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spk13: Good day and welcome to the Cadence Bank third quarter 2022 webcast and conference call. All participants will be in listen-only mode. Should 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 one on your touchstone phone. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Wilson Zachary Lee, Director of Corporate Finance. Please go ahead.
spk06: Good morning, and thank you for joining the Cadence Bank third quarter 2022 earnings conference call. We have our executive management team with us here 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 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. 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 I'll now turn to Dan Rollins for his opening comments.
spk05: Good morning, everyone. Thank you for joining us today to discuss Cadence Bank's third quarter 2022 financial results. I'd like to start with a few comments on our recent systems conversion and rebranding effort, and then Valerie and I will cover the financial results for the quarter. Following our prepared remarks, our full executive management team will be available for questions. Earlier this month, we successfully completed our core operating system conversion, as well as the rebranding of over 400 locations across our footprint and the launch of our new website. This project, initiated almost 18 months ago, is the largest conversion most of us will ever be involved with during our careers. Just a few stats over the past few weeks. We converted approximately a quarter of a million accounts. Our facilities team rebranded over 400 locations with over 5,000 new signs, and our completely new website has received over one million page views in the past few weeks. Additionally, over the past few months, We brought a new data center online while shutting down three others and doubled the technological capacity for our call center. And we have, or are in the process of, decommissioning hundreds of legacy applications and migrating all of our employees to a common operating model. This is a tremendous success story for our entire team. I'm extremely proud of each and every one of our teammates. Their dedication to excellence has paid off. This is truly an historical accomplishment for our company. Our teammates are now serving customers and communities across our nine-state footprint as one unified brand, and the excitement around the new brand – the new logo, the new colors, the new Sonic branding – has exceeded even our highest expectations. As to our financial results for the quarter, we reported adjusted net income available to common shareholders of $143.7 million, or 78 cents, per diluted common share. Even with the intense focus on our conversion, this performance represents another record quarterly earnings for Cadence and another increase in adjusted PPNR to $189.8 million. Our adjusted earnings and PPNR both increased approximately 7% compared to our second quarter results. Moving to the balance sheet, we had another solid loan growth quarter, reporting net loan growth of $936 million or 13% annualized. This brings our year-to-date total to $2.4 billion, or 12% annualized. Our loan growth for the quarter was again very diverse, both from a geographic and product standpoint, which positively reflects the economic environment and our footprint, as well as our team's ability to remain forward-focused throughout this integration. For the quarter, we reported growth across several regions of our community bank, led by the Texas region. And our corporate banking group had the great quarter across the board, including CNI, energy, and real estate, along with certain other specialized industry verticals. We reported a decline in deposits for the quarter of $1.2 billion, nearly half of which was public funds and correspondent bank balances, and the remainder is reflective of slightly lower average account balances across our footprint. The core funding provided by our community bank positions us very well from both a deposit retention and cost standpoint in this environment. While our liquidity position has allowed us to be disciplined on pricing more rate-sensitive deposits, our bankers are doing a phenomenal job protecting our core customer relationships. Our credit quality continues to be stable, reflected in the 3% decline in total non-performing assets compared to the second quarter and no provision for credit losses for the quarter. We did see a slight increase in net charge-offs to nine basis points for the quarter after five consecutive quarters of reporting net recoveries. However, this increase was entirely related to one acquired energy credit that was reflected as a PCD credit at the merger date. Without the charge-off of this acquired credit, we would have posted another quarter of net recoveries. Of course, credit remains a key focus for us, particularly with the significant increase in interest rates and the recessionary winds blowing. As a reminder, when we completed our merger with Cadence this time last year, we were able to assess nearly half of our loan portfolio and provide for any credit marks deemed necessary at that time. We believe that process, on top of our 1.4% ACL coverage with our consistent approach to credit, is positioning us very well in this credit environment. Wrapping up, I'd like to briefly mention our operating efficiencies. Revenue growth for the quarter contributed to improvement in our adjusted efficiency ratio to 60.3% for the quarter, despite some moving parts in our expenses that Valerie will go over with you in more detail. With our core conversion now behind us, we expect a further benefit from merger efficiencies as we finish the year and move into 2023. This, combined with the interest rate environment, should provide a catalyst for continued improvement in our operating performance as we look forward to next year. With that, I'd like to turn it to Valerie for her comments. Valerie?
spk10: Thanks, Dan. Dan spoke to the meaningful growth in our earnings, highlighted by another great quarter of loan growth, which improves our earning asset mix, as well as continued margin improvement and stable credit quality. The adjusted net income of $143.7 million increased $9.5 million during the quarter, and was adjusted for merger-related expenses of $26.6 million, as well as a pension settlement charge of $2.9 million. Referencing slides four and five, we reported net interest income of $355 million for the third quarter, an increase of over 9% compared to the second quarter of this year. Our net interest margin was 3.28% for the third quarter, up 22 basis points from the linked quarter, and up 26 basis points, excluding the impact of accretion. The pace of interest rate changes has had a significant impact on our loan yields as our yield on net loans, excluding accretion, was 4.7% for the third quarter, up 58 basis points from the prior quarter. The quarter's impact to our securities yields was lower at seven basis points as we continue to deploy the cash flow from those securities to fund our loan growth. Regarding deposit costs, with nearly 80% of our deposits driven by our core community banking platform, We have been able to maintain a low deposit data during this increasing rate environment. For the third quarter, our total deposit data was 13%, and our total cost of deposits increased to 35 basis points, up 17 basis points in the quarter. Our cycle-to-date deposit data is only 9%. This compares to the third quarter's loan data, excluding accretion of 41% and 32% cycle-to-date. Our balance sheet remains asset-sensitive, with approximately 50% of our loan portfolio, or $14.6 billion, repricing in the next 12 months, and with $12.4 billion of that actually repricing within the next three months. Non-interest revenue, highlighted on slide 7, was stable at $124.5 million this quarter, with a decline of mortgage banking revenue offset by improved revenue in our limited partnership investments and other fee revenues. Our insurance team continues to perform very well, with a year-over-year revenue increase of over 11%. Moving on to expenses, referenced on slides 8, 9, and 10, total adjusted non-interest expense was $290.2 million for the third quarter, up from $271.8 million for the second quarter, driven by compensation and the result of several non-recurring benefits that we highlighted in our second quarter results. We added slide 9 to help clarify some of these moving parts. Adjusted salaries and benefit expense increased $8.8 million linked quarter, with approximately $4 million of that due to the annual merit increases effective July 1st, with the remainder driven by increased performance-linked incentive compensation, as well as a decrease in salary deferrals, which is a contra-expense due primarily to lower mortgage originations. Additionally, foreclosed property expense for the third quarter included a $1.1 million loss on sale, while the second quarter results included a $1.1 million gain, resulting in a $2.2 million variance between the quarters. Similarly, our second quarter results included a $2.5 million credit in intangible amortization expense as we finalized the merger intangible asset valuations, resulting in an increase to a normalized third quarter expense. The increase in other miscellaneous expense-linked quarter also included several of these non-routine reductions to expense impacting the second quarter. It's a lot of moving parts, but in summary, the $290 million in adjusted expense we incurred this quarter is a reasonable run rate to consider as we go forward, knowing we have yet to realize the majority of our merger-related saves coming in the next few quarters. Regarding the non-operating items, we incurred a $2.9 million pension settlement expense this quarter due to an elevated number of retirements in the second half of the year. We anticipate this activity to continue through year end with another settlement expense charge in the fourth quarter. Merger and merger related costs increased to $26.6 million this quarter as we accelerated the finalization of our conversion. We anticipate merger-related costs to continue in the fourth quarter as we finalize the conversion in October and we'll be consolidating 17 branches in the fourth quarter as well. We added slide 10 to the deck to highlight a comparison of our third quarter 2022 expenses to combined pro forma third quarter 2021 expenses, the quarterly period just prior to our merger last year. Over the last year, our total adjusted quarterly expense has increased 4.7%. We estimate that inclusive in that, we have already realized approximately $8 million in quarterly merger-related savings, with those savings in various categories, including overhead, people, facilities, and systems. Excluding these merger-related savings, our year-over-year adjusted expense increase would have otherwise been 7.5%. When you compare us to PureBank's reporting thus far, their year-over-year average organic expense increase has been 9.6%, or over 25% higher than Cadence's 7.5% pre-merger saves increase, and more than twice our actual adjusted expense increase of 4.7%. When we layer on the remaining merger-related saves, we expect to realize in the coming quarters we anticipate continued improvement to our efficiency ratio and our pre-tax, pre-provision net revenue. Dan spoke to the loan and deposit activity during the quarter, as well as our stable credit performance. Regulatory capital remains solid with little change and a common equity tier one ratio of 10.3% and total capital ratio of 12.8%. As we step back and assess this quarter, it's easy to be pleased with where we are positioned. This quarter, we once again continue to demonstrate our ability to generate quality loan growth, meaningfully improve our net interest margin, enhance our operating efficiency, and PPNR quarter over quarter, and maintain stable credit performance. Additionally, we are well positioned as we look forward with our asset sensitivity, additional merger saves to be realized, and now a strong singular brand and platform under which to serve our customers across our Texas and Southeast footprints. There is an excitement at Cadence, and hopefully you can see why. Operator, we would like to open the call now to questions.
spk13: Thank you. We will now begin the question and answer session. To ask a question, you may press the star key followed by one on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star, then two.
spk11: At this time, we will pause momentarily to assemble our roster. Our first question comes from Michael Rose with Raymond James.
spk13: Please go ahead.
spk09: Hey, good morning, everyone. Good morning, Michael. morning um just a few questions here so just back to the expenses which i think has been a headwind for for some people and for the stock um valerie i think you said 290 was kind of a good run rate going into the fourth quarter i'm sorry if i missed this but can you just remind us um you know how much cost savings you have remaining i know the systems conversion was completed and i think you know at the beginning of the year You know, what we didn't anticipate was, you know, the increase in the minimum wage, and then, you know, you had the bump up this quarter in annual salary increases. But, you know, just trying to get a sense, you know, beyond that $290, like, would you actually expect expenses on a quarterly basis to actually fall as we get into next year, just from the cost savings, just trying to put all the pieces together? Thanks.
spk10: Yeah, thanks, Michael. So just to be clear, we've already – estimated that we've incurred about $8 million or $32 million annualized in cost saves included in our run rate, and that's really for a variety of things that have happened over the year, but particularly more recently in this latter half of the year as we've neared the conversion. So based on our original estimate, that leaves another $46 million to be realized, and we anticipate that we'll be able to capture that over the next couple of quarters. Fourth quarter is going to continue to be a little noisy because obviously we have the conversion, we have the branch closures, etc., But as we look into the beginning of 2023, that's when we'll see the remainder of those saves really flow in to the bottom line. You know, you're right, there have been some of the headwinds, and that's also why we added that additional slide. If you haven't seen it, I would encourage you to take a look at it, slide 10 in our slide deck, that shows really kind of the combined pre-merger numbers to where we are today and shows that even with those headwinds, that we believe that we're performing better than peers. And then when we layer in these additional cost saves, that it'll position as well as we go into next year.
spk05: Yeah, that slide details out the $8 million we think we've already harvested in the cost saves, too.
spk09: Got it. Okay, very helpful. One other question. Looks like the substandard loans ticked up, and I think that's obviously caught some people's attention last night, this morning. But as I look at your criticized substandard loan ratio, it looks like it's only 1.8% of loans ex-PPP, which seems pretty low relative to history. So if you can just kind of talk about what drove that increase. It looks like it might have been in the C&I bucket. If you guys have any concerns, or is it just proactive classification, et cetera, that'd be helpful. Thanks.
spk05: I appreciate that. I don't think that we have any concerns. I think we're starting at a base that is not sustainable would be the starting point. When you're talking about credit quality, it's been so good for so long. I think a more normalized credit environment is what we would be expecting. I don't think we're concerned about this at all, Chris. Hank, you guys want to jump in here?
spk08: No, I'll add a color to that. It was a couple, three C&I credits. We've got to get visibility on them. I think one of them may have already actually been remediated or paid off since that quarter end. So we're not seeing any trends or themes or industry-specific issues in those numbers. I think given the new book compared to legacy BXS book, you're going to see a little bit more maybe movement in some of that because some of the average credits are bigger. And as we migrate and actively manage those credits, you'll probably see more movement than maybe you would have seen in our numbers two years ago.
spk03: All right, very helpful. I'll jump back in the queue. Thanks. Sorry, that was well said. Nothing to add. Thanks, Michael. Thanks.
spk13: Our next question comes from Brad Mofaps with Piper Sandler. Please go ahead.
spk14: Good morning, Brad. Hey, good morning. Thanks for taking my questions. I think previously you guys have talked about maybe a mid-20s type deposit beta. I'm just kind of curious, you know, as things have evolved, do you still, you know, feel comfortable with that number? And then, Valerie, could you maybe just talk about the borrowings that you did add in the quarter and, you know, how, you know, what would the average cost there and, you know, how those also might play into, as you think about, you know, NII and M guidance going forward?
spk10: Yeah, sure, absolutely. So, obviously, our deposit beta, you know, the cycle to date, 9%, has continued to be very, very low. It actually lagged more than what we had originally anticipated. So that's been a benefit for us. We are still anticipating, you know, the 28% cycle deposit beta. And so obviously that's going to take a few quarters of a fairly significant bump in deposit beta. And we anticipate that, you know, that will be going forward as we see some of the additional increases in our rate hikes, but believe that we'll continue to lag significantly. potentially many of our peers, simply because of the 80% of our deposit base that is in the community banking platform. And the beta on those deposits is about 60% of what we see on the corporate side. So that continues to benefit us, and it will continue to benefit us in our net interest margin as we look forward. We did add a little bit of borrowings. So one of the things that we've been doing is actually funding our loan growth by our securities portfolio runoff. We continue to have good maturities and cash flow from that portfolio. And it serves two things, one, being able to fund the loan growth, but then two, also kind of getting us closer to a more normalized securities to total assets mix that became really exaggerated over the COVID time period. So in the meantime, with the deposit mix that we've had, you know, about $500 million or so in public funds and financial institution correspondent banks that ran off, and then a little bit of average deposit or average balance decline in some of our customer accounts. We funded that with federal home loan bank borrowings. They're all very short-term, so very close to your Fed fund rates plus just a few basis points. And that will continue to be the strategy to fund kind of what we believe are temporary needs on those funding sites.
spk14: Does that help you with that, Brad? Yeah, that's very helpful. Maybe just as my follow-up, Valerie, is it still about $600 million, $500 to $600 million a quarter in cash flows from the bond portfolio that you expect? Any of that numbers can move around a bit. It's not perfectly linear, but just is that pretty close?
spk10: So that is pretty close to what we're expecting in the fourth quarter. Now, when we look into 2023 – There's another $3.5 billion of maturities and cash flow that we have scheduled out for 2023 as we have some maturities that actually come into play there. So between now and the end of 2023, we're looking at $4.2 billion of maturities and cash flow coming off that securities book.
spk14: Okay. That's all it would be to fund your growth with that and then pay down borrowings with any excess?
spk10: That's exactly right.
spk14: And then back home deposits.
spk05: Brad, I mean, I think when you're looking at us today in a 400-branch community bank network, we feel really good about our deposit gathering capabilities. I think what we continue to see today is we saw the average commercial balance decline significantly more or almost double what the average consumer balance declined. And I think we've been very careful when we're competing out there in deposits. We feel good about our deposit gathering capabilities.
spk03: That's great. Thank you very much. I'll hop back in queue.
spk11: Our next question comes from Jennifer Dembo with True Securities. Please go ahead. Thank you. Good morning.
spk03: Hey, good morning, Jennifer.
spk12: Two questions. First one is on net interest margin. Valerie, can you just talk about the net interest margin outlook over the near term? We've seen some companies say they think they have more expansion left and Some say they believe they're half-peaked or very close to peaking.
spk10: Yeah, absolutely. No, we don't believe that we've peaked, and we certainly believe that we've got some improvement in our future. Multiple reasons there. One is obviously the amount of repricing loans that we have, with 50% of our loans repricing over the next year. And then that also leaves you know, even when you just look out past this first year, another 50% that actually reprices in the following years. And so that provides really kind of a nice catalyst for us in a period that is looking to be, you know, higher rates for longer. You combine that with the fact that we're using really the lower yielding securities right now to fund some of the loan growth, that mixed shift certainly adds to an earning asset yield increase And then once we actually start reinvesting in the securities book, we'll be doing so at a much higher yield than obviously where the legacy or the existing portfolio is yielding. So, you know, really a whole number of catalysts that are very favorable for our net interest margin right now.
spk12: Great. Thank you. And my other question is on your charge-off fee. the purchased energy credit. Would you have any other energy credits that you feel might be charged off over the near term, or was that the only one of real concern?
spk05: That's the one that was identified coming into the merger, and that was originated back in the 15, 16, 17 timeframe. I don't know that we have anything else. Hank's got his hand on the button. Come on, Hank. There you go.
spk00: Thank you. Finally, I got that worked out. The portfolio, the energy portfolio, we feel very good about. We did see an identified issue early on, and there were some characteristics of it being in a basin that is hard to make profitable, and also they're having labor issues, and so this was an appropriate thing for us to do at this time.
spk05: This particular credit had been non-performing for more than a year prior to our merger, so this has had a long history of dealing with it.
spk00: But it's not consistent with the remaining portfolio.
spk12: Okay, great.
spk11: Okay, I'll jump back in the queue if I have more. Thank you.
spk03: Thanks, Jennifer.
spk11: Our next question comes from Kevin Fitzsimmons with CA Davidson. Please go ahead.
spk03: Hey, good morning. Good morning, Kevin.
spk02: I just wanted to ask about the philosophy on provisioning and the allowance. On the one hand, your reserve ratio is, you know, well higher than peer levels and Given the credit metrics, it seems perfectly legitimate that if the model spits out you don't need a provision, then that's fine. I'm just curious how we should think about that going forward with what the forecasts are saying and how you're feeling about this point in the credit cycle in terms of whether you will provision and how much and how you view that allowance ratio from here. Thanks.
spk05: That's a good question. I think we've got our model that we're working within. I think when we look forward, there are certainly question marks in the economy in front of us. What happens from here forward and what does that do to credit? I think everybody's concerned and watching the headwinds that we're flying into. But I also think that just normal growth is going to – we can't be at zero forever. So if we continue to show the growth that we're showing, we're going to be provisioning for loan losses through the normal course of business. The unknown is the economy and what the economy does to us. But we feel really good about where we are today when you lay on not only the provision that's there, but remember about half the portfolio was marked one year ago this month. So we feel really good about where we are.
spk03: Yeah, that's a good point, Dan, you just made on the percentage of the portfolio that's been marked.
spk02: And talking about loan growth, which was pretty healthy this quarter, how are you feeling about it going forward, both from the standpoint of what you're seeing in pipelines, but also maybe any deliberate tapping of the brakes in certain loan segments, just given the uncertainty out there? Thanks.
spk05: Yeah, I like our underwriting process. I like our team that's out front of us. I think we've got good loans in the pipeline coming our way. I think we are being prudent when we talk about what's coming through the pipeline this morning. There were a lot of loans to talk about this morning. The team does a great job at looking at that. I suspect our footprint's going to continue to give us growth, at least in the near term, and I think that we need to be very prudent in how we're doing that. Chris, you want to jump in, or Hank?
spk08: Yeah, I'll take a stab at the tap-to-breaks question. I think there's been some self-correction out there just in the market itself. Rates, obviously, have slowed down some segments. I think we see it probably mostly in the community bank side. and maybe some of the consumer rates, specifically around the mortgage book, because rates are just high, so that's put maybe some slowness there, but we're still seeing opportunities. On the corporate side, we're still seeing great opportunities in really all across all segments. So I think our ability to, we haven't, the way our balance sheet's structured right now with loans, I think we can play in almost every segment or in every segment. So there's been no deliberate tapping of the brakes on our side, and we're seeing some good opportunities But there are some interest rate headwinds, I think, for everybody that they're thinking about.
spk00: Let me just build on it, Chris. As we look at the pipelines for the fourth quarter in 2023, we have seen some moderation, but they're still active, so I'm encouraged. Obviously, the demand will be a function, and we talked about it, the economy and how that plays out in 2023. I spend a lot of time with the client throughout the footprint, and there is one real message that we're hearing from them, from our clients and our teammates, is there's some caution for next year. which I think is appropriate. As I mentioned, we haven't seen any real deterioration in the credits, so that seems positive. The one headwind that we're seeing throughout is labor and the ability to get good labor and teammates, and that's going to be expensive going forward, and that will certainly impact clients in the years to come.
spk05: When you look at the loan growth that we published out in this quarter, it was across the board. It's exciting to see us be able to grow geographically diverse industry diverse, product line diverse. I couldn't be more proud of the team that we've got. Paul, you want to jump in? I know you talk to clients all the time.
spk07: Well, I think that's a good summary. And what I like is that we now that we have the conversion done and we're all one brand and we're all pulling together, I think we will see some more cross-sell opportunities and some revenue synergies that, of course, we never put in the model, but they are real. And you know, the team's out calling and looking for business, and that pays off over time.
spk03: Does that cover for you, Kevin?
spk02: Yeah, no, that's perfect.
spk03: Thank you very much, guys. Thank you.
spk11: Our next question comes from Catherine Millor with KBW. Please go ahead.
spk04: Thanks. Good morning.
spk03: Hey, Catherine. Good to hear from you.
spk04: Thanks. Just one follow-up on the expense conversation. So if we Valerie, your comments are really helpful just thinking that we've got, you know, another 46 million of savings to come in next year. So, you know, as we think about what a run rate could be next year, you know, is it fair to take that 11-ish million of a quarterly savings number off of the 290 run rate that we are at the back half of this year? Or is it fair to assume that this 290 run rate is also a little bit elevated just because you're in the middle of the conversion? And so really the decline in expenses could be greater than just that cost savings number as we get into next year.
spk05: Yeah, I think that the starting base that you're talking about is the 290. You can pull off what you're talking about and then you've got to lay back on the normal inflation, the normal increases that would be out there. And then, you know, you've asked us before, you know, the 78 million that we published out, we're confident we're going to get that. I think your real question is, is can we exceed that in cost savings? And I think when we continue to look for ways to trim our operations. I think we continue to look for those opportunities, Valerie.
spk10: Yeah, I think you said it well. Yeah, start with the 290, and that's why we tried to clarify that, because we know it was a little bit of a noisy move this quarter. Layer on those expenses. Don't forget in the first quarter, there's the payroll taxes and all those other things that pop up. But to Dan's point, once we get this savings integrated in, really looking for efficiencies on an ongoing basis is part of the DNA. And so we won't be stopping. You'll continue to see us focusing on that as a combined company. So more to come on that in the future, obviously.
spk04: As I look at consensus estimates, then it looks like the street is higher than that on expenses for this year. So is it a fair statement to say that expenses are probably a little bit on the low side today, but obviously the revenue picture is a lot better just with where the margin is going and where the growth is going?
spk05: I didn't follow that. So you're going to have to go through that one more time for me. Sorry.
spk04: As I look at expenses across the street, It looks like we're, you know, the streets kind of got an expense number next year, I feel like, kind of in the 270s a quarter range, which clearly feels like that's, you know, too low. And so then as we think about, it feels like if we look at forward estimates, you probably have an expense headwind, but also the revenue picture seems to be significantly better than what the street's modeling. I'm just kind of curious if you agree with that statement.
spk10: You know, we haven't necessarily done specific comparisons to the street estimates in each of those categories, but I think you're right that our revenue opportunities are pretty meaningful between both the growth mix and the margin improvement. We feel very positive about that.
spk05: Yes, as we look, we continue to see operating leverage. We continue to see improving efficiency ratio. We continue to see improving, you know, bottom line number. So the components of it and comparing it to the street, again, I don't think we've done it that way, but I think we feel very positive about our future.
spk04: Great. Okay. And then my last question, just back to the margin, is just on the loan yields, the loan beta was a lot better than I was expecting this quarter. Is this 40% beta something similar to what you think we'll see in the next couple of quarters and then Just maybe if you could talk, Valerie, just bigger picture about kind of the timing of your loan repricing. I kind of have the view that because you've got a greater piece that's kind of adjustable, you know, maybe not floating, you'll get kind of a longer tail on the repricing of your loan book over the course of this year, which kind of to Jenny's point, you're not going to be the kind of margin that pops and then is stable or maybe even down the back half there. You might see more of a gradual margin expansion as we move through 2023. Just curious how you think about that.
spk10: Yeah, no, that's a great point. And part of, I think, why you saw a higher loan beta this quarter was really just because of the timing of when the rate increases started. And, you know, while some of those loans reprice, you know, the 25%-ish of those loans that reprice, you know, within the 30-day period, there are a number that reprice within three months, nine months, et cetera. And so that's what you're starting to see flow into that margin. If we break it down, you know, we talked about we've got the floating that reprices within the 30-day period. That varies between 20-23% or so of the portfolio. Then we've got the portion that is between three months and 12 months, and that's another close to 30%. So between the two of those, you're close to 50% repricing within the first year. Then if you look out in the next one to three years, that's another 10% of the book, another Between the three to five years, another 15% of the book, and then beyond five years is kind of the remaining 25%. So you're right, because of some of the product, some of the variable rate product, some of them do have longer tails on them, and that will serve to benefit us kind of on a lag basis, if you will, into our net interest margin as long as we're in kind of this higher rate environment.
spk04: So where are new lineals coming on today in terms of your new production? Are you seeing that still be competitive, or are you seeing that move up with rates?
spk10: Yeah, so in the quarter, our new production came on at about 5.25%.
spk05: The rates went up at the end of the quarter, so where are we today, Hank?
spk10: Yeah, it's higher than that today.
spk08: Yeah, I would say, break it down into buckets, the arm book, like the 5.1 arm space, community bank space, that's coming on in the Six range, you're seeing some six handles there. Some competition lower than that, some higher. So it's kind of a six new book. On the corporate side, I think it's SOPR plus 200 to 250 is a sweet spot. You might see some lower than that and some higher than that, just depending on the risk and rate of the credit.
spk00: Yeah, the only thing that I would add to that is we are seeing kind of a bank favorable pricing on CRE. And so we're seeing about a 50 to 75 basis point increase on spreads in that particular portfolio. The large CRE. The large CRE, yes, sir.
spk04: Great. Okay, all very helpful. Thank you.
spk00: Thank you, Catherine.
spk03: Appreciate the time.
spk13: Our next question comes from Matt Olney with Steven Zink. Please go ahead.
spk01: Hey, thanks for everybody. Good morning, Matt. Just a few more here on the margin outlook. As far as the mix of deposits at the bank, I think it was said that 80% of the bank's deposits are now at the community bank, which is obviously a lower beta, and 20% is corporate. Did I get that mixed right?
spk10: Yeah, you did. Well, and actually there's public funds in there too, but yeah. And that's actually within the community and the corporate bank. 80-20 is a good mix.
spk01: Okay. And then, Valerie, any color on the accretion income you expect from here?
spk10: Yeah. So for the quarter, we had about $8 million in accretion. That was lower down from $11.7 million last quarter. Looking forward to the fourth quarter, our scheduled accretion is closer to $6 million. And then if we look into 23, it's between $22 and $23 million. Now, that's just the schedule. You know, of course, if things pay off early, you know, that's when you get a little bit more increase than that. But that's the schedule.
spk01: Okay. Thanks for that. And then I guess on thinking about capital and the buyback, I didn't see any activity in the third quarter. Is it fair to assume that capital levels could start to build from here, especially with all the uncertainty out there? And if so, is there any level you're targeting?
spk05: Yeah, there's no level that we're targeting. Matt, obviously, you know, on a TCE ratio today, we're low. The AOCI is not helping us on that front, so we've not been using our stock buyback program. I would believe that if rates stabilize here that maybe we can see some change there, but we've also seen the risk in the future of how far a rate's going to rise. So I think there's still an unknown around that, and I think we want to continue to be conservative with capital, especially looking at the economic and geopolitical headwinds that we see.
spk01: Makes sense. Thanks, guys.
spk03: Thank you, Matt. Appreciate your time.
spk13: This concludes our question and answer session. I would like to turn the conference back over to the management team for any closing remarks.
spk05: Thank you very much. We certainly appreciate the great questions. In closing, I'd like to commend our team on their commitment and their dedication through the integration process. We began over a year ago. The teamwork and consistent focus on ensuring a positive experience for our customers was exemplary. Operating as one company under one brand will help us further leverage the inherent strengths of our company. The results we reported today for the third quarter and for the first three quarters of 2022 certainly demonstrate the value of our combined company and the talent of our bankers in retaining and growing long-term customer relationships across our business lines and geographies. We look forward to all that we will accomplish together for our customers and our communities as one Cadence Bank.
spk03: Thank you very much.
spk11: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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