Cadence Bank (CADE) Q3 2024 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed outlook. Financial performance shows positive net income growth and improved net interest margin, but increased operational costs and mortgage revenue decline pose concerns. The Q&A reveals uncertainties in deposit cost management and loan growth. Share repurchase activity is positive, but the impact of debt management risks is unclear. Overall, the sentiment is balanced, leading to a neutral stock price prediction.
Key Financial Performance
GAAP Net Income $134.1 million, or $0.72 per diluted common share, with adjusted net income from continuing operations of $135.6 million, or $0.73 per diluted common share, an increase of $0.04 or 6% compared to the second quarter of '24.
Core Customer Deposits Growth Over 11% on an annualized basis, with total deposit growth of approximately $985 million for the quarter, or 10.4% annualized.
Net Interest Margin 3.31%, up 4 basis points from last year, marking the fourth consecutive quarter of improvement.
Net Interest Income $361 million, an increase of $5.1 million in the quarter, with a year-over-year growth of 10%.
Adjusted EPS from Continuing Operations $0.73, up 6% from the second quarter of 2024 and up 37% from the same quarter last year.
Adjusted Efficiency Ratio 57.7% for the quarter, reflecting continued performance and operating efficiency.
Total Adjusted Non-Interest Revenue $88.8 million, increasing $3.2 million, or 3.7% in the third quarter, with a year-over-year growth of 10%.
Total Adjusted Non-Interest Expense Just over $260 million for the quarter, up $9.2 million, or 3.7%, primarily due to merit increases.
Net Charge-Offs $22.2 million, or 26 basis points annualized, down slightly from the 28 basis points in the second quarter.
Allowance for Credit Losses (ACL) Coverage 1.38% at the end of the quarter.
Tangible Book Value per Share Increased by $1.60.
CET1 Ratio 12.3% as of September 30th.
Total Capital Ratio 14.5% as of September 30th.
Tangible Equity to Tangible Assets Ratio Ended the quarter at 8.28%.
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Operating Highlights
Deposit Growth: Total deposit growth was approximately $985 million for the quarter, or 10.4% annualized, with core customer deposits growing by $1.4 billion.
Loan Commitments: Generated meaningful new loan commitments, although loans were flat for the quarter due to payoff pressures.
Non-Interest Revenue: Non-interest revenue was $88.8 million on an adjusted basis, increasing $3.2 million, or 3.7% in the third quarter.
Net Interest Margin: Fourth consecutive quarter of improvement in net interest margin to 3.31%, up 4 basis points from last year.
Efficiency Ratio: Adjusted efficiency ratio of 57.7% for the quarter, reflecting continued performance and operational efficiency.
Share Repurchase: Repurchased just over 323,000 shares of stock, with year-to-date repurchases totaling 1.2 million shares.
Expense Management: Updated full-year 2024 adjusted expense guidance to a range of down 1% to 3% compared with 2023.
Capital Position: CET1 of 12.3% and total capital of 14.5% as of September 30th, with tangible book value per share increasing by $1.60.
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Risk or Challenges
Deposit Costs: Despite a stable deposit cost increase of only 2 basis points, the company faces competitive pressures in the deposit market, which may affect future deposit betas.
Loan Payoff Pressures: The company experienced flat loan balances due to significant payoff pressures, particularly in the energy sector, which may continue to impact loan growth.
Credit Quality: An increase in non-accrual loans was noted, primarily due to a few previously criticized credits, indicating potential credit quality risks.
Economic Factors: The company is optimistic about loan originations outpacing payoff pressures, but economic conditions and market activities could influence this outcome.
Regulatory Issues: The company adjusted its FDIC special deposit assessment estimate, reflecting ongoing regulatory compliance challenges.
Expense Management: Total adjusted non-interest expenses increased due to merit increases and other factors, indicating potential challenges in managing operational costs.
Market Conditions: The company noted that the market for deposits remains competitive, which could impact future deposit growth and costs.
M&A Opportunities: While the company is open to M&A opportunities, it prefers to grow within its existing footprint, which may limit expansion options.
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Guidance & Outlook
Deposit Growth: Core customer deposits grew over 11% on an annualized basis, with total deposit growth of approximately $985 million for the quarter, or 10.4% annualized.
Loan Pipeline: The loan pipeline remains robust and diverse, with optimism that new loan originations will outpace payoff pressures.
Share Repurchase: Repurchased just over 323,000 shares of stock, with year-to-date repurchases totaling 1.2 million shares at a weighted average price of under $27.
Expense Management: Updated full-year 2024 adjusted expense guidance to a range of down 1% to 3% compared with 2023.
Credit Quality: Credit quality remains stable, with net charge-offs consistent with prior quarters and a solid allowance for credit losses at 1.38% of loans.
Net Interest Margin: Expect continued improvement in net interest margin in the near term, despite forward curve interest-rate reduction expectations.
Revenue Growth: Total adjusted revenue guidance remains at a growth range of 5% to 8%, with potential for higher-end adjustments based on margin improvements.
Expense Growth: Expect normalized expense growth to resume in 2025, with continued investments in growth, teams, and technology.
Loan Growth: Anticipate loan growth to improve as pipelines fill and payoff pressures stabilize.
Capital Position: Capital metrics remain strong, supporting growth and potential M&A opportunities.
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Shareholder Return Plan
Share Repurchase Program: Cadence Bank repurchased just over 323,000 shares of its stock during the third quarter of 2024. Year-to-date, the bank has repurchased 1.2 million shares at a weighted average price of under $27.
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Key Q&A
Q:Can you talk about the net impact of the floating-rate loans repricing in the near term?
A:Our loan yields did continue to tick up even in spite of having 27% loading rate securities. The weighted average rate of the loans that are to reprice over the next three to 12 months is 6.34%. We're putting on loans higher than that today.
Q:How should we think about deposit betas on the downside given your comments that you would eventually want to replace that BTFP with core deposits?
A:I would expect that this quarter is actually our peak in deposit costs. We are working aggressively to bring those deposit costs down while retaining deposits.
Q:Can you talk about the level of commitments maybe linked-quarter and then maybe just gross versus net for 3Q in terms of actual production?
A:New loans coming on in the quarter was about $1.7 billion, which is close to where we were in 2Q. The pipelines are full, but we just can't keep it on the balance sheet due to payoffs.
Q:Can you talk about your hiring pipelines and if you'd expect that to be a greater contributor to normalized expense growth next year?
A:We are hiring people, but I don't think there's anything outsized. It's just normal investing in our franchise.
Q:Can you outline your near-term buyback appetite?
A:Our buyback is in place. We've been consistent all year long on the buyback and will continue to play value in the same rules.
Q:Can you talk about what you were able to do in terms of deposit rates following the September rate cut?
A:We reset our CD rates and have been competing aggressively on deposit pricing.
Q:Do you have a September 30 interest-bearing deposit spot rate?
A:I don't have that.
Q:Can you provide more color on the general C&I loan pressure?
A:Our pipelines are great, but the payoff activity is coming from sponsor-backed owned companies. We are keeping deposits even if we lose loans.
Q:What is your opinion on the future of interest rates?
A:Stability is the key at this point. Slower moves are better.
Q:Review of Unclear Management Responses
A:Management did not provide a specific September 30 interest-bearing deposit spot rate.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
BTFP core
Chief
Officer
SOFR
account
accounting
beta downside
business credit
buyback
change day
concern
conversation
customer balance
day rate
debt
deposit beta
deposit highlight
deposit lot
deposit spot
deposit team
exception pricing
ground
hand
inflation
interest deposit
ish
job
loan rate
merit
move
origination
paydowns
payoff pressure
percent loan
pipeline
production
rate loan
uptick
week
CADE Transcript
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The earnings call presents a mixed picture. Financial performance shows modest growth in net income and deposits, but rising non-accrual loans and increased expenses are concerns. The Q&A highlights uncertainty around deposit costs and economic impacts. While share repurchases and strong capital ratios are positive, the lack of clear guidance on key metrics like deposit betas and economic impacts suggests caution. Overall, the sentiment is balanced, leading to a neutral outlook.
Cadence Bank (CADE) Q3 2024 Earnings Call Transcript
Unknown10-23
The earnings call presents a mixed outlook. Financial performance shows positive net income growth and improved net interest margin, but increased operational costs and mortgage revenue decline pose concerns. The Q&A reveals uncertainties in deposit cost management and loan growth. Share repurchase activity is positive, but the impact of debt management risks is unclear. Overall, the sentiment is balanced, leading to a neutral stock price prediction.
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