Q4 2024 Cadence Bank Earnings Call
Good day and welcome to the Cadence Bank fourth quarter and year-end 2024 webcast and conference call.
All participants will be in a listen-only mode.
Did you need assistance, please signal a conference specialist by pressing the star key followed by zero.
After today's presentation, there will be an opportunity to ask questions.
To ask a question, you may press star, then 1 on a touch-tone phone.
To withdraw your question, please press star then 2.
Please note, this event is being recorded.
Speaker Change: I would now like to turn the conference over to Will Fisackerly, Executive Vice President and Director of Corporate Finance. Please go ahead.
Speaker Change: Good morning and thank you for joining the Cadence Bank 4th Quarter 2024 Earnings Conference Call. We have members from our executive management team here with us this morning, Dan Rollins, Chris Bagley, Valerie Toalson, and Billy Braddock.
Speaker Change: Our speakers will be referring to prepared slides during the discussion. You can find the slides by going to our investor relations page at ir.cadencebank.com where you'll find them on the link to our webcast, or you can view them at the exhibit to the 8K that we filed yesterday afternoon.
Speaker Change: These slides are also in the presentation section of our investor relations website.
Speaker Change: I would remind you that the presentation, along with our earnings release, contain our customary disclosures around forward-looking statements and any non-GAAP metrics that may be discussed.
Speaker Change: The disclosures regarding forward-looking statements contained in those documents apply to our presentation today. And now I'll turn to Dan for his opening comments.
Dan Rollins: Good morning and Happy New Year. Thank you for joining us to discuss our fourth quarter and full year 2024 financial results. After I cover a few highlights and Valerie provides additional detail on our financials, our executive management team will be available for questions.
Dan Rollins: Before we discuss the quarter, I'd like to make a few brief remarks regarding last night's announcement of our merger with FCB Financial Corporation, the parent company of First Chatham Bank, based in Savannah, Georgia. I would like to welcome Ken Farrell and the experienced team of bankers from First Chatham to Cadence.
Dan Rollins: Bruce Chatham was founded in 2002 and is currently operating eight locations across the greater Savannah market with total assets of almost $600 million. Upon closing, Ken will serve as Cadence Bank Southeast Georgia Division President.
Dan Rollins: We have expressed our desire to be an acquirer of choice and grow within our footprint for some time now. Savannah, the second largest MSA in the state of Georgia, and we currently have only one location there.
Dan Rollins: It is a very diverse market with strong ties to manufacturing, port operations and logistics, tourism, healthcare, military, and real estate development. First Shetland is a great core funded franchise with approximately 30% of their deposits in non-interest bearing products and an impressive overall cost of funding.
Dan Rollins: The financial metrics of the transaction are attractive for both shareholder bases.
Dan Rollins: and services into this market in a more meaningful way to support our organic growth plans.
Dan Rollins: We anticipate the transaction could close during the third quarter of 2025 subject to regulatory approval and other customary closing conditions. Again, this is a big win for our company and our team is excited to be back in the game.
Dan Rollins: As we move into the financial results, 2024 was a great year for our company. I'm extremely proud of the 5,000 plus teammates across our company and the contribution they've each made to the results that our management team will discuss this morning.
Dan Rollins: The 2024 results speak for themselves. We reported meaningful improvement in virtually every aspect of our financial performance while maintaining strong credit quality and capital.
Dan Rollins: As we dive further into the numbers, Gap Net Income was $130.3 million or $0.70 per diluted common share for the fourth quarter and $514.1 million or $2.77 per share for the full year.
Dan Rollins: Adjusted net income from continuing operations for the fourth quarter was $130 million, or 70 cents per diluted common share, and $507.9 million, or $2.74 per share for the full year.
Dan Rollins: We had another very solid quarter from a balance sheet growth perspective. Our loan growth for the quarter was $438 million, or just over 5% annualized, resulting in total net loan growth of $1.2 billion for the year, which is approximately 4%.
Dan Rollins: Additionally, we have continued to retain and grow core customer deposits.
Dan Rollins: Excluding the elevated temporary overnight sweep activity at September 30th that we discussed in our third quarter call, core customer deposits grew $260 million or 3% annualized for the quarter and $2.2 billion or approximately 7% for the full year.
Dan Rollins: Our ability to grow core deposits while also prudently managing deposit cost has been instrumental in our net interest margin improvement.
Dan Rollins: That interest margin improved by 7 basis points length quarter to 3.38% and by 22 basis points for the full year to 3.30%. Valerie will discuss the margin in a few minutes, including our expectations as we move into 2025.
Our credit quality continues to be very stable.
Valerie Toalson: We reported net charge-offs of 17 basis points annualized for the quarter and 24 basis for the full year. Our non-performing, criticized, and classified totals are all very stable in quarter and year-over-year, while our allowance for credit losses coverage remains strong at 1.37 percent of net loans and leases.
Valerie Toalson: We continue to improve operating leverage and efficiency. While we had a couple of items that drove a slight uptick in our quarterly efficiency ratio, for the full year, we improved by 5 percentage points from 63.3% in 2023 to 58.4% in 2024.
Valerie Toalson: Finally, we reported meaningful growth and tangible book value metrics during 2024.
Tangible book value per share improved to $2.22.
Valerie Toalson: per share, which is over 11% to $21.54 at December 31st. While tangible common shareholders equity to tangible assets increased from 7.44% to 8.67% over the same time period.
Valerie Toalson: We achieved this growth while repurchasing just over 1.2 million shares during the year at an average price of $26.74.
Valerie Toalson: I'll now turn the call over to Valerie for her comments. Valerie? Thank you, Dan. Dan referenced the key highlights for the year, steady loan growth, meaningful core customer deposit growth, significant margin expansion, stable credit quality, improved operating efficiency, and a strong capital position.
Valerie Toalson: Focusing specifically on the fourth quarter results, we reported the adjusted EPS from continuing operations of 70 cents, up 75% from the same quarter last year, driven by an 11% increase in adjusted revenue, combined with lower expenses and loan provisions.
Valerie Toalson: The linked quarter 2 cent APS decline was driven by some isolated expenses related to a system upgrade and a small increase in our provision for loan losses.
Valerie Toalson: Total loans ended the year at $33.7 billion, with growth in the fourth quarter of $438 million, or just over 5% annualized, with the quarter's growth primarily in residential mortgages, owner-occupied C&I, and income-producing CRE.
Valerie Toalson: For the year, the net loan growth was $1.2 billion, or approximately 4%. Loan pipelines remain solid and diversified, and the macro environment in our footprint is favorable for continued loan growth.
Valerie Toalson: Total deposits, $40.5 billion, grew $1.7 billion in the fourth quarter, including the addition of $1.5 billion in broker deposits that we used along with excess cash to pay off the $3.5 billion in bank term funding program borrowings and to call $215 million in sub-debt during the quarter.
Valerie Toalson: We also saw a $360 million seasonal increase in public funds balances during the quarter.
Valerie Toalson: And while core customer deposits declined slightly in quarter end balances, adjusting for the elevated temporary funds at September 30 that we discussed last quarter, core deposit growth for the fourth quarter was $260 million, or 3% annualized.
Valerie Toalson: Further, core customer deposit growth for the full year was $2.2 billion, or almost 7%. As you know, our strong core customer deposit base is the foundation of our franchise, and our team has done a tremendous job in 2024 from both a retention and a growth perspective.
Valerie Toalson: The ability to continue to grow core funding has also driven the favorable trends in our net interest income and net interest margin detailed on slide 11.
Valerie Toalson: Our fourth quarter net interest margin of 3.38% represents 7 basis points of improvement compared to the third quarter of 2024, and since the fourth quarter of 2023, it has increased by a significant 34 basis points.
Valerie Toalson: The fourth quarter net interest margin improvement was driven by lower average earning assets as we reduced our borrowings and excess cash.
Valerie Toalson: Given the recent interest rate cuts, our loan portfolio yield dipped by 21 basis points to 6.4% in the fourth quarter, while total cost of deposits declined 11 basis points to 2.44%.
Valerie Toalson: Our non-interest bearing deposits as a percent of total deposits did decline to 21.2% during the quarter, partially impacted by the addition of the brokered deposits in the denominator.
Valerie Toalson: Net interest revenue was up $3.1 million in the fourth quarter to $364.5 million, supported by the growth in new loans.
Valerie Toalson: For the full year of 24, net interest revenue was $1.4 billion, up $85 million or 6% compared to 2023.
Valerie Toalson: Non-interest revenue, highlighted on slide 14, was $86.2 million on an adjusted basis, declining $2.6 million or 2.9 percent in the fourth quarter, as an increase in mortgage banking revenue was offset by a decline in other non-interest revenue.
Valerie Toalson: Wealth management revenue, deposit service charges, and card fees were all very stable linked quarter.
Valerie Toalson: Our mortgage banking revenue was up $2.5 million in the quarter due to improvements in the net mortgage servicing right through evaluation adjustment, partially offset by a $1.8 million decline in mortgage origination and servicing revenue as gain on sales margins compressed slightly.
Valerie Toalson: Notably, quarterly production volume increased to over 800 million, the highest quarterly production in three years.
Valerie Toalson: Other miscellaneous income declined $2.6 million, largely due to a gain on debt extinguishment that was reported in the third quarter results.
Valerie Toalson: as well as lower fair valuations of some of our equity investments and limited partnerships.
Valerie Toalson: For the full year, full year 2024 adjusted non-interest revenue was $345 million, improving $19 million or also 6% from the prior year, reflecting growth and wealth management fees, deposit service charges, and other revenue.
Valerie Toalson: Moving to slide 15, total adjusted non-interest expense was $266.7 million for the quarter, up $6.3 million, or approximately 2% compared to the third quarter of 2014.
This increase was driven largely by a $4 million increase.
in Data Processing and Software Expenses, which impacted
Valerie Toalson: which impacted by a fourth quarter upgrade of our treasury management platform. A majority of the expenses associated with this upgrade are not expected to be ongoing as we move forward.
Valerie Toalson: Additionally, other non-interest expense increased $2.1 million due to smaller increases in several items including professional services, advertising, and public relations, and operational losses.
Valerie Toalson: For the full year of 2024, adjusted non-interest expense of $1 billion was down $23 million, or 2%, compared to the 2023 year, driven by declines in compensation costs.
Valerie Toalson: Given the 6% growth in annual adjusted revenues combined with this 2% decline in annual adjusted non-interest expense, our adjusted efficiency ratio improved by a meaningful 5 percentage points during the year, moving from 63.3% for 2023 to 58.4% for 2024.
Valerie Toalson: Focusing on credit, detailed on slides 9 and 10, net charge-offs for the fourth quarter were $14 million, or 17 basis points annualized, down from the 26 basis points in the third quarter.
Valerie Toalson: Our provision for credit losses increased very slightly to $15 million for the fourth quarter, and our allowance coverage was relatively flat at 1.37% at the end of the fourth quarter.
Valerie Toalson: Non-performing loans declined by $8 million in the fourth quarter, and as a reminder $90 million or 34% of those represent guaranteed portions of SBA and FHA credits.
Valerie Toalson: Additionally, our Classified and Criticized Loans as a Percent of Total Loans both improve linked quarter, with Classified Loans as a Percentage of Total Loans declining to 2.02% and Criticized Loans as a Percentage of Total Loans declining to 2.35%.
Valerie Toalson: Our capital, detailed on slide 16, continues to grow and remain strong.
Valerie Toalson: While the $215 million in subordinated debt that we called in November had a small impact on total capital, the other regulatory capital metrics increased nominally linked quarter and more meaningfully year over year.
Valerie Toalson: Additionally, our board's approval of a 10% increase in our quarterly common dividend to 27.5 cents per share is a clear indicator of the confidence in our capital strength and earnings power.
Valerie Toalson: Looking forward, as we laid out in our materials related to the first Chatham transaction, we expect the immediate impact of the merger to be immaterial to regulatory capital.
Valerie Toalson: Slide 17 sets forth our 2025 guidance, reflecting the anticipation of continued earning asset growth, incremental improvement to operating leverage, and stable credit quality.
Valerie Toalson: with the opportunity to continue to see growth in net interest margin as we move through the year.
Valerie Toalson: Additionally, as we continue to focus on investments in our people and technology, we expect expenses for the year to increase between 4-6% over 2024 levels, and annual net charge-offs to fall between 20 and 30 basis points.
Valerie Toalson: 2024 was an instrumental year for Cadence performance, one where we deleveraged the balance sheet, enhanced earning asset mix, achieved nice core customer growth, and significantly improved operating leverage and performance metrics.
Valerie Toalson: We believe this 2024 momentum will continue as we move into the new year in support of our 2025 guidance and ongoing shareholder value.
Valerie Toalson: We are also excited about expanding our presence in Savannah, and continue to be bullish on our footprint for both organic growth and M&A fill-in opportunities.
Valerie Toalson: Operator, we would like to open the call to questions now, please.
We will now begin the question and answer session.
Valerie Toalson: To ask a question, you may press star then 1 on your touch-tone phone.
Valerie Toalson: If you are using a speakerphone, please pick up your handset before pressing the keys.
Valerie Toalson: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2.
Valerie Toalson: We ask that you please limit yourself to one question and one follow-up.
Valerie Toalson: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question today comes from Manon Gaussallier with Morgan Stanley. Please go ahead.
Hi, good morning.
Good morning, Mike. Good to hear from you.
Speaker Change: Can you back unpack that loan growth guide a little bit for us? What are you assuming for the different loan segments and for the utilization rates especially because I know those came down a touch again this quarter?
Speaker Change: The economy acts the way some people think we're going to see in the back half of 2025. We could be on the high end or above the high end of the range. On the other end, if things don't move in the right direction, we think our guide is very conservative, Billy.
Yeah, I mean, in the short run...
Speaker Change: What we've noticed is over the last four quarters, just our approval, you know, our large approval levels that we have in the Loan Committee that continue to increase every quarter over the last four, peaking, you know, in the fourth quarter of the year. Keep in mind that
Dan Rollins: And to get those to close can take, you know, two, three, four, five, six months sometimes. So we're seeing good momentum of closings that occurred in the fourth quarter and already in the first quarter. So we, in the near term, we expect that to continue. And then, like Dan said, the macro markets are both well for us.
Dan Rollins: The line utilization includes unfunded construction loans. And we've booked some big construction loans that are sitting on zero. So that can move the line utilization a percent or two.
Dan Rollins: But yeah, it's maintained it that percent very close. I've been 50 for a long time It's kind of was it went down a little bit. I just don't think that's the message. I don't think that means anything. Yeah
Thank you.
Speaker Change: You know, as I look at the three buckets of floating, variable, and fixed-rate launch in slide 12.
Dan Rollins: The floating rate loan yields are down as expected. The variable rate loan yields are down at Dutch versus last quarter, and then the fixed rate loan yields are up. So can you talk about how those loan yields should trend from here in each of those buckets, given the forward curve?
Dan Rollins: Yeah, so I'll probably talk about it a little more generally. Our overall portfolio yield is at $640,000. And so that's, you know, taking the combination of all of that. If still on that slide 12, you take a look at the 3 to 12 month bucket, if you will, that $2.2 billion that's priced right now at $620,000.
Dan Rollins: In the fourth quarter, our new loan production was north of 7%. And so if we're able to continue that in an environment where
Dan Rollins: there's no cuts in rates, you know, then that speaks very favorably for that overall portfolio yield.
Speaker Change: that combined with the new growth that Billy's talking about that we're hopeful we'll be able to pull through as well. So we're optimistic on our loan yields and believe that, you know, if the growth can come in and if we can sustain that
Dan Rollins: north of 7% new production, then there's a possibility to actually see that overall portfolio yield increase.
Did that help you?
Yep, thank you.
Thank you, appreciate it.
Speaker Change: The next question comes from Michael Rose with Raymond James. Please go ahead.
Michael Rose: Hey, good morning, guys. Thanks for taking my questions. I'll take a shot at this, but...
Speaker Change: You have a breakdown for what the expectation would be for fees versus NII as it relates to the guide. And then as we think about the expense aspect, how much flexibility is there if the revenue comes in towards the lower end to scale back?
Speaker Change: I know there's obviously incentive compensation components, but would you actually look to potentially reduce the tax benefit, is there any flex there so that you could generate positive co-operating leverage?
Speaker Change: I'll take a stab at the first one, the second part of your question on the expenses and let Valerie color in, but first I want to really appreciate you sending that Chicago weather down to the Gulf Coast here. We appreciate the 11 inches of snow we had on the Alabama coast, and I know you sent that down to us, so thank you very much.
Speaker Change: You're welcome. From Houston to the Mississippi, Alabama, Florida coast over to the east coast of Georgia, this weather is not unusual for us, a record weather for us. And I know you're glad to get cold weather out of your town.
Speaker Change: Let's see. Expense question. I think we continue to invest in our people and we continue to invest in our technology. So I think when you're talking about what levers do we have in there, we absolutely, you know, are looking to continue to grow and invest in our people. If we don't find the right people to grow, then...
Speaker Change: That's not going to get spent. I think when you talk about the technology spin, we've got projects that are underway today that are in the hopper and are going to happen. So I don't know that there's a whole lot of room there, but we're continuing to find ways to be more efficient at what we're doing. We're continuing to find ways to not cost out and we'll continue to stay focused on that.
Speaker Change: Valerie was also talking about fees. Yeah, yeah, and I'll talk...
Speaker Change: On the net interest income versus the non-interest income side, I think that we're a little more bullish on the net interest income side. On the non-interest income, expecting steady growth in our business lines, but there are a few things. We've got the wealth management.
Speaker Change: obviously business lines that are impacted by whatever the market does. The market's had some pretty strong performance over the past couple of years and so particularly this past year and so
We are
modeling a less robust market impact.
Speaker Change: for that. So, you know, if things turn out a little better than expected, then there's some additional upside there. Same thing with mortgage, you know, so much dependent upon obviously the rates that drive that.
Speaker Change: business and level of business. We're still not predicting much on 3-5 businesses.
Speaker Change: So again, depending on where rates go, there's potential for more upside there as well. But right now, I'd say that, you know, we're looking to have the biggest portion of that overall revenue growth into next year really coming through net interest income.
Helper?
Speaker Change: Yes, and then just on credit it was nice to see the step down in both criticized and classified loans Just kind of the charge-off guidance for the year
It's still around, you know, what you generated in 2024.
Speaker Change: Can you just give us some expectation of what that range could be if the economy continues to improve? Is there actually the ability that you could see charge-offs?
Speaker Change: kind of below the range, and it's just the initial start of the year, so you're being conservative. So it seems to me that just given that step down and the strong underwriting culture you guys have, that, you know, that range could be a little wide or high. Thanks.
Speaker Change: Well, I like the way you think, you know, we certainly want to see that number come down. I think that, you know, we are early in the year. I think that it's also lumpy. So, you know, we could have some big ticket hits that impact that and so I think we want to make sure that we've got a range that works for us. Chris? That's right. You're right on the mark, Dan. I mean, the guidance is the guidance.
Speaker Change: You know, we could do better, or go to the low end of the guidance.
Speaker Change: It's a lumpy part of that, but what I would want to emphasize, we could see, you know, like we saw this, we saw a good quarter this quarter, a downward trend, but that can bounce around a little bit given the size of the credits we're dealing with. If we go back to the first quarter of last year, we had the one big item that came through that was, you know, out of left field and, you know, we're still dealing with some of that. We took it, but it is what it is.
Got it. I'll step back, thanks.
Thank you. Appreciate it.
Moderator: The next question comes from Jared Shaw with Barclays. Please go ahead.
Jared Shaw: Hey, good morning. Hey, just remember to lift with your legs, not your back when you're shoveling up there.
Speaker Change: We don't even have any shovels for snow. What are you talking about? Thanks for reminding us. It will be gone soon. Maybe just going back on the loan growth side, low to mid, single digit, to me seems...
Speaker Change: Very conservative, I guess, in light of the deal and the tailwinds, you know, more broadly in the market. Are there any assumptions there?
Speaker Change: for any type of loan runoff that we should expect and then also does that include the benefits of the deal?
Speaker Change: It does not. So let's start with the deal. The deal is not in any of our forward numbers.
So it's not in any of the guide at all.
Speaker Change: start there. We're talking about organic growth and organic numbers and all of the guidance that we're talking about there. And I think we all agree that there's opportunity for us in 2025 to shine.
I think as we sit here today...
Speaker Change: I don't know that we see where that actually comes from. There's just a lot of talk. We've been talking about that for a while. You know, the new administration has been in place for
Speaker Change: three days today. You know, we still don't have the banking leaders into their chairs yet. There's still some unknowns out there, but there's opportunity for us to do very well on long growth this year. The team has capacity to grow. We've seen continued long growth. Belize said it just a minute ago.
Speaker Change: I think when you look back at fourth quarter over third quarter, we had higher production by almost $300 million in 4Q over 3Q. I think there's excitement amongst the team. The team's mixing it up out there. I saw a couple of emails yesterday flowing on some.
Speaker Change: potential new credits that folks are excited to bring in to us. We've got opportunity in front of us, I just don't know how to gauge that sitting here on January 23rd for what we do for full year 2025.
Okay. All right. That's good.
Jared Shaw: Jared, one thing I was going to add, I mean part of the assumption and a wild card out there is
Some of our Merchant Build construction lending activities.
Jared Shaw: That's the pay down. Yeah, and we're we've been active in that space We were particularly active in 21 and 22 a lot of that is funded up and when capital markets open and those transactions trade
Jared Shaw: we'll see some level of pay down. We have assumed a tepid outstanding growth in that space for the year.
Jared Shaw: So if that pay down activity is delayed, then we could outperform. If it's accelerated, we could underperform, but we've assumed that there's going to be a higher level of payoff and less growth in that space during the year. Excellent. Good call.
Speaker Change: Okay. All right. Thanks. And I guess just for my follow-up, you know, this deal, it looks attractive, but it's much smaller than sort of the MOE.
Speaker Change: Is this more of a one-off and it was, you know, it was, you know, just too good to pass up or do you feel that, you know, going forward there could be an opportunity to do, you know, sort of multiple overlapping smaller deals as a preference?
Speaker Change: Market, that our one branch while we're doing well over there, we just we're not we're not there, we're not visible. This puts us I think in five or six deposit market share in that market.
Speaker Change: And while the First Chatham team is fantastic, they're a good community bank team, we get to overlay many products and services that are currently not on the menu of products and services that they're offering.
Speaker Change: And so I think we're excited about expanding further into that market. So opportunities like this have been what I've been talking about for a while. It would certainly be nice to find bigger opportunities. And I think we will see those opportunities as we look forward, because I think we'll continue to be in a consolidating industry.
Adam.
We just want to be in the game.
Speaker Change: Does this keep you out of the market until this closes, or do you think that you could sort of stack deals?
Speaker Change: I don't believe a transaction that's one and a half percent of our size slows us down. Okay. Thank you.
Speaker Change: The next question comes from Matt Olney with Stevens. Please go ahead.
Hey, thanks. Good morning, everybody.
Thank you. Bye.
Thank you.
Speaker Change: I guess, Valerie, you addressed a question around loan pricing, loan yields. What about the other side on deposits? Any commentary on deposit pricing, competition, and then kind of second part?
Speaker Change: Just taking a step back, it feels like this margin's got some nice tailwinds for the year. Anything you would point us towards with respect to the margin in the first quarter or just the near term?
Speaker Change: Yeah, I'll take the second half of that and then I'll let Chris talk a little bit about the competition out there.
There are some things that you know
We do have a sizable
Speaker Change: CD book, time deposit book, in the fourth quarter, you know, those were being put on an average of 3.9 percent and that was replacing some that were close to four and a half percent. And so there's obviously opportunity there. As we look out at the first half of next year, there's
ballpark about another $6 billion.
Speaker Change: of those CDs that are going to be coming off north at 4%.
Speaker Change: And so, you know, we're opportunistic there that we can bring that pricing down. And so that will certainly help.
Speaker Change: Bank Term Funding Program debt at $3.5 billion. And so those are actually on the books at $4.36 on average.
Over the next six months, about half of that will...
Pay off.
will mature.
Speaker Change: And so that is at about a 450 level, and so there's, you know, ability there as we go through the year as those kind of tail off, kind of in a laddered over quarter over quarter to also see improvement as we offset that with organic growth in those in those deposits. So.
Speaker Change: You know, we do feel pretty good, and as you've known, or as we've talked about, we have grown the core deposit base quarter over quarter, and so the teams are very focused on that and look to be able to do more of that as we go forward. Do you want to talk about competition, Chris?
Chris Bagley: Yes, from the competition side, you know, it's interesting. I think it's still very competitive out there. The specials, if you will, primarily the CD specials.
Chris Bagley: Slowed down for a while. They picked back up is what I would tell you anecdotally We're seeing more CD specials although at a lower rate right now than we saw, you know nine days ago because of the curve shift and all but it does seem to things have
Chris Bagley: We've gotten a bit more competitive over the last 30 days or so.
Chris Bagley: We're seeing it in pockets among, you know, community banks and there's different sources around the geography.
Chris Bagley: The payoff of that bank term funding program, some of that came out of cash, which shrunk the balance sheet, which was all intentional.
Chris Bagley: Okay, that's helpful. And then as far as the incremental pricing on the incremental deposit growth at the bank, I think I heard you mention newer time deposits in that mid to high 3% range. Is that a reasonable, is that what I heard?
Yeah, yeah, that's about right.
Okay, perfect.
Thank you. Thanks, Matt.
Speaker Change: The next question comes from Katherine Mealor with KVW. Please go ahead.
Katherine Mealor: Thanks, good morning. Hey, going back to the revenue growth outlook, can you give us a little bit of color around kind of what's driving the bottom end of the range versus the high end of the range? Is it all on rates or is there any other kind of...
Katherine Mealor: kind of pieces to think about with what the risk to the low end of the range is versus the upside to the high end.
Speaker Change: Risk to not hitting the low end, is that what the question was? Right.
Yeah, just like that, yeah.
Speaker Change: Because the low end, I guess the really big question is the low end feels very low to me and unlikely. I feel like we're generally biased towards the high end of the range and just kind of curious what would bring you to the low end of the revenue growth range.
I mean, I think it's the, you know.
Speaker Change: anything that would cause risk to the net interest income line is going to have the biggest impact. You know, that's the ones that can be more volatile if for some reason there are some
Speaker Change: you know, origination to not come about as we anticipate it to be. You know, those types of things. But I'd say that we feel pretty confident in that range as we look forward, just given what we see today.
Speaker Change: Okay, great, that's helpful. I mean, so basically if you believe the growth outlook and you believe we're, you know, somewhere between two cuts and zero cuts, the height of the range is a reasonable assumption.
Is that fair?
Speaker Change: Yeah, I think, yes, I mean, it's fair depending upon how many cuts come through.
Speaker Change: Got it. And then on buybacks, now that we're back into acquisition mode and the growth outlook looks really good, do you think that, you know, there's less buyback activity this year?
Speaker Change: We have not announced a buyback plan for 2025. We've got to work through it with our new regulator to get all of that in place, and so we're in the process of doing some of that today. I don't know that I would say it's off the table, but with where we're sitting and the activity that we're seeing, we'd like to use our capital for other purposes.
Speaker Change: And really just more opportunistic, right, so just you kind of view that as more opportunistic if the stock pulls back then, you know, but generally capital will be used for acquisitions and growth from here.
Speaker Change: That's exactly what we've done for the last multiple years, and I think we would be in the same boat.
Great, okay, thank you.
Thank you, Catherine.
Speaker Change: The next question comes from Gary Tenor with D.A. Davidson. Please go ahead.
Thanks. Good morning.
Speaker Change: Just to ask Catherine's question on the NII range, maybe a little bit differently, is it fair to say that the upside or downside, upper end or lower end of the range, is more about volume than it is rate, the way things sit today based on your rate assumptions?
Well, based on our rate assumptions, I would say yes.
Speaker Change: But, you know, if there are volatility in the rate assumptions, then that can prove otherwise. You know, or if we have a big, you know, bump in market performance, you know, that could positively impact
our fee income side as well.
Speaker Change: longer term rates that could impact our refi rates and mortgage. I mean, there's always there's just so many moving parts. But again, just based on the rate forecast, we use the forward curve at the end of the year. And what we see today in our marketplace, that was the basis for the ranges that we provided.
Speaker Change: Sure, no, I appreciate that. I was more focused on the NII side, just given your comment about being more bullish on that side and conservative on the fee side, but I appreciate the comment. And then...
Speaker Change: of the business. Can you talk about pricing competition on the lending side? Have you seen other banks start doors open for lending more and a little more competition on the pricing side?
Speaker Change: I'll kick it off and let Billy jump in. We've got a lot of leverage, a great footprint, a community bank model, a corporate bank model, probably a little different depending on which view or lens you're looking from.
Billy Braddock: You know we compete on the community bank side a lot of
Billy Braddock: of a community bank competition there as a typically more fixed rate, 5-1 arm-type loans, owner-occupied business, and we're seeing competition in there. But the rates we talked about earlier, about the same, we're getting some 7s, and that's 7-plus range. And then on the corporate side, Billy, I'll let you jump in.
Billy Braddock: The corporate side are almost exclusively floating rate loans. We are, for the best credit quality loans, we're seeing a lot more
spread compression on that end, on the ones that are
Billy Braddock: you know, more creative or M&A financings or that. We're not seeing as much, but on the highest quality we've seen competition come in with new budgets.
Billy Braddock: saying we want to grow and so the spreads are compressed there. And we've got non-bank competitors playing too. We have non-bank competitors. From a pricing standpoint that doesn't affect us as much as it does from a volume and structure, but yeah that's a fair point.
Thank you.
Thanks, Gary.
Speaker Change: As a reminder, if you would like to ask a question, please press star then 1 to enter the question queue.
Speaker Change: The next question comes from John Armstrong with RBC. Please go ahead.
All right.
Good morning, John. Hey, good morning. Hey, good morning.
Jared Shaw: Just Valerie, just a few cleanups here, but the non-interest bearing balances, can you walk through that again? I think you kind of touched on it in your prepared comments, but can you kind of walk through what drove that decline and do you feel like that category's bottoming out at this point?
Yeah, so there were a couple of things.
Jared Shaw: related to that. One was the fact that we did add the billion and a half of broker deposits in the quarter and that adds to the denominator. So when you're looking at the percent of the non-interest bearing,
Jared Shaw: that impacts that as well. And then at the end of the third quarter, we had kind of an overnight influx of non-interest-bearing deposits that we knew were coming out basically the next day. That was $350 million-ish or so, and so that served to kind of
Jared Shaw: augment that percentage at September 30. And so that also served to impact it as well. But just to be clear, we are, you know, continuing to expect that to come down as a percent of total.
Jared Shaw: modestly as we look through the year just because we are continuing to see most of the new growth in our deposits coming in and interest bearing products.
That being said, we do have.
Jared Shaw: a lot of aggressive work going on on the treasury management front. We have a new updated system. You know, the teams are all hands-on there. And, you know, that business can tend to bring more non-interest-bearing.
Jared Shaw: You know, we are definitely working both sides of it, but we do anticipate it to probably just inch down maybe a couple percentage points more over the next year.
Speaker Change: That's helpful. And then on, you know, credit, I think looks fine. And then it looks like the reserve has floated down a little bit over the last 12 months. But curious how you want us to think about provision expectations and the reserve outlook in general.
Speaker Change: Yeah, we feel, I mean, we feel pretty good about where we're reserved. You know, as you know, now with CECL, so much of that is based on the economic outlook.
Speaker Change: And so as long as there's stability there, you know, I wouldn't anticipate dramatic movements, given what we see as the outlook for credit right now.
Speaker Change: It could potentially, you know, drop a smidge lower just as we continue to grow the overall loan portfolio, but I think we're in a pretty good range.
Speaker Change: I think I'm last, Dan, so I'm going to ask one more. Do you have a regulatory changes wish list for cadence? If there's anything you'd like to see changed that could help you.
Speaker Change: No, I think, you know, what we've seen just in the last few days, the commentary that's come out of, you know, the acting chair of the FDIC has been very positive for the banking industry. You know, I think we like where we sit today as a Fed member bank and the relationship that we're building with the Federal Reserve has been very positive.
Speaker Change: So far, I think, you know, again, we feel really good about where we are. You know, the wind in our sails for the last year, coming into 2025, our footprint continues to shine. You know, we've got great opportunities in front of us, and the team is very focused on that.
Okay, thank you.
Thank you. Appreciate it, John.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to the management team for any closing remarks.
Speaker Change: Thank you all again for your time today and joining us. It's certainly an exciting time and a busy time for Cadence.
Speaker Change: We are confident that the tremendous progress we made in 2024 will continue to bear fruit in 2025, and we're very excited to be back in the M&A process. This is our first transaction since the Cadence BXS merger back in 2021.
Speaker Change: And while it's small relative to our current size, it does provide an opportunity for us to add scale in a very attractive market in Savannah, Georgia, and it gives our M&A team some time to exercise their muscle memory and be prepared for other opportunities that may come along the line.
Speaker Change: And it adds value to our shareholders and our customers that we serve in those markets. Thanks again, everybody, for joining us today. We look forward to seeing you as we're out on the road in 2025. We look forward to having a great 2025 for our company. Thank you all very much.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.