad appreciate it.
The next question comes from Kevin Fitzsimmons with D. A Davidson. Please go ahead.
Okay. Good morning, everyone.
Thanks, Dan.
Yes, Dan I just wanted to ask about.
Obviously, the focus is going to be on.
Getting the conversion.
Getting the two companies working in.
In lock step in and so I would assume traditional.
Deals are off the table for.
Most likely over the balance of this year.
So just wanted to check if it's 23 is that something that you would.
Return to look at.
And then but in the meantime are there any business line deals.
Things you either.
Don't have or you would want much more of that you would look for that you could do in the meantime.
Thanks.
Sure I appreciate that I think.
A couple of answers to that question, Yes, I think our operations team is very focused on putting together the two entities I think youll see some of that with the unveiling yesterday of the new look.
Thank you, Chris Paul and the rest of US are all really excited that we're able to produce the loan growth that we produced in the first fourth quarter on top of the completing the merger.
Sometimes we look back at that mergers and there arent a whole lot of it will grow a lot in a quarter. When our merger is completed so I'm really proud of the team on that front, we've got to stay focused on the core growth that this company can produce for you all I think that the M&A activity.
Never say never but I don't see that as a high likelihood anytime soon on the bank side, but fee income side, we continue to look for opportunities on the insurance side. We continue to look for opportunities in other fee businesses that would complement what we're doing today one of the things we picked up with the merger was the payroll processing entity.
Subsidiary of cadence before that entity is exciting for our insurance team and that that's a product of the insurance team was selling in pushing a third party vendor for and now we can move some of that inside so there's opportunities for us to continue to find those fee business pieces now whether they show up at the front door and not this year I don't know, but we certainly would be actually looking at some of those because they don't.
Impact the workflow and the process that the bank is focused on and then consolidated together.
Okay, great. Thanks, and just a quick follow up.
The ACL ratio I know it was a noisy quarter with the day, one provision, but now with that.
Leave it to $1 66.
PPP.
Just wondering what youre feeling is on that I would think that that can still trend down if the credit environment keeps where it is but what's the general outlook there.
The credit environment is very good.
When you look at.
So.
Two standalone entities.
Net recoveries in the quarter is a positive multiple quarters of net recoveries, we continue to see problem assets decline.
Your assumptions are probably spot on.
I think anybody else when we jump in.
I think your observations are spot on.
A lot of moving parts loan growth can be a factor the other way. So I think we've got to look at all of those every quarter like wells.
Yes.
Okay. Thanks very much.
Thanks, Kevin appreciate it.
Just a reminder, if you have a question. Please press star then one to be joined into the queue.
Our next question comes from Matt Olney with Stephens. Please go ahead.
Hi, Thanks, good morning, everybody.
Good morning, Matt.
My question is directed towards Valerie.
So im little confused on the 100 basis point shock scenario that you mentioned.
<unk> disclosed that the two 8% on slide six.
You mentioned, a scenario where it could be higher can you just repeat what that scenario is and what the assumptions are.
Yeah. So what I was speaking to there isn't included in that two 8% is the deposit beta of 28% and so.
Even the industry.
Significant time deposits, if the whole industry is able to lag and that we're able to lag.
And if we're able to cut that beta in half that was more than double that asset sensitivity. So that just I was just sharing that as an illustration.
The ability that we.
We're going to be working toward within the year to hopefully improve that liquidity in the market everybody's deposit flush today. So I don't think anybody is going to be chasing deposit cost anytime soon and the benefit of that should be a win for us. The other thing that I would mention related to that asset sensitivity is if you look at this quarter's $400 million organic loan growth of about two thirds of it.
That were C&I related loans that tend to be more variable floating rate loan.
With time that will also serve to increase the overall asset sensitivity of the balance sheet.
And also on this topic Valerie you mentioned a percent of the loans that are floating can you speak to any any any floors I guess it would.
Pete.
The float initially when the fed raises rates.
Yes, we've got.
Just over 25% of the portfolio that is on floors.
We are going to have a rate.
With no change for those and the average in the floor amount is just around 40 basis points. So it will take a little bit of a rate hike movement before those loans specifically start to reprice.
And just to clarify that 25% of our floating rate loans or other variable rate loans.
Speaker 1: loan to or of the variable rate.
That is 25% at the total loans total portfolio of total loans.
Speaker 2: That is 25% of the total load. Total portfolio. Total.
Got it okay.
Speaker 3: Got it. Okay. And then on slide 10, there was a mention of some deposit outflows from some routine volatility of municipal accounts. Any more color on this? And should we think about this as seasonal? We can see this come to a close.
And then on.
On slide 10, there was a mention of some deposit outflows from some routine volatility.
This full account any more color on this and should we think about this is.
Seasonal we could see this come back at some point.
So I think when Youre looking at deposit flows from a municipality standpoint taxes at year end, you can see a lot of money movement in the fourth quarter and the first quarter.
Speaker 4: I think when you're looking at deposit flows, from a municipality standpoint, taxes that you're in, you can see a lot of money moving in the fourth quarter and the first quarter. So yes, I think you'll continue to see some swings in the deposits quarter to quarter and that is seasonal when you're looking at municipal deposits. Okay.
Yes, I think youll continue to see some swings in the deposits quarter to quarter and that is seasonal.
When youre looking at municipal deposits.
Okay.
And then just lastly.
Any color on what.
Speaker 3: Any color on the what we should be assuming for the tax rate at the combined company into into 2020?
What we should be assuming for the tax rate at the combined company enter into 2022.
Yes, we're looking at an estimate are great for 2022.
Between 20% and 23, 5%.
Okay. Thanks, guys.
I appreciate it very much.
Speaker 5: This concludes the question and answer session. I would like to turn the conference back over to Dan Rowlands for any closing remarks.
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 very much in closing what are they.
Speaker 4: All right, thank you very much. In closing, what an exciting time it is to be a part of the new Cadence Bank. Our new logo unveiled yesterday is the first step in 2022 of our rebranding initiative and provides our company the opportunity to tell our story across our footprint. We're also pleased to be able to reward our shareholders with an increased dividend for 2022.
Exciting time, but it has to be a part of the new cadence bank. Our new logo unveiled yesterday is the first step in 2022 of our rebranding initiative and provides our company the opportunity to tell our story across our footprint.
We're also pleased to be able to reward our shareholders with an increased dividend for 2022 as.
Speaker 4: As we move further into 2022, we continue to strive daily to grow our company and to capitalize on the opportunities this merger provides to improve financial performance for our shareholders. As we just mentioned earlier, our insurance team had a record year and they look to continue to capitalize on the firm premium markets that the industry has experienced.
As we move further into 2022, we continue to strive daily to grow our company and to capitalize on the opportunities. This merger provides to improved financial performance for our shareholders. As we just mentioned earlier, our insurance team had a record year and they look to continue to capitalize on the firm premium markets of the industry is experiencing our noninterest revenue business units mortgage wealth manager.
Speaker 4: Our non-interest revenue business units, mortgage, wealth management, treasury management are excited about the opportunities ahead of them as they take advantage of the cross-selling opportunities presented by our merger.
Treasury management are excited about the opportunities ahead of them as they take advantage of the cross selling opportunities presented by our merger.
Speaker 4: From a business development standpoint, our relationship managers, both in the community bank and our commercial units, look to continue the momentum that's reflected in our fourth quarter organic growth results. Finally, our operational support teams will maintain their focus on our operational integration and execution, as well as our efficiency initiatives as we look to capitalize on the cost savings associated with the merger.
Business development standpoint, our relationship managers, both in the community Bank and our commercial units look to continue the momentum thats reflected in our fourth quarter organic growth results. Finally, our operational support teams will maintain their focus on our operational integration and execution as well as our efficiency initiatives as we look to capitalize on the cost savings associated with the merger.
I think I speak for our entire board of directors and our management team. When I say, we are truly excited about what lies ahead for us for the new cadence and the opportunity that we have to continue to build shareholder value. Both the both legacy institutions are achieved in the past.
Speaker 4: I think I speak for our entire board of directors and our management team when I say we are truly excited about what lies ahead of for us that for the new cadence and the opportunity that we have to continue to build shareholder value, both the both legacy institutions have achieved in the past. Adding on to Paul's comments, I've been a banker for over 40 years and I can't remember a time in my career when I was more excited about the opportunities in front of us.
Adding on to Paul's comments I've been a banker for over 40 years and I can't remember a time in my career when I was more excited about the opportunities in front of us strong markets with dedicated teammates and quality products provide our company with a very bright future.
Speaker 4: Strong markets with dedicated teammates and quality products provide our company with a very bright future.
Speaker 4: Thank you all for joining us today. If you have additional questions, please feel free to reach out to us. Thank you very much for your time.
Thank you all for joining US today, if you have additional questions. Please feel free to reach out to us. Thank you very much for your time.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker 5: The conference has now concluded. Thank you for attending today's presentation.