Q2 2022 Cadence Bank Earnings Call
Customer experience has remained at the center of each step we've made as we plan for this integration and I'm inspired by our team's commitments, whether it would be the operational and administrative teammates who I alluded to earlier or the best in class bankers, who are out there building relationships and taking care of our customers every day.
As we move to our financial results for the quarter.
We reported net income available to common shareholders for the quarter of $124 6 million or <unk> 68 per diluted share.
Adjusted net income available to common shareholders of $134, two or <unk> 73 per diluted common share.
We also reported adjusted <unk> of $176 7 million or 151% of average assets on annualized basis.
Each of these metrics EPS adjusted EPS and adjusted <unk> increased in excess of 10% on a linked quarter basis.
From a balance sheet perspective, we had a great loan growth quarter reporting net loan growth of $1 2 billion or over 17% annualized. This brings our year to date total to $1 5 billion or 11% annualized. These results are directly correlated to our frontline bankers enthusiasm about our merger.
The markets across our footprint continued to perform very well our loan growth efforts for the quarter were very diverse both both from a product and geographic standpoint.
Reported meaningful growth in our commercial and industrial commercial real estate and residential mortgage portfolios from a geographic perspective within our community Bank, we reported considerable growth in our Texas, Florida, and Missouri markets as well as parts of our Mississippi market.
On the corporate side, we saw nice growth across several of our industry verticals and geographies led by our Texas and Georgia teams.
Excluding the growth in residential mortgage the remainder of our growth in the quarter was almost evenly split between our community bank and our commercial bank.
We reported a minor decline in total deposits of $379 million, which is consistent with historical seasonal trends on a year to date basis deposits are still up just over $370 million or almost 2% annualized.
As expected our net interest margin and net interest revenue continued to benefit nicely from rising rates are reported margin improved 14 basis points on a linked quarter basis to 306.
Excluding the impact of accretion the margin actually increased 20 basis points.
Credit quality continues to be very strong we reported net recoveries for the fifth consecutive quarter, while we had additional declines in both classified assets and nonperforming assets.
Credit is certainly becoming a more prevalent topic in the industry and it appears there may be some dark clouds on the horizon.
Our company our credit quality metrics continue to show improvement rest assured our team is watching very careful for any signs of stress.
Our our operating efficiency ratio continues to improve adjusted noninterest expense declined by just over $9 million or 3% compared to the second quarter contributing to a decline of over 300 basis points in the adjusted efficiency ratio to 65%.
While the reduction of expenses was benefited by a few nonrecurring items, we remain confident on our ability to continue to harvest the cost saves from our merger.
Finally, I would like to provide a brief update on our efficiency efforts related to our branch structure. During due diligence we identified several potential branch consolidation opportunities seven of which were divested just after the merger closing.
Given the continued development of digital technology, and online banking and related changes in customer behavior. Our team is now working to consolidate 17 additional branches and to other nearby locations during the fourth quarter.
These branch consolidations will result in an estimated annual cost savings of approximately $8 million per year.
With that let me turn it to Valerie for her comments Valerie Thanks, Dan turning to in accordance results Slide three provides a view of our summary income statement just as a reminder, with the mid fourth quarter 'twenty, one closing of the merger first and second quarters at 2022 represent full quarters at the new cadence.
Dan spoke at a meaningful growth in our earnings this quarter highlighted by our strong and diverse loan growth coupled with a 5% quarterly increase in our net interest margin and improved operating leverage.
Our adjusted net income of $134 2 million increased $12 6 million during the quarter and.
And when adjusted for merger related expenses of $13 million.
As shown on slide four we reported net interest income of 325 million for the second quarter, an increase of over 4% compared to the first quarter of 2022.
Our net interest margin with three 6% up from $2, 92% in the first quarter.
Excluding the impact of accretion as Dan noted the late quarter net interest margin increased by 20 basis points.
So it's.
Interest income and the net interest margin continued to benefit from both the loan growth, we've generated as well as rising rates.
Yield on net loans, excluding accretion was up 16 basis points from the linked quarter. We also saw a similar increase in our securities yields, which increased 12 basis points in the linked quarter.
Our total cost of deposits at the same time remains stable at 17 basis points for the quarter up only two basis points.
While fed funds have increased 150 basis points year to date, our total deposit costs have actually been flat. During this time period, we do anticipate deposit cost to increase as we look to the rest of the year I'd expect it to be gradual and still support an improved net interest margin.
Our balance sheet remains asset sensitive with approximately 68% of our loan portfolio floating within 30 days are variable rate.
Slide five and six provide some additional color on our noninterest revenue and noninterest expense.
Noninterest revenue of $125 2 million declined $3 $2 million due to lower MSR valuation adjustments in the quarter.
Before these adjustments noninterest revenue increased just over $6 million.
Insurance continues to show impressive results with commission revenue growth of over 10% on both a sequential and comparable quarter basis.
Our customer retention rates remain very high and the pricing market is still very firm for the industry.
We also reported a nice increase of over $5 million in our card and merchant fee income, which is primarily the result of our annual incentive payment from our card vendor as well as increased revenue from improved contractual revenue share in 2022.
Our mortgage team has performed impressively this quarter with the originated volume of $913 million the highest level in five quarters.
While we are continuing to experience margin pressure in this area given the rate environment home purchase money volume remains very strong totaling $776 million for the quarter up from $575 million last quarter.
Finally, the linked quarter decline in other noninterest revenue included a $1 2 million purchase accounting adjustment, reducing second quarter revenue as we finalize the day, one fair value of unfunded commitments acquired as part of our legacy cases merger.
Our noninterest expenses for the quarter are certainly a positive story with total adjusted noninterest expense of $271 8 million declining just over $9 million or 3%.
The decline included a reduction of $5 7 million in compensation cost, which was driven by a seasonal decline in payroll taxes and four our K match as well as a reduction in our group medical expenses.
We also reported a significant decline in the amortization of intangibles, which included an incremental $3 7 million reduction in expense as we finalize the legacy Cade acquired intangible asset valuations and trade up the related expense.
These contributed to a meaningful decline in the adjusted efficiency ratio to 65% for the quarter.
Our annual Merit increases were effective July 1st so that will begin to impact compensation costs in the third quarter. However, we anticipate continued modest improvement in the overall core operating leverage as we look out through the rest of the year.
Slide seven and eight highlight our loan and deposit portfolios.
As Dan noted the $1 2 billion of net loan growth in the quarter was broad based and included an approximate 60 40 split between new loan fundings versus draws on existing commitments.
We are running at an overall line utilization level of approximately 47% consistent with recent past quarters.
The quarter's modest decline in deposits was largely in accounts that increased in the first quarter.
With total deposits up actually since year end <unk>.
Noninterest bearing deposits make up a consistent 35% of our total deposits.
Finally, slide nine and 10 provide details in both credit and capital both of which continued to be strong.
In addition to the continued net recoveries as Dan mentioned, our nonperforming assets declined 11% in the quarter and have declined 30% since year end.
Requires our classified assets declined 12% in the quarter and 30% since year end.
We ended the quarter with our allowance for credit losses up slightly at $440 million, representing 155% of loans and back to $1 million provision for credit losses in the quarter.
In a nutshell, our earnings performance and balance sheet are strong.
Our teams are executing well and we are very well positioned for increasing rates as well as any potential economic headwinds.
Operator, we would like to open the call and ask questions.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
Speaker phone please pickup your handset before pressing the keys.
Your question. Please press Star then two.
Please limit yourself to one question and one follow up at this time, we will pause momentarily to assemble our roster.
Our first question will come from Jennifer Dunbar was curious Securities you May now go ahead.
Thank you good morning.
Borrowings on our priority.
Good good.
Thank you.
A couple of questions one on the insurance fees I know you guys closed an acquisition how much did that help.
The insurance income during the quarter.
Less than half a million dollars in gross fees gross income so not much it's a very small very small deal.
Okay.
And.
On your asset sensitivity any plans to alter that at all in the coming quarters do you or do you want to stay as asset sensitive as you are right now.
So right now.
We are comfortable where we are that is something that we've been evaluating and continue to evaluate from time to time.
Thanks, so much.
Thank you Jay.
Our next question will come from Michael Rose with Raymond James You May now go ahead.
Hey, good morning, everyone. Thanks for taking my questions.
Just wanted to elaborate on the loan growth Hey, how are you.
Obviously, a really good quarter for you and others, what we've heard others talk about moderating growth in the back half of the year I just wanted to see if that is in line with kind of your expectations and I know previously you had talked about kind of a mid <unk>.
Single digit rate for this year, but clearly youre above that so just wondering to see.
How we should think about the next couple of quarters as more pipelines, our optimism around your customer base pull through rates et cetera. Thanks.
Our pipelines are big and everybody in the room, we'll get a chance to answer on this question I'm sure but.
We're really pleased with where we are I think we've said from.
October .
Tober, let's go back to April a year ago. The question had been on could we merged our two companies together could we grow could we repay.
Folks and we're really proud of what's happening I think the retention that we've had on our people and the engagement that our folks have in the community is what youre, saying and so one of the things you've heard me say many times.
The economy within the footprint that we're serving is providing loan growth opportunity, we're going to be in the game and I think that is still the case today.
The economies in the markets that we're serving begin to pull back then I think we're going to see the same thing happened to us, we're clearly watching and looking at every credit.
No.
With a new magnifying glass, but theres a lot of good opportunity out there you can see credit quality from our perspective non performers.
I know that their all time lows, but non performers are really low we were down 11% and nonperforming assets again. This quarter. So we're really pleased on what's happening there from a pipeline perspective, hi, Chris you guys want to jump in on that first of all as you start.
Yes.
Pipeline is still a good I think everybody's maybe with interest rates going up obviously you might predict.
Little bit of slowing in the last half of the year, just as folks evaluate project return rates.
Great.
The first half of the year has been strong.
And diverse.
I'm from.
Owner occupied real estate and residential mortgage from C&I.
It's been a really nice mix of geographic perspective also.
On that perspective.
Got it.
Sure, Thanks, Chris and I'd Echo the comments with the active pipelines and certainly the first half of the year.
Was very positive and we will continue to build on those and certainly.
Feel like we're in a good position as Dan mentioned within our footprint with the teams we have in place.
We able to build on what the first half of the year really missed us I would add that on the CRE front.
We have seen some pretty low utilization on those lines I mentioned in last quarter and so our CRE team active in the construction.
<unk> should see some advances in the second half of the year Juliet.
Utilization is down.
There is low for sure.
Sure. So hopefully we have seen a slowdown in the in the in the activity in the sales from primarily the multifamily. So we should see some increase in those advances in the second half of the year.
Yes, I think just a couple of guys to add onto the Michael when we when we look at where it came from I think back to the.
Progress, we're making from merging our two companies together if you strip out the two.
The residential mortgage growth the rest of the growth came basically $50 $50 50 from legacy cadence 50 from legacy Pxs. So both sides of the house, we're really performing well Paul you want to add anything to that if you guys got it we've got a good pipeline.
Your direct question was where are we going and so I think as we sit here as the middle of the middle of July heading into the back half of the year, we were talking about high single digits and now we're sitting on 11%. It would not surprise me to see us in low double digit growth as we get to the end of the year.
I appreciate all the color that was very thorough.
And maybe just as a follow up question.
Wanted to dig into the expenses, a little bit I think last quarter that the minimum wage increase caught some people off guard, but this quarter's core expense control obviously, good Valerie maybe if you can just kind of walk us through how much in cost saves you've realized it sounds like merit increases.
Ill hit on July one but.
The offset of that in part will be the branch closures in the back half of the year and then it looks like you have lower amortization expense going forward. So if you can just kind of.
Walk us through from a run rate perspective, what we should what we should expect over the next quarter. So it would be helpful. Thanks.
Yes, absolutely Andy pointed out a number of banks and say you're exactly right this quarter.
At the beginning of the quarter, we did have the impact of our.
Minimum wage increase that was about $2 5 million per quarter, beginning July 1st which will be third quarter. We also have an incremental four our merit increase which is annual that'll be about another $4 million or south per quarter associated with that.
And then I'd say kind of offsetting that couple of things that hit this quarter.
They can obviously wouldn't be going forward we did.
There were three seven and reduction of amortization expense $3 7 million this quarter as we kind of true that up.
The merger to date, if you will the finalization of that amortization as we finalize those intangible assets associated with the cadence merger going forward, we expect amortization expense of about $5 million associated with that was that compares to $6 8 million number in the first quarter. So it isn't great, but I wanted to make sure.
It was clear that $3 7 million with an incremental reduction this quarter that wouldn't occur.
Going forward.
We continue to expect that we are having good progress towards our merger integration and consolidation occurring in the fourth quarter and then subsequent to that that's when the branch closures will occur and so there'll be a little bit of noise in the third and fourth quarter. They would be merger expenses and so forth that they continue to complete all of that and then.
Most of that to be cleared up as we enter into 'twenty, three and again to be able to see really some normalized expense trends.
You go into 'twenty.
I think when we're talking about harvesting the cost saves out of the transaction. We are still on target to do that we're still tracking that.
<unk> heard me say that we had completed the mortgage piece of the puzzle here just in the last few weeks.
That will allow us to harvest some cost saves there in this quarter I don't have a number for that but we're making progress on all fronts. There I think.
Key phrase I think bell.
End of your comments you were talking about.
Turning to see positive operating leverage.
Okay, great. Thanks for all the color.
I appreciate it.
Our next question will come from Brad Millsaps with Piper Sandler you May now go ahead.
Hey, good morning.
Good morning.
Maybe just switching gears a little bit to.
To the margin Valerie Dan.
This quarter, obviously, you talked a little bit about the deposits may be some seasonality there.
Ross relied on <unk> be a little bit supplement just kind of curious.
Kind of what you put on in terms of federal home loan Bank advances do you think that's kind of temporary based on kind of maybe what you're seeing in deposit pipeline just kind of wanted to get a sense of.
Kind of how you plan to fund the growth going forward and how that.
It impacts your <unk>.
Your NIM outlook.
Okay. Thanks.
Effectively those those were very short term and they were really put on to fund the variability that occurs kind of.
The quarters.
Which is typical with some of that typical seasonal inflows and outflows.
In fact those.
And dances actually expire at the beginning of August and we don't anticipate putting any more on.
And expect to continue to fund it with not only obviously the deposit but securities runoff as well to continue to get $600 million or so per quarter in cash flow off the securities portfolio that serves to be a source of liquidity as well.
So you're specifically I think asking Brad.
Pricing also and so we did really well along on holding deposit cost were expecting to see more.
Increase again, I guess tomorrow.
I think everybody's watching everybody else, we're all watching rates and we want to be.
Competitive for our customers. We also want to make sure that we're staying in front of them I think it's important to note on that front that we've got 80% of our deposits are actually held within the community Bank.
And that portion of our deposit base is actually I would say that the stickiest make the lowest deposit beta.
And so that obviously has been a benefit this quarter and we anticipate that'll be a benefit for us are on board.
Great very helpful. Thank you you answered part of my next question.
It sounds like you expect just to use those cash flows the securities book to fund growth.
Where would you kind of expect kind of a landing point for securities or is it just directionally lower as you as you just make the earning asset mix more efficient.
Yes, I think in the near term and we would certainly just expect Directionally lower.
Look back historically at our companies they ran.
15%.
Securities to asset sales it will be a while before we get to that level purely dependent upon deposit growth or lack thereof gaslog lessening.
Very helpful. And then just kind of final housekeeping Valerie I know you've finalized that.
The intangible valuation, but just was curious.
Any any impact on kind of what you would see on accretion going forward I don't I assume all those marks are finalized as well, but just kind of curious what your outlook would be but I know, it's hard to predict with the timing of payoffs as such but just curious if any change there.
Yeah.
That.
There is a possibility always within one more quarter that there can be some.
Adjustments I would not expect anything material from the accretion side. If you take a look at the decline in accretion that occurred this quarter. It was primarily associated with what we call excess accretion, which is associated with timing of pay offs and was probably.
We have $3 5 million incremental excess accretion in the first quarter versus the second quarter.
And so that was kind of the biggest.
Area there.
Okay, great. Thank you I'll hop back in queue. Thank you very much.
Thanks, Bob.
Our next question will come from Brett Robinson with hub Degroup you May now go ahead.
Hey, good morning, everyone.
Wanted to I guess first just talk about the loan growth and obviously a lot from Texas, but just wanted to talk about the other kind of main business lines from classic cadence.
<unk> energy.
Health care can you maybe talk about those segments and just the strength this quarter.
Relative to maybe last year.
Everybody got to play this quarter.
<unk> is one of those things, where I wish I had a very.
Broad answer for you, but it's been so diverse and we've seen you listed out a number of the different specialty lending groups, but we've had nice activity in loan committee in all areas and all food groups.
So we're seeing nice demand in healthcare and technology.
In the restaurant business, certainly CRE has been very active as well, but it's been balanced.
Geographically as Dan mentioned in his opening comments along with the specialty groups. So it's nice to see us all kind of.
Moving in one direction, we got to get all the players in the game this quarter everybody.
That really did well.
Okay.
And then earlier.
You mentioned positive operating leverage.
We're not into 'twenty, three and Youre, not giving guidance for 'twenty three but when you look at the expense savings from here the margin trend it would seem like the.
The efficiency ratio can trend into the mid fifties is there anything that you see on the horizon that would prevent that from happening or where does that feel like a progression that that might be a possibility.
Continue to look at the presentation that we put out April a year ago, where we were looking at kind of what we thought the merger to do for us.
I think we feel like there's anything in the road, that's going to keep us from getting there.
That's exactly right.
We estimate interest rates are at.
I am moving dynamic right now the wind behind our back on that.
That obviously.
I'll skip change rapidly in that environment, and so sometimes that can slow things down.
Our speed them up just painting.
Okay, Great and then maybe just last one for me on mortgage.
A little bit of unusual quarter with volumes being stronger than I expected and the hedge it looks like maybe there was some.
Unusual and that's what the MSR versus the hedges can you maybe walk through that a little bit more on this explaining.
What kind of income in the production and take you a little bit.
And so.
Valerie is going to flip some pages, but when we look at what we're hedging we hedge our pipeline, which means that the margin is going to show better when the pipeline is growing and with pipeline contracted pretty heavily weighted in the quarter and so that negatively impacts your margin on gain on sale. We also hedge the MSR asset and so we have increased the hedge.
On the MSR asset.
Coming into the quarter. So in the first quarter, we had a $14 million mark to market gain market adjustment and in the second quarter, we had a much smaller almost $10 million less.
And mark to market adjustments. So if you pull the mark to market adjustment.
The MSR asset that was hedged higher in the second quarter, then you're back to just the production numbers Valerie.
Yes, no thats exactly right.
The increase and she is actually.
The biggest impact and the reason we did that is obviously, given where the rate cycle and where that asset has to come out that was tied to that on a larger hedged to protect some of that value and when you pull that out the mortgage banking revenue declined about $1 million.
During the quarter and a lot of that is associated with.
Really the pipeline and the volume in the game and the priority of our hand on that.
Okay, Greg you want to look at.
Yes, Chris.
Add to that I was going to have on the production volume I think one of the unique strengths of our mortgage team as we're now putting on balance sheet.
So theres been a shift to a five one arm type mentality in the market and our team's able and we've also got a onetime closed construction loan.
Product that works well in this time so.
See you see that a bit in the production mix. So you see a little bit less secondary market production and more portfolio protection that is part of our loan growth I think was about $300 million in June .
Yes.
You made a great point, so just coming back around to that.
<unk>.
Anything that we are producing thats a five one arm most of that is coming onto the balance sheet and so the actual loans that were sold in the quarter was lower which obviously lowers the revenue.
Okay great.
Great. That's very helpful. I appreciate all color.
Sure Brooks.
Our next question will come from Matt Olney with Stephens you May now go ahead.
Good morning.
Good morning, everybody.
I want to go back to the funding discussion and I am curious what you have.
Ballpark estimate of the dollar amount of the public funds.
Flowed out into Q.
And then remind us the seasonality when we should expect that to flow back.
And to the deposit balance just trying to appreciate if deposit growth for the back half of the year can keep up with the loan growth.
Yes, so public funds municipal money is big inflows late in <unk> and throughout <unk> and <unk>.
So and outflows most of the outflows as an <unk> and so that's what we've talked about last quarter on the call as we talk quarter before that on the call is that the seasonality of the municipal deposits, so theres big deposits that flow.
And the last part of December , which juice Youre end numbers. They continue to flow in <unk> and then <unk> has historically been put out quarter I don't know that we have a specific number of hours.
The large majority of the deposit flows for us is in the municipal side.
The community Bank is doing very well.
And the second part of that was Ken can the deposit growth keep up with the loan growth in the back half of the year.
Well how much is long is going to grow in the back half of the year would be question one.
I don't know I mean, obviously, we won't continue to grow so I think where the footprint that we're in is going to give us that growth deposits is a wildcard.
I have an answer for you as to whether they can or cant.
We're excited about what the team is doing out there about where you want to close that out.
I think I mean.
If the whole market contracts in deposits.
It's probably unrealistic to think that we would see some of that.
In certain areas, where the markets some of that contraction that being said we.
We just feel so good about the diversity of our deposit sources.
And we've got the 400 branches.
Granted some will be coming back, but those will be consolidating those deposits will stick around.
<unk>.
Yes.
We've got that network, which is all of the great community foundational base, we've got the commercial network we've got.
And great public fund relationships.
You just named.
Brought variety of diversity.
That has come together.
We believe gives us a lot of levers to pool associated with deposit growth and loan to deposits are at 70% sort of in upstream.
Okay.
Lately.
And on that last point salary within the community Bank network, how would you characterize.
The banks deposit pricing relative to its peers.
Relative to southern Gamma how would you characterize.
The community bank's deposit pricing at this point relative to other banks with it within the.
Within the footprint.
Competitive yes.
It depends on your definition of peer so from that perspective, you Wouldnt think proxy peers youre thinking about community banks in multiple markets across nine states it can be competing against.
ABC bank across Australia are large regional or large Nash.
National Bank as well so it's.
We monitor that closely.
It's.
What we're seeing in our competitive set on posted rates is not a lot of movement, but youre seeing a lot of one offs specials and competition trying to attract the quality customers within the market in the world.
Checking those relationships with our with our relationship managers in those markets.
We want to remain competitive.
Okay. That's helpful and just lastly on.
The loan side Valerie do you have what the dollar amount of loans that are floating and will reprice immediately I think youll get back to with last quarter and I couldn't find it this time.
Okay.
I can give you a 27.
4%.
But our floating.
Floating within 30 days 30 days.
I was just pulling that up.
Yes.
I think it's 40 something percent is variable on top of that.
Betsy.
Floating within 30 days, it's about $4 five or I'm, sorry, $6 nine.
Yes.
Okay. So that didn't I don't think that changed very much materially from what it was last quarter.
While we might even get above some floors from what you just disclosed in April .
Yes actually so.
That same number yes that that number represents a population thats floating.
There could have been some employers within that priority we're about there.
No floors yeah.
Sure.
Okay guys. Thanks for your help.
Thanks, Matt appreciate it.
Our next question will come from Kevin Fitzsimmons with D. A Davidson.
You May now go ahead.
Hey, good morning, Kevin.
Hey, Dan.
I'm just curious.
You guys repurchased 1 million shares in the quarter and on the one hand regulatory capital still looks very healthy and you guys seem very confident in that.
Your ability to accrete capital.
Going forward on the other hand.
There is this macro concern about a potential recession and now.
Yes.
I understand the TCE ratio gets affected by the optics of the accounting but.
Does it reach out.
And then hit a sensitive point with it being sub 6% year.
And all im throwing all of that out just to really ask your outlook for continuing to repurchase the stock going forward. Thanks.
Yes, I appreciate that we purchased that stock early in the second quarter, we have purchased any stock and a little bit, but I think right now we'd like to say, we would like to see how things settle over the next few months, but we want to make sure that we've got all the tools in the toolkit available to us.
With me today, I think that we're watching.
Watching.
Because just of what you just said and I think when Youre looking out there like I said theres, some dark clouds brewing out there.
Some of that comes to pass then we want to be prepared for that.
Great Thanks, and just.
One last one from me so the ACL ratio.
Alan linked quarter, but at $1 55 is still very healthy level relative to peers.
Expect.
Not not baking in any sharp change from what you see today do you see that being more of a gradual.
Decline from here balancing the fact that you.
You probably have ability to.
Take that down but on the other hand, what you just mentioned about seeing how things play out and being cautious.
Yes.
So I think theres a lot of moving parts in that model and forward economy is a piece of it.
As his experience.
What we're doing and so our credit quality five straight quarters of credit recoveries.
<unk> unusual.
Especially when you are staring at a potential recession in front of us. So I think again, there's a lot of moving parts there could walk down sure.
Come up a little bit, but I think the answer is yes on both sides of that depending upon what the inputs are.
Okay great.
Last one for me Dan just wanted to clarify the 17 additional <unk>.
Closures are those over and on top of what was originally communicated or is that part of.
What was baked in with the merger.
Well the answer is all this includes what was in there. So I remember when we when we may be a merger announcement, we had talked about although we ever put a hard number that was out there at the time on consolidations, we knew we had that opportunity.
Then the Doj required us to divest some locations. So we've divested seven so those seven obviously, we're already gone and then 17 would include any others that were identified back then plus additional is that had been identified.
Okay great.
<unk> is more 17 is more than we had originally modeled but it includes what we had modeled about that.
Got it okay about 'twenty, yes.
Yes, yes, 17, instead of 24.
Which is higher than we had anticipated April a year ago.
Got it okay. Thank you.
Thank you appreciate it Kevin.
Our next question will come from Catherine Mealor with <unk> you May now go ahead.
Okay. So just following up on kevins question on expenses.
$8 million a year in savings from these branches Youre sand is not incremental to your original cost David maybe theres a piece of that that's incremental debt. Some of that is already cleared and merger cost savings alright.
That's correct.
As in the 78 and a piece of it is on top of the 78 or add to that.
Sure Bob.
Hello.
Okay, Great and then.
Just the margin any sense salary as to where deposit costs.
Loan yields were at the end of the quarter, maybe for the month of June going into July just to give us a sense as to where we're starting this quarter.
Yes, so what I will say is if you look at the average loan growth versus the period end loan growth.
Youll see that the average rents.
Closer to $750 million in loan growth versus the period and $1 2 billion.
Obviously, those loans coming on at higher yields and so thats going to serve very positively.
We have made some incremental changes.
Within the quarter to deposit costs and anticipate making some more after.
This week's announcements and so.
Those will be baked and really pretty much a full quarter.
But again.
I do anticipate that the net change between the loans and the deposits is still going to be incrementally favorable to the NIM.
Okay great.
And then how about on buybacks you.
We're still active which was great to see all of it less than last quarter, but that's what you had guided to how do you think about it.
Buybacks in light of where your TCE sits today.
Yes, I think I'll talk about that just a second ago I think we would like to be prepared to use the buyback should the market move against us.
We're sitting today I think we're comfortable that we can hold and watch whats happening coming into the continued rate hikes and what the economy might be doing.
Preserve our capital.
I'd also like to just come in a couple of people had mentioned TCE.
Biggest impact to our.
Yes.
Fair value adjustments on our security portfolio are really the movement.
Five and 10 year at rates and if you look at where those are yesterday versus the end of the quarter. They are actually down which actually serves to improve that valuation. So.
I, just wanted to clarify where that impacts.
The securities portfolio.
But hope together.
Yes, it does.
Sorry, I apologize if you already mentioned the buyback comment I misunderstood.
Can I ask what can I ask one more question.
Alright.
Securities yields.
That does.
<unk> grow as much as I would've expected.
I know you've got a lot of securities kind of running off versus growing but how do you think about maybe where new securities are coming on and where that where that could shake out in the near term.
I don't think we've put me Lucy.
Yes, I mean, what we've put out is very small.
CRA related and so really what youre seeing there is simply the incremental.
Bob related to a lower.
Denominator.
Great. Okay, So I know youre not reliant.
No and less deposit growth really takes off the plan is not to add more securities today.
Correct.
Terry all basis.
We add a little bit.
For CRA purposes.
Hi.
Okay.
Helpful. Thanks, so much great quarter.
Thanks, Kevin.
Yes.
Fair enough you have a question. Please press Star then one our next question will come from John <unk> with RBC capital markets. You May now go ahead.
Thanks, Good morning Arun.
Hey, good morning.
Hey, good morning, a couple of follow ups.
So amit on the dark clouds comment.
The question is Dan Rollins, Cena dark clouds, or as Dan Rollins reading about dark clouds I guess, that's the question you're seeing any.
<unk> you.
No no im looking outside the day Theres no dark clouds here today.
And I can't tell you that we see anything.
When we're talking about what's happening within our footprint. There are certainly pockets of consumer related spending that you can see that we're causing people to think but no. Our footprint is really doing well John but you can read about it certainly as you said you read about it you'll hear about it all day long on the TV.
Question.
Another follow up on loan growth and it's more relates to the merger.
So really strong growth quarter for you we've seen a couple higher but not many.
Is there any way for you to give us an idea of how much of this growth has been driven by.
Benefits of the merger, meaning bigger balance sheet, having early traction.
Is this just is it too early to tell or.
Okay.
Sure too difficult to get the tangible results of the merger.
Yes, I don't know that we have a specific answer to that I think there's just a lot of excitement I think one of the things I said was the fact that our team is still here both sides. Both legacy teams are out in the market winning every day I don't know that we can point to anything that is directly merger related I think Paul.
Chris.
The only thing I would say to that is I think the credit appetite as we've come together has been pretty uniform and we're comfortable with what each brought to the table and we're able to build on that as a combined organization.
Yes. This is Paul I mean, I would add I think John your sense of your question is are there some benefits, resulting from an answer jets I mean cross referrals, where there are some things that we're doing that we didn't have before SBA.
So all of these complementary products for does that result in this quarter of about $1 2 billion, yes, I mean, how much exactly I don't know but.
It's definitely there I mean, not just loan synergies, but other revenue synergies.
Minor I get it but an insurance client yesterday when he moved there.
Important box for us, it's going to be new private banking opportunities. So I mean, just really on a regular basis, we're seeing all sorts of revenue synergy and cross sell opportunities throughout the footprint.
The teams are talking more to each other as we've opened those doors.
<unk> continues to show benefit it's hard to put a number on it for us.
I think your initial question about the balance sheet.
Because coming together the balance sheet, we derisked some of the concentrations that created a bit of capacity.
Sort of different buckets, but without even getting back to where each bank was before so I think there is some ability to grow there just based on the size.
Geographic footprint.
That's helpful.
And then I just don't want to ask one more on the margin Valerie you might not like this one but maybe if you can get Dan to answer it.
Just the margin momentum.
Margin momentum.
It's pretty strong and we've all kind of dance around it.
There was another 75 basis points coming in I'm, just kind of doing the.
The math on the recent 75 basis point hike.
Would you back us off from having the margin jump as much as it did in the past quarter.
Or some of your.
Comments on pricing deposits a bit.
More conservative and dialed back a bit.
I'll jump out first I'd say one of the things I think we've talked about from the beginning was we expected to see deposit pricing increase more.
With future rate hikes than with the first rate hikes, and so I think thats going to play out for US I think we've raised deposit cost through books, so far I suspect that we're going to see more deposit cost increase out of this how much I don't know.
Yes, I think from a modeling perspective.
We're modeling the first 12 months at 14% deposit beta in the second 12 months of 28% beta and showing a gradual increase if you will and again kind of to my comments earlier Thats, what we expect in the past.
Yes.
And so that will impact the pace of margin growth.
That being said.
You've got to also factor in the timing of when we actually had some of the new loan growth in the second quarter and more of that was towards the back end that that'll benefit us more in the third quarter.
Does that help you it seems like Youre in.
You are in a bit of a sweet spot here is what are the way I see it but.
Hello.
Thank you Amanda.
And in answer to that question.
Okay.
Thank you.
John Thanks.
This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.
In closing I would like to once again reiterate how proud I am of our team the results that we reported in the second quarter and the first half of 2022 and further demonstrated the strength of our merger and being better together.
<unk> of our bankers to grow the balance sheet throughout the early part of the transaction and trends transition to this magnitude is tremendous accomplishment also our insurance team continues to grow at record levels. Our mortgage team is maintaining a strong production level. Despite rising rates our wealth management team is <unk> performing very well despite declines in the market in the valley.
Few of our granular core deposit franchise is evident in our ability to maintain tightly manage cost in this rising rate environment. Finally, we couldnt produce these results without the efforts of all of our operational and administrative support staff with that said I believe we've got the best is yet to come for us. Thank you all very much for joining US today, we look forward to speaking to you again soon.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.