Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cadence Bank (CADE, Financial) reported GAAP net income of $135.1 million, or $0.73 per diluted common share, with adjusted net income from continuing operations of $127.9 million or $0.69 per diluted common share, representing an 11% increase compared to the first quarter of 2024.
- Net loan growth of $430 million, or just over 5% annualized, was achieved, aligning with full-year expectations.
- Core customer deposits grew by $237 million, or just under 3% annualized, and have grown approximately 4% annualized year-to-date.
- Net interest margin improved for the third consecutive quarter to 3.27%, up 5 basis points from the first quarter.
- Credit quality remained stable, with provisions for credit losses and net charge-offs relatively flat compared to the first quarter, and improvements in non-performing, criticized, and classified loan totals.
Negative Points
- Total deposits declined by just over $260 million, driven by a reduction in public funds and brokered deposits.
- Adjusted expenses are expected to be higher in the latter half of the year due to annual merit increases and other factors.
- The FDIC deposit insurance special assessment of $6.3 million impacted the quarter's results.
- The sale of Cadence Business Solutions resulted in a one-time gain of $15 million, which will not have a significant ongoing impact.
- The cost of deposits increased by 8 basis points to 2.53% for the second quarter, although this was the lowest quarterly increase cycle to date.
Q & A Highlights
Q: The NIB mix was better than anticipated this quarter. Should we expect that the NIB mix stabilizes around this 22%, 23% level given the likelihood of rates going down?
A: We still expect those deposits as a percent of total deposits to come down until we get more meaningful rate cuts. We now expect those to come down closer to a 21% level toward the end of this year and likely not reach the 20% level until perhaps the middle of next year. (Valerie Toalson, CFO)
Q: How should we think about buybacks in the second half given the CET 1 ratio is at 11.9%?
A: Our buyback program remains opportunistic. We are not afraid to hold capital for future uses, whether for organic or inorganic growth. We will continue to be opportunistic as we look forward. (James Rollins, CEO)
Q: Can you provide any color on the criticized improvement this quarter and any comments specifically on the restaurant or QSR portfolio?
A: We have seen normal migration within criticized numbers into NPA and out of NPA. Specifically, in the QSR segment, we have seen incremental improvement with no more negative migration. (Chris Bagley, President; Billy Braddock, Chief Credit Officer)
Q: What does the pipeline look like for the back half of the year for loan growth?
A: Pipelines are strong, and the pull-through rate has been fantastic. We have seen some payoffs, but the pipelines are as full as they have been since 2022. We expect growth across all lines, with Texas leading the way, but also seeing good growth in Georgia, Florida, and Tennessee. (James Rollins, CEO; Billy Braddock, Chief Credit Officer)
Q: Can you give us an idea of the starting point you'd like us to use on expenses?
A: Given the strong second quarter results, we now expect to finish the year toward the lower end of our annual guidance of plus or minus 1% on adjusted expenses. A reasonable base level to start from would be the low to mid-260s. (Valerie Toalson, CFO)
Q: How much has the change in the forward curve from last quarter to this quarter impacted your outlook on revenues?
A: The change in the forward curve has not had much impact. The loan growth and repricing of the back book continue to drive our margin improvement. (Valerie Toalson, CFO)
Q: What is the outlook for deposit costs and CD repricing in the back half of the year?
A: Deposit cost increases have continued to stabilize. The blended average CD new and renewed rate was about 23 basis points less than last quarter, which will benefit us in the quarter-to-quarter shift in deposit costs. (Valerie Toalson, CFO)
Q: What is the funding plan for loan growth in the back half of the year?
A: We expect to fund loan growth through core customer deposits and possibly some additional securities cash flow. We have room to do this and expect to see normal organic growth of deposits. (James Rollins, CEO; Valerie Toalson, CFO)
Q: How do you plan to handle the expiration of the bank term funding program in January 2025?
A: Depending on where rates are, we will likely have some type of short-term borrowing to replace that. We will continue to focus on core deposit growth. (Valerie Toalson, CFO)
Q: How do you currently think about the opportunity for acquisitions at this point?
A: M&A has been a part of our past and will likely be part of our future. We focus on culture and in-footprint market expansion. We are ready today if the right opportunity arises. (James Rollins, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
