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spk03: Good morning, and thank you for joining the Cadence Bank second quarter 2022 earnings conference call. We have our executive management team here with us this morning, Dan, Paul, Chris, Valerie, and Hank. Our speakers will be referring to prepared slides during the discussion. You can find the slides by going to our investor relations page at rr.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. These slides are also in the presentation section of our investor relations website. 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. The disclosures regarding forward-looking statements contained in those documents apply to our presentation today. And now I'll turn to Dan Rollins for his opening remarks.
spk06: Good morning, everyone. Thank you for joining us today to discuss Cadence Bank's second quarter 2022 financial results. Our team continues to be very pleased with the progress we are making toward finalizing our combination. Our results for the quarter certainly shine a light on some of our accomplishments. Today, I will provide a brief integration update, and I'll also cover a few highlights this morning, and Valerie will dive deeper into the financial results. After we conclude these prepared remarks, our executive management team is available for questions. We continue to successfully work through our operational integration plan. As we've mentioned in the past, we have several ancillary system conversions that either have been or will be completed prior to the core conversion. For example, earlier this month, we successfully completed the conversion of all of our mortgage loans onto one platform. We also continue to reach key milestones related to our core system conversion scheduled for later this year. For example, we have completed the renumbering of all duplicate accounts. We are currently in the process of converting over our ATM or ITM fleet to one platform, and we have now successfully completed two mock conversions. Our operations and technology teams have put forth a tremendous effort, working long hours over many months to get us to this point. Our executive management team is extremely proud of this progress and confident we are on schedule to complete the system conversion in the fourth quarter. We also recently revealed certain additional aspects of our brandings. which complement our new logo and perfectly reflect the mission, vision, and values and culture of our new Cadence Bank. The 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 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 68 cents per diluted share, and adjusted net income available to common shareholders of $134.2, or 73 cents per diluted common share. We also reported adjusted PPNR of $176.7 million, or 1.51% of average assets on annualized basis. Each of these metrics, EPS, adjusted EPS, and adjusted PPNR, 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 continue to perform very well. Our loan growth efforts for the quarter were very diverse, both from a product and geographic standpoint. We 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 markets. 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 continue to benefit nicely from rising rates. Our 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 non-performing assets. Credit is certainly becoming a more prevalent topic in the industry, and it appears there may be some dark clouds on the horizon. For our company, our credit quality metrics continue to show improvement. Rest assured, our team is watching very careful for any signs of stress. Our operating efficiency ratio continues to improve. Adjusted non-interest 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 60.5%. While the reduction of expenses was benefited by a few non-recurring 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 into 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.
spk08: Turning to the quarter's results, slide three provides a view of our summary income statement. Just as a reminder, with the mid-fourth quarter 21 closing of the merger, both the first and second quarters of 2022 represent full quarters for the new cadence. Dan spoke to the 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 was 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 was 3.06% 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. Both net interest income and the net interest margin continue to benefit from both the loan growth we've generated as well as rising rates. The yield on net loans, excluding accretion, was up 16 basis points from the late quarter. We also saw a similar increase in our securities yields, which increased 12 basis points in the late 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 costs to increase as we look to the rest of the year, but 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, or variable rate. Slides 5 and 6 provide some additional color on our non-interest revenue and non-interest expense. Non-interest revenue of $125.2 million declines $3.2 million due to lower MSR valuation adjustments in the quarter. Before these adjustments, non-interest 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 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 late quarter decline and other non-interest revenue included a $1.2 million purchase accounting adjustment, reducing second quarter revenue as we finalized the day one fair value of unfunded commitments acquired as part of the legacy cadence merger. Our non-interest expenses for the quarter are certainly a positive story, with total adjusted non-interest expense of $271.8 million, declining just over $9 million, or 3%. The decline included a reduction of $5.7 million in compensation costs, which was driven by a seasonal decline in payroll taxes and 401k 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 finalized the legacy CAED acquired intangible asset valuations and trued up the related expense. These contributed to a meaningful decline in the adjusted efficiency ratio to 60.5% 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 7 and 8 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. Non-interest bearing deposits make up a consistent 35% of our total deposits. Finally, slides nine and 10 provide details in both credit and capital, both of which continue to be strong. In addition to the continued net recoveries Dan mentioned, our non-performing assets declined 11% in the quarter and have declined 30% since year end. Likewise, 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 1.55% 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 now to questions.
spk01: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. Using a speakerphone, please pick up your handset before pressing the keys. To withdraw 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 Demba with Truist Securities. You may now go ahead.
spk10: Thank you. Good morning.
spk06: Good morning, Jennifer. How are you?
spk10: Good, good. Hope you are, too. I have 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?
spk06: Less than half a million dollars in gross fees, gross income, so not much. It's a very small deal.
spk10: 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?
spk08: Right now, we're comfortable where we are. That is something that we've been evaluating and continue to evaluate from time to time.
spk07: Thanks so much. Thank you, Jenny.
spk01: Our next question will come from Michael Rose with Raymond James. You may now go ahead.
spk02: Hey, good morning everyone. Thanks for taking my questions. Just wanted to start on the loan growth. Hey, how are you? Obviously a really good quarter for you and others, but we've heard others talk about moderating, you know, growth in the back half of the year. Just wanted to see if that is in line with kind of your expectations. And I know previously you talked about kind of a mid single digit rate for this year, but clearly you're above that. So just wanted to see, you know, how we should think about the next couple of quarters, just where pipelines are, you know, optimism around your customer base, pull through rates, et cetera. Thanks.
spk06: Pipelines are big and everybody in the room will get a chance at answering on this question, I'm sure. But I think that we're really pleased with where we are. I think we've said from, you know, October, October, let's go back to April a year ago, The question had been on, you know, could we merge our two companies together? Could we grow? Could we retain folks? And we're really proud of what's happening. I think the retention that we've had on our people, the engagement that our folks have in the community is what you're seeing. And so one of the things you've heard me say many times is that, you know, if 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. If the economies and the markets that we're serving begin to pull back, then I think we're going to see the same thing happen to us. We're clearly watching and looking at every credit with a new magnifying glass. But there's a lot of good opportunity out there. You can see credit quality from our perspective. Non-performers are, I don't know that they're all-time lows, but non-performers are really low. We were down 11% in non-performing assets again this quarter. So we're really pleased on what's happening there from a pipeline perspective. Chris, you guys want to jump in on that?
spk11: Chris, why don't you start? There you go. Pipelines still look good. I think everybody's maybe with interest rates going up, obviously you might predict a little bit of slowing in the last half of the year just as folks evaluate projects, rates of return, rates coming up. So the first half of the year has been strong. It's been diverse. It's come from a owner-occupied real estate, from residential mortgage, from CNI. And so it's been a really nice mix from a geographic perspective and also product perspective. Hank, can you talk a little bit more about that?
spk13: 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'll continue to build on those and certainly feel like we're in a good position, as Dan mentioned, within our footprint and with the teams we have in place to – be able to build on what the first half of the year really meant to 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 area should see some advances in the second half of the year that are already closed. Utilization is down. Utilization is low, yes, for sure. So hopefully we have seen a slowdown in the construction in the activity and the sales from primarily the multifamily, so we should see some increase in those advances through the second half of the year.
spk06: Yeah, I think just a couple of things to add on to that. Michael, 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 residential mortgage growth The rest of the growth came basically 50-50, 50 from legacy Cadence, 50 from legacy BXS. So both sides of the house are really performing well. Paul, you want to add anything to that? If you got started, we've got a good pipeline. I think your direct question was where are we going. And so I think as we sit here at 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.
spk02: I appreciate all the call. It was very thorough. Maybe just as a follow-up question, I wanted to dig into expenses a little bit. I think last quarter, 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 you know, hit on July 1st, but on, you know, the, the offset of that in part will be the branch closures and in the back half of the year, then looks like you have lower amortization expense, you know, going forward. So if you can just kind of, you know, walk us through it from a run rate perspective, um, what we should, what we should expect, uh, over the next quarter. So it'd be helpful. Thanks.
spk08: Yeah, absolutely. And you, you pointed out a number of things. And so you're exactly right. This quarter, um, the beginning of the quarter, we did have the impact of our, um, minimum wage increase. That was about $2.5 million per quarter. Beginning July 1st, which will be third quarter, we also have an incremental for our merit increase, which is annual. That'll be about another $4 million or so per quarter associated with that. And then I'd say kind of offsetting that, a couple of things that hit this quarter that obviously wouldn't be going forward. We did You know, there was 3.7 in reduction of amortization expense, 3.7 million this quarter as we kind of trued up 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 those. That compares to a $6.8 million number in the first quarter, so it is improved, but I wanted to make sure that it was clear that $3.7 million was an incremental reduction this quarter that wouldn't occur going forward. You know, we continue to expect that, you know, we're having good progress toward our merger integration and consolidations occurring in the fourth quarter. And then subsequent to that, that's when the branch closures would occur. And so there'll be a little bit of noise in the third and fourth quarter. There'd be, you know, merger expenses and so forth as we continue to complete all that. And then expect most of that to be cleared up as we enter into 23 and begin closing. to be able to see really some normalized expense trends as we go into 2023.
spk06: I think when we're talking about harvesting the cost saves out of the transaction, we're still on target to do that. We're still tracking that. You 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. And this quarter, I don't have a number for that, but we're making progress on all fronts there. And I think The key phrase, I think, Valerie, at the end of your comments, you were talking about continuing to see positive operating leverage.
spk07: Okay, great. Thanks for all the talk. I appreciate it.
spk01: Our next question will come from Brad Millsaps with Piper Sandler. You may now go ahead.
spk07: Hey, good morning. Morning.
spk16: Maybe just switching gears a little bit to the margin, Valerie, Dan. You know, this quarter, obviously, you talked a little bit about the deposits, maybe some seasonality there. You also relied on the FHOB a little bit to supplement. Just kind of curious, you know, kind of what you put on in terms of, you know, federal home loan bank advances. Do you think, you know, that's kind of temporary based on kind of what you see in the 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, you know, might impact your NIM outlook?
spk08: Yeah, thanks. Effectively, those were very short-term, and they were really put on to fund the variability that occurs kind of between the quarters, which is typical with some of the typical seasonal inflows and outflows. In fact, those advances actually expire 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 deposits, but security runoff as well. We continue to get $600 million or so per quarter in cash flow off of the securities portfolio, so that serves to be a source of liquidity as well.
spk06: You were specifically, I think, asking Brad on deposit pricing also. And so we did really well on holding deposit costs. We're expecting to see more increase again, I guess, tomorrow. But I think everybody's watching everybody else. We're all watching rates. And we want to be competitive for our customer set. But we also want to make sure that we're staying in front of that.
spk08: I think it's important to note on that front that we've got 80% of our deposits are actually held within the community banks. And that portion of our deposit base is actually, I'd say, the stickiest with the lowest deposit data. And so that obviously has been a benefit this quarter, and we anticipate that will be a benefit for us going forward.
spk16: Great. Very helpful. You answered part of my next question. It sounds like you expect us to use those cash flows from 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 just make the earning asset mix more efficient?
spk08: Yeah, I think in the near term, we would certainly just expect directionally lower. You know, if you look back historically at our companies, you know, they ran 15% securities assets. So, you know, it may be a while before we get to that level.
spk06: Purely dependent upon deposit growth or lack thereof also.
spk16: Yes, that's correct. Very helpful. And then just kind of final housekeeping, Valerie, I know you finalized the intangible valuation, but just curious, any impact on kind of what you would see on accretion going forward? I assume all those marks are finalized as well, but just kind of curious what your outlook would be. And I know it's hard to predict with the timing of payoffs and such, but just curious of any change there.
spk08: Yeah. You know, the There is a possibility always within one more quarter that there could 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 payoffs. There was probably three and a half million incremental excess accretion in the first quarter versus the second quarter. And so that was kind of the biggest variable there.
spk17: Okay, great. Thank you. I'll call back in queue. Thank you very much. Thanks, Brett.
spk01: Our next question will come from Brett Rabbitton with Havdi Group. You may now go ahead.
spk17: Hey, Brett. Hey, good morning, everyone.
spk15: Wanted to, I guess, first just talk about the loan growth and obviously a lot from Texas, but just want to talk about the other kind of main business lines from classic cadence, you know, QSR, energy, healthcare. Can you maybe talk about those segments and just their strength this quarter, how that was relative to maybe last year? Everybody got to play this quarter.
spk13: Yeah, I was about to say, Brad, it's one of those things where I wish I had a very You know, 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 and in all areas and all food groups. And so we're seeing nice demand in health care and technology and the restaurant business. You know, certainly, you know, CRE has been very active as well, but it's been balanced, both 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.
spk06: We got to get all the players in the game this quarter. Everybody got game time. Really did. Okay.
spk15: And then earlier you mentioned positive operating leverage. And, you know, I know we're not into 23 and you're not giving guidance for 23. But, you know, when you look at the expense savings from here and the margin trend, it would seem like, The efficiency ratio could trend into the mid-50s. You know, is there anything that you see on the horizon that would prevent that from happening, or does that feel like a progression that might be a possibility?
spk06: Continue to look at the presentation that we put out April a year ago where we were looking at, you know, kind of what we thought the merger could do for us, and I don't think we feel like there's anything in the road that's going to keep us from getting there, Valerie.
spk08: Yes, no, I think that's exactly right. You know, obviously, interest rates a moving dynamic right now. The wind's behind our back on that. But obviously, as we know, things could change rapidly in that environment. And so, you know, sometimes that can slow things down or speed them up, just depending.
spk15: Okay, great. And then maybe just last one for me on mortgage. A little bit of unusual quarter with the volumes being stronger than I expected and the hedge It looks like, you know, maybe there was some unusualness with the MSR versus the hedges. Can you maybe walk through that a little bit more and just explain, you know, kind of the income and the production in 2Q a little bit?
spk06: So, Valerie's going to flip some pages, but, you know, 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 the pipeline contracted pretty heavily. late in the quarter. And so that negatively impacts your margin on gain on sale. We also hedged the MSR asset. And so we had 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 in mark-to-market adjustment. So if you pull the mark-to-market adjustment out on the MSR asset that was hedged higher in the second quarter, then you're back to just the production numbers. Valerie, you've got those up. Yeah.
spk08: No, that's exactly right. And that's, I mean, the increased hedge is actually the biggest impact. And the reason that we did that is obviously given where the rate cycle is and where that asset has become, felt it was time to put on a larger hedge to protect some of that value. When you pull that out, you know, the mortgage banking revenue declined about a million dollars during the quarter, and a lot of that is associated with really the pipeline and the bullion and the gains. We're working on that.
spk11: Chris is going to add to that. I was going to add on the production volume. I think one of the unique strengths of our mortgage team is we're now putting on balance sheet production, so there's been a shift to a 5-1-arm type mentality in the market. And our team's able – and we've also got a one-time closed construction loan product that works well in this time. So it's been nice to see. And you see that a bit in the production mix. So you see a little bit less secondary market production and more portfolio production. That was part of our loan growth. I think it was about $300 million of the loan growth.
spk06: Yeah. He made a great point. So just coming back around to that, the – Anything that we're producing that's a 5-1-R, most of that's coming onto the balance sheet, and so the actual loans that were sold in the quarter was lower, which obviously lowers the revenue.
spk17: Okay. Great. That's very helpful. Appreciate it all, Keller.
spk07: Take a breath.
spk01: Our next question will come from Matt Olney with Stevens. You may now go ahead.
spk14: Good morning, Matt. Good morning, everybody. I want to go back to the funding discussion, and I'm curious what the, if you have a ballpark estimate of the dollar amount of the public funds that flowed out in 2Q, and remind us the seasonality, when we should expect that to flow back into the deposit balance. Just trying to appreciate if deposit growth the back half the year can keep up with the loan growth. Thanks.
spk06: Yeah, so public funds municipal money is big inflows late in 4Q and throughout 1Q and outflows, most of the outflows is in 2Q. And so that's what we talked about last quarter on the call. We talked quarter before that on the call is that the seasonality of the municipal deposits. So there's big deposits that flow in in the last part of December, which juice your year-end numbers. They continue to flow in in one queue, and then two queue has historically been an out order. I don't know that we have a specific number, Valerie, but the large majority of the deposit flows for us is in that municipal side.
spk07: The community bank is doing very well.
spk14: And the second part of that was, can the deposit growth keep up with the loan growth at back half the year?
spk06: Well, how much is loans going to grow in the back half of the year would be question one. I don't know. I mean, obviously, we want to continue to grow. So I think the footprint that we're in is going to give us that growth. Deposits is a wild card. And I don't have an answer for you as to whether they can or can't. But we're excited about what the team is doing out there. Valerie, you want to close that out?
spk08: Yeah, I think, you know, I mean, if the whole market contracts and deposits, you know, it's probably unrealistic to think that we wouldn't see some of that. in certain areas where the market sees some of that contraction. That being said, 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 and those deposits will stick around. We've got that network, which is all very community foundational based. We've got the commercial network. We've got great public-fund relationships. You know, you just name it. There's a broad variety of diversity that has come together that we believe gives us a lot of leverage to pool associated with deposit groups.
spk06: And all the deposits are at 70%, so if it creeps up, we're okay. Absolutely.
spk14: And on that last point, Valerie, within the community bank network, how would you characterize... the bank's deposit pricing relative to its peers?
spk06: Relative to, say that again, Matt?
spk14: How would you characterize the community bank's deposit pricing at this point relative to other banks within the footprint?
spk06: Competitive?
spk11: Yeah, it depends on your definition of peers. So from that perspective, you wouldn't think proxy peers. You're thinking about community banks and multiple markets across nine states. You could be competing against ABC Bank across the street or a large regional or large national bank as well. So we monitor that closely. What we're seeing in the competitive set on posted rates is not a lot of movement, but you're seeing a lot of one-off specials and competition trying to attract the quality customers within the market, and we're protecting those relationships with our relationship managers in those markets. And we want to remain competitive.
spk14: Okay, that's helpful. And just lastly, on the loan side, Valerie, do you have what the dollar amount of loans are that are floating and will reprice immediately? I think you gave that to us last quarter, and I couldn't find it this time.
spk06: I can give you 27, I think is the number.
spk08: Well, 24% of the books are floating.
spk06: Floating within 30 days.
spk08: Floating within 30 days.
spk06: While she's pulling that up, I think it's 40-something percent is variable on top of that.
spk08: Yeah, but the floating within 30 days, it's about 4.5%. I'm sorry, $6.9 million.
spk14: Okay. So that didn't – I don't think that changed very much materially from what it was last quarter. I just thought we might get above some floors from what you disclosed in April.
spk08: Yeah. Actually, so that same number – yeah, that number – represents the population that's floating. There could have been some floors within that prior number. We're above all those.
spk06: Yeah, there's no floors in place.
spk08: Yeah, there's nothing there.
spk07: Okay, guys. Thanks for your help. Thanks, Matt. Appreciate it.
spk01: Our next question will come from Kevin Fitzsimmons with DA Davidson. I mean, I'll go ahead.
spk07: Hey, good morning, Kevin.
spk12: Hey, Dan. I'm just curious. You guys repurchased a million shares in the quarter, and on the one hand, regulatory capital still looks very healthy, and you guys seem very confident in your ability to accrete capital going forward. On the other hand, there is this macro concern about a potential recession, and now you're I understand the TCE ratio gets affected by the optics of the accounting, but does it hit a sensitive point with it being sub 6% here? And I'm throwing all that out just to really ask your outlook for continuing to repurchase the stock going forward. Thanks.
spk06: Yeah, I appreciate that. We purchased that stock early in the second quarter. We have not purchased any stock in a little bit. And I think right now we would 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. If you're asking me today, I think that we're sitting tight and watching because just of what you just said. I think when you're looking out, like I said, there's some dark clouds brewing out there.
spk07: If some of that comes to pass, then we want to be prepared for that.
spk12: Great, thanks. And just one last one for me. So with the ACL ratio down link quarter, but at 155, still very healthy level relative to peers. Do you expect, you know, 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 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. Thanks.
spk06: I think there's a lot of moving parts in that model. And the forward economy is a piece of it, as is experience on what we're doing. And so our credit quality, five straight quarters of credit recoveries is unusual. especially when you're staring at a potential recession in front of us. So I think, again, there's a lot of moving parts there. Could it walk down? Sure. Could it, you know, come up a little?
spk07: I think the answer is yes on both sides of that, depending upon what the inputs are. Okay, great.
spk12: One last one for me, Dan. Just wanted to clarify the 17 additional branch closures. Are those over and on top of what was originally communicated or is this part of what was baked in with the merger? Thanks.
spk06: The answer is all that this includes what was in there. So remember when we made the merger announcement, we had talked about whether we ever had a hard number that was out there at the time on consolidations. We knew we had that opportunity. And then the DOJ required us to divest some locations. So we divested seven So those seven obviously were already gone, and then the 17 would include any others that were identified back then plus additionals that have been identified since then. Okay, great. 17 is more than we had originally modeled, but it includes what we had modeled. How about that?
spk08: Got it. Okay.
spk06: Well, 24 total. Yeah, that's 17 instead of 24 total, which is higher than we had anticipated April a year ago.
spk07: Got it. Okay. Thank you. Thank you. Appreciate it, Kevin.
spk01: Our next question will come from Catherine Melor with KBW. You may now go ahead.
spk09: Okay. So I'm following up on Kevin's question on the expenses. So then the $8 million a year in savings from these branches you're saying is not incremental to your original cost savings. Maybe there's a piece of that that's incremental, but some of that's already included in your merger cost savings. Is that right?
spk06: Some of that, that's correct. Some of that is in the 78 and a piece of it is on top of the 78 or adds to that. Your thought on that.
spk09: Okay, great. And then how about on just the margin, any sense, Valerie, as to where deposit costs and loan yields were at the end of the quarter, maybe for the month of June or going into July, just to give us a sense as to where we're starting this quarter?
spk08: Yeah. So, you know, what I will say is if you look at the average loan growth versus the period in loan growth, you'll see that the average was, you know, closer to $750 million in loan growth versus the period in, you know, $1.2 billion. And, you know, obviously those loans coming on at higher yields. And so that's going to serve very positively. We have made some incremental changes in within the quarter to deposit costs, you know, anticipate making some more after, you know, this week's announcements. And so, you know, those will be baked in for 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.
spk09: Okay, great. And then how about on buybacks? We're still active, which was great to see a little bit less than last quarter, but that's what you had guided to. How do you think about just buybacks in light of where your TCE sits today?
spk06: Yeah, I think I talked about that just a second ago. I think we would like to be prepared to use the buyback should the market move against us. Where we're sitting today, I think we're comfortable that we can hold and watch what's happening coming into the continued rate hikes and what the economy may be doing and preserve our capital.
spk08: You know, I'd also like to just comment. A couple of people have mentioned TCE. The biggest impact to our fair value adjustment from a security portfolio are really the movement in five and 10 year rates. And if you look at where those are yesterday versus the end of the quarter, they're actually down, which actually serves to improve that valuation. So, you know, I just wanted to clarify where that impacts the security portfolio.
spk06: Does that help you, Catherine?
spk09: Yes, it does. And I'm sorry, I apologize if you'd already mentioned the buyback comment. I must have missed it. Can I ask one more question? Go right ahead. On security deals, that didn't, I guess, grow as much as I would have expected. I know you've got a lot of securities kind of running off versus growing, but how do you think about if you're aware new securities are coming on or where that could shake out in the near term?
spk06: I don't think we've put any new securities on.
spk08: Yeah, I mean, what we've put on is just a very, very small, primarily CRA-related. And so, you know, really what you're seeing there is simply the incremental bump related to a lower denominator.
spk09: Great. Okay, so no, you're not really – and really unless deposit growth really takes off, the plan is not to add more securities today.
spk00: Is that fair? Correct, correct.
spk08: On material basis. I mean, we, like I said, we add a little bit, you know, for CRA and other purposes, but that's about it.
spk09: Okay. Very helpful. Thanks so much. Great quarter.
spk07: Thanks, Catherine.
spk01: Again, if you have a question, please press star, then 1. Our next question will come from John Arstrom with RBC Capital Markets. You may now go ahead.
spk05: Thanks. Good morning, everyone.
spk01: Hey, good morning.
spk05: Hey, good morning. A couple of follow-ups. So on the dark clouds comment, the question is, is Dan Rollins seeing dark clouds or is Dan Rollins reading about dark clouds? I guess that's the question. Are you seeing anything that bothers you?
spk06: Yeah, no, I'm looking outside today. There's no dark clouds here today. And I can't tell you that we see anything, you know, when we're talking about what's happening within our footprints. There are certainly pockets of consumer-related spending that you can see that, you know, we're causing people to think. But, no, our footprint is really doing well, John. But you can read about it. You know, you can certainly, as you said, you read about it, you hear about it all day long on the TV.
spk05: Question on another follow-up on loan growth, and it more relates to the merger issue. It's a 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, or is it too early to tell or too difficult to get the tangible results of the merger?
spk06: Yeah, I don't know that we have a specific answer to that. I think there's just a lot of excitement. One of the things I said was the fact that our team is all 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. Hank, Paul, Chris?
spk13: 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.
spk04: Yeah, this is Paul. I mean, I would add, I think, John, your sense of your question is, are there some benefits resulting from it? And the answer is yes. I mean, cross-referrals, there are some things that we're doing that we didn't have before. I mean, SBA, you know, so all these complementary products.
spk06: But did that result in dollars in this quarter in that $1.2 billion?
spk04: 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. We had a minor, I get it, but an insurance client yesterday. We're going to move their deposit box to us. It's going to be a new private banking opportunity. So, I mean, just really on a regular basis, we're seeing all sorts of revenue synergy and cross-sell opportunities throughout the footprint.
spk06: The teams are talking more to each other as we've opened those doors. and that continues to show benefit. It's hard to put a number on it. Chris?
spk11: Yeah, I mean, I think your initial question about the balance sheet has a factor, too, because coming together the balance sheet, we de-risked some of the concentrations. That created a bit of capacity in a lot of different buckets, but without even getting back to where each bank was before. So I think there's some ability to grow there just based on the size and geographic footprint that we put together.
spk05: That's helpful. And then I just want to ask one more on the margin. Valerie, you might not like this one, but maybe I can get Dan to answer it. Just the margin momentum seems pretty strong, and we've all kind of danced around it. But with another 75 basis points coming, and I'm just kind of doing 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 would that make you a little more conservative and dial us back a bit?
spk06: I'll jump out first and say, you know, 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 that's going to play out for us. I think, you know, we've raised deposit costs two bips so far. I suspect that we're going to see more deposit cost increase out of this. How much? I don't know.
spk08: Yeah. I mean, from a modeling perspective, you know, we're modeling the first 12 months a 14% deposit beta, the second 12 months a 28% beta, you know, and showing a gradual increase, if you will. And that's, again, kind of to my comments earlier, that's what we expect from those deposit costs. And so that will impact the pace of margin growth. That being said, you know, 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 toward the back end, and that will benefit us more in the third quarter.
spk05: Does that help you? Yeah, you're in a bit of a sweet spot here is the way I see it, but that's okay.
spk08: I couldn't help but jump in and answer that question, so sorry about that. Thank you.
spk07: Appreciate it, John. Thanks.
spk01: This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.
spk06: All right. In closing, I'd like to once again reiterate how proud I am of our team. The results that we've reported in the second quarter and the first half of 2022 have further demonstrated the strength of our merger and being better together. The ability of our bankers to grow the balance sheet throughout the early part of the transaction and transition to this magnitude is a 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 performing very well despite declines in the markets. And the value of our granular core deposit franchise is evident in our ability to maintain tightly managed cost in this raising rate environment. Finally, we couldn't produce these results without the efforts of all of our operational administrative support staff. With that said, I believe we've got the best as yet to come for us. Thank you all very much for joining us today.
spk07: We look forward to speaking to you again soon.
spk01: This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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