Q1 2022 Cadence Bank Earnings Call

For the quarter, which marks the fourth consecutive quarter.

To post net recoveries.

We also reported a 22% decline in nonperforming loans and leases during the quarter from an already relatively low position.

From a balance sheet perspective, we reported net organic loan growth of over 300 million or four 6% annualized and total deposit and customer repo growth of over $750 million or seven 7% annualized our loan growth. This quarter was primarily within our C&I portfolio, while the deposit growth, which has historically been seasonally high.

In the first quarter was primarily driven by growth in noninterest DDA balances, which is a positive for us.

From a capital management perspective, we repurchased just over 5 million shares during the quarter and our board increased the common dividend to <unk> 22 per share per quarter.

The 10th consecutive year of dividend increases I believe both of these actions demonstrate our board and management team's confidence in the future of the new cadence Bank Paul I'll, let you add some comments.

Thanks, Dan and good morning to everyone I continue to be very pleased with the progress we're making the benefits of our merger from our customers shareholders and teammates standpoint also very positive to me.

I'm talking to others around the industry feels like our cultural fit is probably ahead of where some other deals are working well together in collaboration is very high we've done extensive planning and testing for our conversion, which is in line with our original timeframe expecting to do our conversion early fourth quarter of this year.

Here we are.

I think pretty positive growth for customers really throughout the footprint, Texas and Florida stood out this quarter from a community bank standpoint.

Corporate and specialty teams reported nice growth throughout the footprint.

As I spend time with our bankers, we're making a lot of calls are out knocking on doors. We've returned to the office, but it's a bit of a hybrid model, but we're out looking for of course loans deposits assets under management and more insurance business, we're doing a lot of blocking and tackling and they keep notion here is that core growth is a key driver of shareholder.

Value and we're very determined and focused on delivering that with.

I'll turn it over to battery great. Thank you Pat.

This quarter's results slide four provides a view of our summary income statement.

Just as a reminder, with the October 2019, let me being a primary term and first quarter of 2022 is the first reporting period, but we've had a full quarter as a combined result at legacy cadence and legacy Bank works out.

I also remind you that the fourth quarter of 2020 when results were adversely impacted by the day, one provision for credit losses, and other merger related items.

For the first quarter, we reported GAAP net income for the quarter of $112 6 million or <unk> 60 per diluted share and adjusted net income of $121 6 million or <unk> 65 per diluted share.

Adjusted pre tax pre provision net revenue or <unk> was $160 million or three 6% of average assets.

There are three key themes as you look at our results for the quarter first our continued loan growth has allowed us to grow net interest income and see positive movement in our margin.

Second our noninterest revenue businesses are performing very well and.

And third credit quality continues to remain strong supporting the lack of provision for credit losses for the quarter.

As shown on slide five we reported net interest income of $312 million and our net interest margin at 292 for the first quarter up from 290 in the fourth quarter of 2021.

Excluding the impact of accretion the linked quarter net interest margin increased by three basis points.

The yield of net loans, excluding accretion was 396% for the first quarter down 10 basis points from the linked quarter, primarily due to the full quarterly impact at the legacy cadence variable rate.

Portfolio.

C&I portfolio.

Similarly, the full quarters merger impact drove our securities yield tire and funding costs lower.

The decline in loan yields.

Our total cost of deposits declined to 15 basis points in the quarter.

As we look forward our balance sheet is well positioned to benefit from rate increases was 69% of our loan portfolio floating or variable.

Slide six and seven provide some additional color on our noninterest revenue and noninterest expense.

Included in noninterest revenue this quarter's insurance commission revenue benefit from seasonality, a high retention rate and new customer wins.

Mortgage banking revenue increased largely due to the impact of rising interest rates on our MSR assets.

And as we look at our expenses for the quarter first quarter is generally seasonally high as we as a result of reset of payroll taxes, and 401, K match as well as higher commissions linked to seasonally higher insurance revenue.

Even some of the quarter's adjusted efficiency ratio was stable at 63, 5% and we continue to expect full realization of the merger efficiencies during 2023.

While not related to the first quarter, we did announce an increase of our minimum wage to $18 per hour effective the beginning of April as we continue to see wage pressure, particularly in some of our larger markets.

Before turning it over to Chris I would like to touch briefly on the changes intangible book value like many others in the industry. Our tangible book value was impacted this quarter by the OCI marks on our available for sale securities portfolio due to the rising rate environment to help clarify the impact we have disclosed a tangible book value per share both.

Including <unk> and excluding it.

Excluding <unk> tangible book value per share of $19 29 actually increased during the quarter. Despite our active share repurchases.

It is also important to remember what drove this quarter's change in OCI is simply a change in fair valuation driven by interest rate changes and this fair value adjustment does not impact our regulatory capital ratios in any way.

I'll turn it over to Chris for a little more on our business activities.

Thanks, Barry and good morning, everyone I would like to expand on the three key highlights for the quarter mentioned by loan growth credit quality and non interest revenue growth as reflected on slide eight we reported net organic loan growth for the quarter of just over 300 million or four 6% annualized.

Primarily in our C&I book Henk will make some additional comments on the loan growth efforts in a moment, but as Paul mentioned, we saw a nice growth in our Texas, and Florida markets within the community bank and across our footprint in the corporate banking and specialty lending units.

Credit quality continues to be a positive story for us which is highlighted on slide 10.

As Dan mentioned, we reported net recoveries of 400000 for the quarter, which marks the fourth consecutive quarter of reporting net recoveries. Our total nonperforming loans declined $34 5 million or 22% during the quarter.

Bringing period end NPL to net loans and leases to 44 basis points, while nonperforming assets also experienced a similar decline.

Noninterest revenue, which is highlighted on slide 13.

Chosen insurance had a nice quarter and reporting total commission revenue up $36 million for the quarter was 17% for the first quarter of last year.

Growth came primarily in our property and casualty portfolio is retention rates remain high and as we also picked up some nice customer wins.

As reported origination volume of $804 million for the quarter with just over 70% being purchase money. While we are pleased with production volume rising rates do pressure on gain on sale margin, which is one four.

4% for the first quarter.

Finally, I'd like to highlight our wealth and trust teams, which reported revenue for the quarter $21 7 million.

I'd also like to highlight that this revenue number is up from $8 4 million for the same quarter of 'twenty, one and reflects the contribution of the legacy CAG Trust and wealth services and Netherlands can volume results.

We're really excited about the synergies of the combined companies bring to our noninterest revenue lines in the future benefits from the cross selling opportunities.

The additional scale and market diversification created by the merger I will turn the call over to Hank for some comments on the corporate side of the bank.

Thanks, Chris I was pleased to see the commercial loan growth in the quarter was spread throughout the corporate C&I teams across the footprint, our bankers have been leveraging the expanded platform and bringing in more wins as the economy stabilized post COVID-19 specialized specialized lending and renewable energy teams have been quite active other.

Areas are seeing pay off slow and we have the teams in place to continue growth.

I'm feeling positive about the growth this year as pipelines remain healthy at particular technology health care and C&I groups are seeing attractive opportunities and our combined markets and throughout the footprint.

We are adding good CRE projects from our community Bank and corporate CRE teams, primarily in multifamily housing.

<unk> loans kachina fun, but we are still seeing lower utilization.

Given the volatility in long term interest rates, we do anticipate utilization in our construction portfolio to increase over the next 12 to 24 months to more normal or historical levels are.

Our focus on credit continues to be disciplined we are not competing at higher leverage points with non banks with EV loans and markets continue to be competitive, but the pressure on terms and pricing seems to have settled zone.

Our teams have come together nicely and I am encouraged by the enthusiasm and commitment I'm also an optimist and excited about many great successes to come for our organization.

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. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw from the question queue. Please press Star then two we ask that you limit yourself to one question and one follow up if you have additional questions you may reenter.

The question queue.

Our first question comes from John Armstrong of RBC capital markets. Please go ahead.

Thanks, Good morning, everyone Hey, John .

Can you talk a little bit about.

Overall growth expectations for the company, so you put up $300 million and organic growth.

Yes, there is a lot of churn between the two companies I would guess, but just talk a little bit about your expectations and is that a reasonable pace or do you expect that that can accelerate a bit.

Hello, everybody jumping on that there is lots of activity going on.

The growth side of the house there has been some churn we continue to see payoffs on CRE flow through there's just a lot of activity pipelines are also big so Hank and Chris you guys are driving some of that.

<unk>.

Okay. John I appreciate the question so as I mentioned earlier, it's a lot of balanced growth.

Pipelines continue to be strong in my opinion.

And I think that.

With some of the areas like renewable energy and certainly the energy component of our bank with prices, where they are some opportunities there and the C&I teams are just getting a lot of looks and so the activity is hi, Chris do you want to add something to that yes, just with rates trending up that's probably going to slow down some of the churn, especially on the community bank.

<unk> side, but it also could impact maybe opportunities as folks are looking at higher interest rates on their projects until that.

Factors and so has that right down the middle of the fairway.

Significant unfunded construction once rider with it.

So yes. There is there is some there is some activity going on John we're excited about what the team's been able to do in light of all the changes that we keep throwing out.

So it feels good maybe a little bit better is a good summary is we feel excited about the opportunities okay.

Every other place that could go but just as long as we're on this topic I think you talked about the competitive environment being settled some and I think that's somewhat encouraging others have said, it's ultra competitive but can you give us a little bit more in terms of examples of what youre seeing there.

Sure.

It's we're always can we're in a competitive business and it's always competitive so where I see some slowdown as we obviously in CRE, we saw rates fall dramatically over the last 24 months.

That seems to have settled down we're not chasing terms.

Leverage points on EV and other areas that we where we compete in are modest or where I would say historically, we're not chasing at this point so I.

I feel pretty good about where we are from a terms and pricing, but it is competitive.

Okay, how does that kind of there and you bring the two companies together there is a lot more emphasis or just the market and the type of customer based on the CRE side for legacy Cade is floating rate. So that's a nice pick up for us and.

Especially in the rate environment, we're moving into we are still seeing on the community Bank markets.

Upward pressure on rates there everybody is holding.

It's still pretty competitive out there even as recently as last month, we saw some three handle that now you're seeing all that move into the four kind of a four handle side not as many three analysts get upward pressure on the rate feel as well.

Okay, alright, thanks I appreciate it.

Thanks, John .

The next question is from Catherine Mealor of <unk>. Please go ahead.

Thanks, Good morning, I, just wanted to stay on the loan conversation and talk about loan yields.

And maybe for Valerie just kind of walk us through you mentioned, 69% of your loan book is floating or variable can you just walk us through to remind us.

What percentage now today is floating immediately.

Once we get past, let's just say, we get 50 bps in May. So then were three.

Three rate hikes through how much you are kind of coming off the floors and then the kind of the timeline on the remaining variable piece of the portfolio just to kind of get a sense as to how quickly we should see these loan yields mid higher thanks.

Yes, absolutely thanks, Katherine for the question.

Great questions.

Back last quarter, we said that it would take about 40 basis points movement in order to get our loans and average off the floors.

That's $7 5 billion understood that we had on the Florida, we've had a whole lot of that movement actually in the market take place already and so the.

The next movement will definitely.

Get those off their floors, we do have about $7 6 billion of our loan portfolio is actually floating and so thats less than 30 days and so 28% of that book when you look at that total book.

We've got about 50% of our entire portfolio that will reprice over the next year.

And so that gives you a little bit better timing on some of that with most of that actually come.

Meaning in the next three months period, and so again that positions us really nicely as we look at some of the increases that we expect coming down the road.

When you take a look at some of the portfolio.

We are starting to see the impact of some of the rate increases on seventh of renewals come through as.

Not only renewables, but also loans that are simply just repricing starting to see that come through and we'll definitely see that impact more in the second quarter.

The new loans on average are coming on around that 360 level, but again about two thirds of silos are variable rate and so those will continue to move.

Does that help.

What you were looking for yes, that's super helpful. Thank you and then my next question is on the expenses.

Fully appreciate that this quarter is elevated.

Elevated because its one <unk> elevation and then we'll have the full impact of the cost savings in there.

Just kind of help us think take a step back big picture.

Maybe what's a good quarterly run rate, we should get to kind of by the end of the year. Once we have the cost savings fully baked in or any kind of guidance you could give us on where you think your expense run rate is going just to make sure. We're all on the page.

So remember we're on a four two integration plan and so I don't know that we'll have a good clean run rate in <unk>. So I would put that out there first I think we expect <unk> to be fully baked in as we get into <unk> and we're as Paul said, we're on schedule. We're on path, we've actually completed.

Huge hurdles just in the last month and a half working towards.

Our full integration, but youre right <unk> expense run as high Theres lots of things that are in there just naturally and then when you look at the things we were doing through the merger.

Are you confident that we're on a run rate to exceed that meet or exceed the numbers that we put out there about where it's been looking numbers up while we Bob been talking.

Yes.

Think what might help I know that the first quarter has a lot of noise and of course, the fourth quarter was very noisy given the timing of the merger date.

Last quarter, we disclosed our combined third quarter of 21 expenses and on an adjusted basis that was $277 million compared to the first quarter adjusted expenses of $281 million, but as we talked about this first quarter did have the resets.

The 401, K match and the payroll taxes and so if you normalize that and then we also had a.

A bonus that we provided to a number of our employees for inflation Mary purposes in the first quarter that amounted to about $2 $8 million. So when you combine all of that together effectively third quarter 'twenty, one to first quarter 'twenty. One expenses actually came down about seven 4 million and so that'll give you a little bit of a sense of.

Yeah.

Some of the initial incremental.

<unk> cost saves that we're starting to see kind of in the underlying foundation that being said, it's going to be bumpy until we get through this conversion.

We do have we talked about we did increase our hourly wage to $18 per hour. We also have our merit increases.

In the July time period, and so all of that will be a little bit bumpy until we do get finished with the conversion but of course, none of this includes savings from any <unk>.

Branch efficiencies.

And then certainly some of the savings that we know will come after we are running on one operating system of the wage pressure is still big and so have already hit two topics that you want to convert to recover again. So we did change our incoming wage minimum to $18 an hour on April one.

Pretty big run rate, that's going to be close to $10 million on an annual run.

To plug that in and then our normal.

Merit cycle, where everyone that wasn't in that group hits on July one so we will see some upward pressure on comp.

Steven.

Excluding the savings on the drop offs that are there. We are seeing you saw head count drop in the quarter and we continue to see some of that but there's dollars that it's going to be bumpy as we move down the path.

Great.

I appreciate that and that's very helpful. Thank you.

Thanks Catherine.

The next question is from Jennifer <unk> of terrific. Please go ahead.

Thanks, Good morning, Hey, Jennie.

Hi.

Just curious the asset quality is very very strong, but what do you think are the most vulnerable loan buckets.

As rates go up and most susceptible here too to rising loan losses over the next several quarters.

Yes, that's a good good question. This was our fourth consecutive quarter of net recoveries, we haven't experienced a whole lot of losses lately. So I guess looking forward is an important piece of that I don't know that I have one.

Bucket that I would want to call out Paul you got anything you want to add to that.

Well I would just observe that the really the merger is a key.

<unk>.

De risking of both balance sheets and diversification of the loan portfolio and like Dan I wouldn't point to any one cat.

Category is higher risk I think the risk is well managed across the company and I would say maybe the previous higher risk energy portfolio has been de risked significantly with higher rates as we're seeing profitability in the E&P sector is spectacular and that of course.

<unk> midstream and nickel in the oilfield service portfolio. So.

It's a granular very diverse credit profile.

One of the key reasons why we like the combination so much.

From a credit quality perspective.

Thus credit we've been posting for either of us quite some time.

Add to that and when you look at the balance sheets of the businesses, they're extremely strong a lot of liquidity there.

We're well positioned if we do have some bumps in the quarters to come from an economic perspective, and with rates, increasing but I think we are well prepared for that and I think our borrowers are as well.

What do you think a normal range of annual loan losses in for this company over an economic cycle.

I don't have a number to stick onto that I mean, that's a good question about where you want to add.

Yes, I think I think that's a little bit of it at <unk>.

<unk> number, but as far as like annualized.

Net charge offs legacy cadence.

I would guide towards a 25 basis points normalized over a period of time net charge offs and I'd say, that's lower from the legacy Bancorp South.

History, and so it was something below those lines.

When you look at the Covid stress test in some of the portfolios that you might have been concerned about hospitality.

Legacy Bancorp South.

I mean, it just came through with great marks and so I think <unk> on the right path.

25, might've been short of what we thought about for K, but something less than that so combine I don't know 10 to 15.

Hard to hit a narrow range.

We're clearly watching the clouds that are out there.

I think your question is fair.

It appears that there could be some economic headwinds that we're there we're hoping that they blow bond we don't experience some of that but we have to be prepared for that.

Okay.

Thanks, so much thanks Tony.

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

Hey, good morning, everyone. Thanks for taking my questions.

So it looks like the buybacks were weighted towards the back half of the quarter, but as we move forward just given the drop in GCE and understand the conversation Valerie.

The mechanics of the OCI head, but.

Sure.

Would that.

Give any sort of pause to.

Future repurchases in.

Should the stock remained under pressure.

Is there capacity at this point do you think to actually increase the size of the repurchase thanks.

Yes, so I think a couple of things Valerie can certainly jump in here, but when you look at the tangible book value. Excluding <unk>, we were actually up in the quarter.

LCI to use another word would be transitory and overtime. Neither one of us have had.

Habit of trading in that portfolio, so that will work its way through over time.

That the tangible book value went up.

Excluding that which is on page four of the deck I think is a positive thing I think we want to be opportunistic on buybacks.

Don't think we want to be locked out of the market, but I also think we need to be cognizant of all the moving pieces, which includes that youll see a salary yes. Thank you.

We hit on all the points I think.

And certainly we've always been opportunistic in the past the first quarter.

With pretty heavy activity, maybe a little bit more measured going forward, but again.

We have a history and I anticipate that will continue to be.

Opportunistic and do what makes some sense balancing all the other things that we have going on obviously loan growth continues to be.

Picking up and so that is obviously another.

Primary use of capital.

Understood. Thanks, and then just on the.

On the accretion this quarter, obviously, it was a little bit higher than I think I was looking for at least.

Understand how much you have left was there any sort of accelerated paydowns in there and then.

I think you might've, given our schedule or expectation last quarter should that we should kind of expect on a go forward basis.

Yeah, that's a good question.

There was a little bit of accelerated.

And there that tends to be bumpy.

<unk>.

We had we're still looking at Oh gosh, probably.

Probably about 25.

$30 million of additional accretion as we go through the rest of the year in scheduled but again I would anticipate that its probably going to end up being a little bit more of that simply because the payoff.

Understood and maybe just finally for me just two kind of quick housekeeping questions with the conversion coming in the fourth quarter.

Assume a lot of the cost saves will come in and around there, but how much of the cost saves have you realized today, because I think you targeted 75% for this year and then just on the one time costs any changes there I think you'd originally estimated $125 million any changes there and how much have you recognized to date. Thanks.

I don't know that there is any change in any of those numbers is the quick answer there I think the one time cost those are hard for you to see sometimes because some of those costs were incurred pre closing.

On the seller side. So you don't see all of that flowing through we had a relatively low.

Number this quarter I would suspect that we will see some increasing cost as we move into the next couple of quarters, because we have some things we got to spend money for through the computer conversion in <unk>.

But from a cost save perspective, I think we feel like we're in really good shape to hit or exceed the numbers that we put out there youre right.

As youre looking out to the back half of the year.

The biggest pieces of it will fall off in the fourth quarter, but theres little pieces that had been coming along all the way through early on I said, we have converted our mortgage shop all onto the same.

Origination platform early in the year, we're in the process of converting a mortgage servicing onto the same platform here in the not too distant future I mentioned a minute ago that we've re pass now to pretty big hurdles.

Actually upgraded and moved our main processing box just over the past weekend that puts us in a position to be able to do what we need to do that way and we've also upgraded our card processing all.

All the transactions that flow through on the debit card credit card side hundreds of thousands of transactions.

A day are flowing through and that was all upgraded just in the last month. So we're making great progress towards the conversion in the fourth quarter and I think we're very confident we'll hit our numbers.

Yes, the only other thing I would really add to that is we've incurred about $55 million ish or so pre tax.

When you look at the fourth quarter first quarter, and then actually looking back at the third quarter of 21, some of that a little bit early.

<unk>.

And so.

But there will be some more.

May end up.

Beating that estimated overall cost, beating as incoming had less kind of in line coming in that we can take the clarification.

But again.

<unk> put it there's a lot of activity happening in the latter half of this year.

So progress continues.

Thanks for taking all my questions. Thanks, Michael good to hear from you.

Okay.

The next question is from Brad Milsap with Piper Sandler. Please go ahead, Hey, Brad.

Hey, good morning, Dan Thanks for taking my questions.

Not to continue to belabor, the costing but just kind of wanted to put a finer point on it.

It sounded like you said that from the third quarter to the first quarter. Your expenses would have been down maybe $7 million.

From.

Cost savings I think you.

Initially identified maybe 2000 20 million quarterly youre going to spend another $2 5 million a quarter I kind of an inflationary items.

Kind of back of the envelope would that leave you sort of $10 million to kind of fall out of the quarterly run rate all else equal as you get past. The conversion date does that does that math still makes sense.

That's the run that through my brain again.

Yeah. So you don't post conversion as we look into 2023.

We do anticipate achieving all of the cost savings that we laid out in the document we talked about the announcements that $78 million.

And then obviously, we have talked about the impact of the $18 per hour is about $10 million per year.

And so theres, obviously, a little bit of puts and takes throughout there, but you can count on us achieving those merger cost saves we're committed to that.

Yes, I think from a okay great.

From a bigger perspective, Brad when you look at us.

We're still very encouraged the merger gives us the opportunity to not cost out the wage pressure that we're feeling that's affecting all of us that's nothing unique to our company everybody is feeling that.

<unk>.

Pressure thats on NSF fees for the industry is impacting all of us not just us. So there are certainly some industry things that are impacting us, but we as a standalone, we think that the ability to <unk>.

Cost out.

Through our merger is a real positive for us and we'll meet or exceed probably both sides of those numbers.

Great. Thank you and then just as my follow up Valerie.

Could you talk about maybe plans for the existing remaining liquidity that you have.

Sitting in fed funds do you plan to.

Put that into the bond portfolio with rates higher or just kind of wait and see with what loan growth just kind of curious kind of how to think about the size of the balance sheet and kind of the different categories going forward.

Yes, absolutely.

First quarter is.

A lot of seasonality on our deposits, we do have a number of large municipal customers, who with the tax inflows.

Come in and then you'll see those come out in the second quarter and so part of that liquidity will certainly be to offset some of that volatility and some of that seasonality shift that we will see we anticipate seeing in the second quarter.

Then obviously using those funds, but the level of growth is first and foremost and then it's really going to be.

Effectively what.

Leftover and making sure that we invest it properly and we do have a lot of cash flow coming off that securities portfolio about $700 million per quarter, and so that helps fund a whole lot of loans.

It also may allow for some reinvestment at some higher rates over time.

We would like to get the Securities book as a percent of assets down as a percent.

But that's going to take some time, given where we are today.

Loan guys need to make more loans absolutely.

Yes.

Great. Thank you very much thanks, Brad.

The next question is from Kevin Fitzsimmons of D. A Davidson. Please go ahead.

Okay.

Hey, good morning, everyone, Hey, good morning, Kevin.

Hey.

Tim I just wanted to ask about.

It seems like there was a change in treatment on the MSR adjustment and I definitely recognize that some peers don't break that out and exclude it and it is.

On one hand, you got hurt by rising rates on the OCI. So it doesn't seem fair to.

Just arbitrarily decided to exclude that but you got it had been.

Your practice or legacy bankruptcy practice to exclude it when talking about core performance. So I'm. Just curious about is this a change going forward and how youre going to view it and what were the puts and takes in deciding.

To keep that within core earnings yes, that's a great question and you're spot on I think when we look back over time, when we started pulling that out at legacy Pxs. It was a big part of the number it's become more and more immaterial in our process as we've grown.

We've been looking at what peers are doing and what's out there and so we did pull that out of our adjusted numbers and we also adjusted the adjusted numbers looking backwards. So what you see in the deck is all uniform across but you're right. We've left it in because it's a much less material number today than it was when we started adjusting for it as a much smaller.

Organization, when we were $10 billion.

And that'll be a consistent treatment as we go forward.

Okay, Okay, great and.

Can you.

Just give us a sense for.

A lot of.

How do you view the ACL and.

Where that settles going forward on one hand.

I think the combined I think you guys might have given up before they're on a combined basis, what your day one.

Cecil Might've been.

But on the other hand, we have a little more uncertainty today, just with inflation and geopolitical.

Things and just wondering how to view that debt.

ACL going forward, what we should expect.

Yeah. That's a really good question that doesn't have a very good answer and you're exactly right. There's a lot of moving parts.

The future risk Thats out there as the dark clouds, if youre looking at history.

Four quarters in a row of net recoveries would tell you that.

Credits and really fine shape, but what the future is bringing to US is the unknown and so it will be prepared for that and I don't know that we have a number to tell you where I think that it would shake out, but we're certainly watching our modeling.

So we're making sure we're accounting for the potential risk that are out there.

I guess I guess put it put it in another way.

I would suspect there is still opportunity for credit leverage for that.

<unk> to come down, but maybe less.

<unk> then it might have been able to we might've thought a quarter ago.

I think Thats I think Thats, probably fair I think again the unknown is what's happening in the.

The economy with an inverted yield curve and potential.

Military skirmishes around the world I think that that's the unknown and what that does to the economy.

It puts the cloud over us it without those things I think your statement would be spot on.

Okay, alright, thanks, very much Dan.

Thanks, Kevin.

Again, if you have a question. Please press Star then one the next question is from Matt Olney of Stephens. Please go ahead.

Hey, Thanks, Good morning, everybody good morning, Matt.

Most of my questions have been addressed but I wanted to ask about deposit growth and look good in the quarter, but you mentioned there was some.

<unk> tailwind that you guys benefited from.

Can you quantify this just trying to appreciate if we saw any true sticky deposit growth in <unk>, and then kind of the outlook for deposit growth from from here. Thanks.

So <unk> has historically been the best deposit growth quarter for both of our companies on a stand alone we've not experienced a second quarter as a combined company together yet so this will be new for us.

Quarter has also been the weakest quarter historically for both of US. So I think the anticipation would be that with the municipal deposits that we were both carrier and coming into the merger that we would see similar.

Similar to what we had seen in the past as Standalone entities. So when you look back I think both of US had the same.

That to down deposits in <unk> for the last several years and I would think that all things being equal I don't know why it wouldn't be the same this year.

Got it okay.

That's helpful.

And on the mortgage front.

It looked like the person of production sold.

Was down this quarter on a 50% it had been at 78% range over the last.

A few years is this a timing issue or just structure you guys.

Using to sell less the production and the balance sheet more of that.

Nothing has changed from a structure standpoint, theres timing and there is product.

If there's a product mix, we have been retaining the arms on the balance sheet.

And so if we're putting more arms or producing more arms those would stay but theres been no change in our process, Chris you want to add in there yes.

Yes, no change, there's probably some noise from the combination of the company decided to shake out yet as well because both sides are doing mortgages portfolio mortgages and.

We're getting a lot more volume relatively speaking on the secondary market side. So I think it just takes some time for that.

Sort of balance itself and see some trends that makes sense and remember we finished the merger of the consolidation of all of our origination onto one platform in the first quarter. So theres certainly some timing issues and work going on there.

Yes, okay.

Okay. Thanks, guys.

Thank you Matt.

Sure.

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

Alright. Thank you all in closing I believe our results speak for themselves in terms of the early successes of the combination of our two companies.

Fact that we've continued to report meaningful balance sheet sheet growth. So soon after the legal merger closing is a tremendous testament to the efforts of our collective group of bankers as well as the cohesiveness of our back office and the credit support functions.

<unk> from industry wide headwinds on mortgage our fee income businesses continue to grow at impressive rates as we look forward. We're challenged we've challenged our frontline teammates to build on this momentum while our back office and support personnel continue their efforts working towards a successful completion of our integration efforts. Later this fall it truly is an exciting time for <unk>.

The new cadence bank. Thank you all again for joining US today, we look forward to speaking with you all again soon.

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