Cadence Bank (CADE) has announced a strong start to 2024 with its first-quarter earnings call, reporting a GAAP net income of $114.6 million and adjusted net income from continuing operations of $114.4 million.
The bank experienced a significant growth in loan balances, particularly in non-real estate and owner-occupied commercial and industrial (C&I) portfolios, as well as residential mortgages. Core customer deposits also saw an increase, contributing to the bank's solid financial performance.
Key Takeaways
- Cadence Bank's GAAP net income reached $114.6 million in Q1 2024, with adjusted net income from continuing operations at $114.4 million.
- Loan balances grew by $385 million, or 4.8% annualized, driven by non-real estate and owner-occupied C&I portfolios, along with residential mortgages.
- Core customer deposits increased by roughly $400 million, offsetting declines in brokered and thinly priced public fund balances.
- Net interest margin improved by 18 basis points to 3.22%, due to balance sheet dynamics and restructuring of the securities portfolio.
- Adjusted expenses decreased by over $6 million from the previous quarter, resulting in a 600 basis point reduction in the adjusted efficiency ratio to 60.1%.
- Provision for credit losses stood at $22 million, with net charge-offs at $19.5 million, both showing improvement from the previous quarter.
- Over 650,000 shares were repurchased at a weighted average price of $25.65.
- CET1 and total capital ratios were reported at 11.7% and 14.5%, respectively.
Company Outlook
- Cadence Bank expects continued investments in technology and personnel as part of its expense management strategy.
- The bank anticipates the mix of non-interest-bearing deposits to reach about 20% of total deposits by year-end.
- Executives are committed to long-term reduction of the bank's excess liquidity position by at least half.
Bearish Highlights
- Non-performing loans increased, mainly due to guaranteed SBA loans.
- Competition in the loan book is noted, particularly in smaller business credits.
Bullish Highlights
- Executives expressed satisfaction with the bank's fee performance, noting consistency.
- Growth in high-growth markets such as Georgia, Texas, Florida, Atlanta, Nashville, Houston, Dallas, Austin, and Fort Worth.
- Fee businesses are expected to remain strong, contributing to about 20% of total revenue.
Misses
- No specific sectors showing weakness in credit quality were identified.
Q&A Highlights
- Executives addressed concerns about vulnerability to non-interest-bearing (NIB) headwinds, emphasizing resilience due to the bank's community-driven approach.
- The bank's credit situation was discussed, with criticized loans being flat year-over-year and migration within those categories occurring.
- Executives highlighted the bank's strategy for managing excess liquidity and taking advantage of higher rates.
In conclusion, Cadence Bank has shown robust performance in the first quarter of 2024, with growth in key areas and a strategic focus on improving efficiency and managing costs. The bank's executives remain optimistic about the future, with continued investments in technology and personnel and a commitment to enhancing results.
InvestingPro Insights
Cadence Bank's (CADE) first-quarter earnings for 2024 have demonstrated a strong financial performance, supported by substantial growth in loan balances and customer deposits. An in-depth analysis using InvestingPro's real-time data and insights further enriches our understanding of the bank's current market position and future prospects.
InvestingPro Data:
- CADE's market capitalization stands at $5.26 billion, indicating a significant presence in the banking sector.
- The bank showcases a high P/E ratio of 133.02, suggesting a premium market valuation compared to earnings.
- A notable one-week price total return of 8.53% reflects recent positive investor sentiment towards the bank's stock.
InvestingPro Tips:
- Cadence Bank has been consistent with its shareholder returns, raising its dividend for 11 consecutive years, which could appeal to income-focused investors.
- Analysts are optimistic about the bank's profitability, expecting net income to grow this year, aligning with the bank's strong Q1 performance.
These insights, coupled with the bank's reported earnings, provide a more comprehensive picture of Cadence Bank's financial health and market performance. Investors looking for more detailed analysis and additional InvestingPro Tips can explore further at https://www.investing.com/pro/CADE. For those interested in a yearly or biyearly Pro and Pro+ subscription, use the coupon code PRONEWS24 to get an additional 10% off. Currently, there are 9 additional InvestingPro Tips available for Cadence Bank, offering deeper insight into the company's financial trends and stock performance.
Full transcript - Cadence Bancorporation (NYSE:CADE) Q1 2024:
Operator: Good morning and welcome to the Cadence Bank First Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Will Fisackerly, Executive Vice President and Director of Finance. Please go ahead.
Will Fisackerly: Good morning and thank you for joining the Cadence Bank first quarter 2024 earnings conference call. We have members from our executive management team here with us this morning; Dan Rollins (NYSE:ROL); Chris Bagley, Valerie Toalson, and Billy Braddock. Our speakers will be referring to prepared slides during the discussion. You can find those slides by going to our Investor Relations' page at ir.cadencebank.com where you'll find them on the link of our webcast or you can view them at the exhibit to the 8-K that we filed yesterday afternoon. These slides are also in the Presentations 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 upon our presentation today. And now I'll turn to Dan for his opening comments.
Dan Rollins: Good morning. We appreciate everyone joining us this morning to discuss our first quarter 2024 results. I will comment on some of the key highlights and then Valerie will dive into the financials in more detail. Our executive management team will be available for your questions following our remarks. We're extremely pleased to see the efforts and hard work of teammates across our company bear fruit in the financial results we've reported this quarter. If you recall, we completed some strategic initiatives in 2023, including the sale of our insurance agency, the restructuring of our securities portfolio, the streamlining of our branch network, as well as other opportunities to improve our operating efficiency. These efforts, along with the continued focus on business development, can be seen throughout the results that we will be discussing this morning. We reported GAAP net income for the first quarter of $114.6 million or $0.62 per common share with adjusted net income from continuing operations for the first quarter of $114.4 million also $0.62 per common share, representing considerable improvement over each of the last several quarters. From a balance sheet perspective, our active pipelines resulted in loan balances growing just over $385 million or 4.8% annualized. We saw good growth in our non-real estate and owner-occupied C&I portfolios as well as a nice pickup in residential mortgages. From a deposit perspective, we continue to strategically reduce both brokered and certain thinly priced public fund balances, which collectively declined just over $1 billion linked-quarter. Importantly, we were able to organically grow core customer deposits by approximately $400 million in the quarter, which offset much of this decline. Our community bank continues to perform very well in the face of continued strong competition for deposits, driving the majority of the core deposit growth in the quarter. As expected, we saw a significant improvement in our net interest margin, which was up 18 basis points compared to the fourth quarter to 3.22%. The balance sheet dynamics that I mentioned and our fourth quarter securities portfolio restructuring contributed to this improvement. Valerie will discuss the moving parts more in just a moment. Our results for the quarter also reflected considerable improvement in operating efficiency. Our adjusted expenses declined by over $6 million compared with the fourth quarter of 2023, which, along with our revenue growth, drove close to a 600 basis point reduction in our adjusted quarterly efficiency ratio to 60.1%. We anticipate additional improvement as we move throughout the remainder of 2024. From a credit quality perspective, we recorded a provision for credit losses of $22 million, while net charge-offs totaled $19.5 million or 24 basis points of average loans on an annualized basis, both of which were in line with our expectations and improved over our fourth quarter 2023 results. Finally, we repurchased just over 650,000 shares during the quarter at a weighted average price of $25.65. We were able to do that while continuing to grow our capital metrics, which is reflected in CET1 of 11.7% and total capital of 14.5% at March 31, 2024. I'll now turn the call over to Valerie for her comments. Valerie?
Valerie Toalson: Thank you, Dan. After a noisy year last year, both for the industry as well as our results, it is really nice to have a good clean quarter to discuss this morning. When looking at our first quarter 2024 performance, the results of our focus to deliver improved operating performance are clear. We showed improvement in virtually all of our financial results and operating metrics, including a 55% improvement in our adjusted EPS from continuing operations, a 26% improvement in our adjusted pre-tax pre-provision net revenue, and the nearly 600 basis point improvement in our efficiency ratio that Dan mentioned. There were no significant non-routine items in our results for the first quarter. So GAAP and adjusted net income available to common shareholders were just over $114 million or $0.62 per diluted share. Turning first to margin and net interest revenue beginning on Slide 10. We reported net interest income of $354 million for the first quarter, an increase of $19 million or 5.8% compared to the fourth quarter of 2023. Our net interest margin was 3.22% for the first quarter, up 18 basis points. The driving factor behind the net interest margin increase was the fourth quarter of 2023 securities portfolio restructuring, which resulted in a quarterly increase of 65 basis points improvement in our first quarter security portfolio yield to 3.13%. Our net interest margin also benefited from a continued slowing in the pace of deposit cost increases and deposit mix shift and improvement in our earning asset mix. The total cost of deposits increased 13 basis points to 2.45% for the quarter, representing the slowest pace in deposit cost increases since the onset of this rate cycle. Non-interest-bearing deposit balances ended the quarter at 23.1% of total deposits, down just slightly from 24% at the end of the fourth quarter. Our yield on net loans, excluding accretion, was 6.46% for the first quarter, up 3 basis points from the prior quarter's yield. Non-interest revenue highlighted on Slide 13 was $83.8 million on an adjusted basis, an increase of $10.7 million or 14.6% compared to the fourth quarter of 2023. This increase was driven primarily by two areas; service charge revenue and mortgage banking. Service charge revenue increased $7.2 million, primarily due to the fourth quarter accrual to account for deposit service charge fee changes. Mortgage banking revenue also increased notably both production and servicing revenue as well as the MSR asset valuation. Production and Servicing revenue increased $2.5 million as we entered into the spring selling season and the MSR asset valuation was essentially flat for the quarter compared with a negative adjustment of $5.1 million for the fourth quarter of 2023. Our fee businesses continued to perform well in the first quarter, representing 19.1% of total revenue and assets under management increased 8.5% to $23 billion. Turning to Slides 14 and 15, total adjusted non-interest expense was $263.5 million for the quarter, reflecting a linked-quarter decline of $6.3 million. This decline, along with the quarter's revenue growth contributed to material improvement in our adjusted efficiency ratio to 60.1% for the first quarter compared to 66% for the fourth quarter of 2023. As expected, salaries and employee benefits increased $8.6 million compared to the fourth quarter, with over half of the increase as a result of first quarter reset of FICA and 401(k) plan expenses. In addition, certain of our incentive compensation accruals were higher in the first quarter as a result of strong operating performance. Data processing expense declined $2.8 million linked-quarter, impacted by seasonality and card volumes as well as other vendor expense and project timing. Advertising and public relations expense declined $3.4 million from seasonally high fourth quarter costs and legal expense also declined $2.5 million as the fourth quarter included some non-recurring accruals. Finally, other miscellaneous expense declined $4.2 million linked-quarter as a compilation of a number of factors, including a reduction in operational losses. This first quarter improvement in non-interest expenses, combined with the revenue growth resulted in pretax pre-provision net revenue of $174.2 million, a meaningful increase over $137.9 million reported in the fourth quarter of 2023. Moving on to credit quality on Slides 8 and 9, we recorded a provision for the quarter of $22 million and net charge-offs of $19.5 million or 24 basis points of loans and leases annualized both of which represent improvement compared to our fourth quarter 2013 results. Our allowance for credit loss coverage remains flat at 1.44%. While our criticized and classified loan totals as a percent of total loans increased slightly compared to the fourth quarter of 2023, both have improved compared to the first quarter of 2023. Our non-performing loans and non-performing asset totals increased linked-quarter to 73 basis points of loans and 51 basis points of assets, respectively. About 25% of our non-performing loans have government guarantees behind them. Factoring these out, the linked-quarter increase in non-performing loans was only $14.5 million. Overall, credit remains well managed and in line with the guidance that we provided in our year-end earnings call. Our capital is shown on Slide 16. As Dan mentioned, we opportunistically repurchased just over 650,000 shares during the first quarter under our share repurchase program. We were able to take advantage of a temporary market decline and repurchased these shares at a weighted average price of $25.65. Importantly, our strong earnings drove further improvement in our regulatory capital metrics even with our share repurchase activity, January's dividend increase and first quarter's loan growth. Additionally, total shareholders' equity of $5.2 billion at the end of March is up $700 million or 16% compared to this time last year. Once again, indicative of our capital accretive efforts over the past year. Looking forward, we continue to be comfortable with the 2024 guidance ranges that we showed last quarter in all categories. Although it does appear that net interest income will be impacted slightly more positively than anticipated, given what appears to be a higher for longer rate environment. In closing, as Dan mentioned, our teammates have worked relentlessly on the planning and the execution of the strategic efforts that have driven the improved results we've reported this quarter. It truly is exciting and rewarding to see these efforts pay dividends for our company and our shareholders. But of course, we are not stopping here, and we continue to work towards driving further improvement over the remainder of 2024 and beyond. Operator, we would like to open the call to questions, please.
Operator: We will now begin the question-and-answer session. [Operator Instructions] Please limit yourself one question and one follow-up. If you have additional questions, you may rejoin the queue. [Operator Instructions] Our first question today is from Jon Arfstrom with RBC Capital Markets. Please go ahead.
Jon Arfstrom: Hey, thanks. Good morning.
Dan Rollins: Morning Jon.
Jon Arfstrom: Hey. Valerie, a question for you. Can you talk a little bit about the asset repricing and what kind of a lift you're expecting in asset yields in the next quarter or two?
Valerie Toalson: Yes. Thanks Jon. Yes, we saw the biggest part of the lift is obviously from the fourth quarter to the first quarter with the securities repositioning, that really is in place. And so what we're looking at going forward is simply the more natural price lift that is inherent within our balance sheet repricing. We've got that slide in our deck on Page 12 that shows the repricing. And given just the loan repricing that we've got coming up as well as then some of the cash flow coming off the securities book and reinvesting that. We are expecting it to improve to the extent that it will keep our margin fairly stable to potentially even increasing a little bit over the year.
Jon Arfstrom: Okay. Yes, I was looking at that 8.33% weighted average rate and it doesn't seem like you'd get a lot of lift in the near-term, is that fair?
Valerie Toalson: Well, there is that, but then there is the portion that is amortizing. What that chart does not include is the amortizing portion of the portfolio and so -- and of course, unanticipated payoffs. And so as we're able to reinvest those dollars, it does have a little bit more lift than what that would appear on the surface.
Jon Arfstrom: Okay. Okay. And just one on the other side of the balance sheet. On Slide 4, you guys called out some of the core deposit growth of $400 million. Can you talk a little bit about the drivers there and is that repeatable going forward? Thanks.
Dan Rollins: Yes, this is the fourth quarter -- third quarter or quarter where we've had really good core customer growth in the community bank. We continue to see lots of competition out there in the world, as you know. But I'm really proud of our team. Chris, you want to add-on, on that?
Chris Bagley: Yes, it's a -- there is a lot of competition out there, but we've got great bankers across a great footprint with active and vital markets and so I think that opportunity to continue to grow there is real for us.
Dan Rollins: Yes, we're excited about what the team is doing every day.
Jon Arfstrom: Okay. Yes. Numbers have been good. Okay, thank you. Appreciate it.
Dan Rollins: Thanks Jon.
Operator: The next question is from Manan Gosalia with Morgan Stanley (NYSE:MS). Please go ahead.
Manan Gosalia: Hey, good morning all. I wanted to touch on the NII. The revenue guide really, but the NII component of that guide, I mean how should we think about that in an environment where we get no rate cuts this year? Is that a bigger benefit? Or are you relatively neutral at this point to higher rates?
Dan Rollins: Hey Manan, good to hear from you this morning. Great question. The guidance is using the forward curve. And so when you look forward, if the forward curve is wrong, there's probably a benefit. Valerie has got numbers.
Valerie Toalson: Yes, we use the forward curve as of March 31st. So, that includes a couple of rate cuts this year, one early next year. If that ends up being flat and having no cuts this year, it's incrementally positive to our NII, just under 1%. So, not hugely incremental, but definitely a positive slant to it.
Manan Gosalia: That's helpful. And then do you have the jumping off point for NIM at the end of the quarter? I would assume that it's higher than the average NIM for the quarter given the repositioning and the redeployment of cash.
Valerie Toalson: I don't have that, we have just our NIM for the full quarter. I will say if you -- some of the average loans -- actually, the loan balances came on a little bit more weighted toward the end of the quarter. And so some of the impact of the new loans and the higher yields that those are bringing was a little bit delayed, but overall, it was fairly balanced. The securities purchases that we had in the quarter were very early on. So, we really pretty much got the whole impact of that securities yield in the first quarter.
Manan Gosalia: So, maybe just slightly higher than the average is, what are you saying?
Valerie Toalson: I think that's fair, yes.
Manan Gosalia: All right. Thank you.
Operator: The next question is from Casey Haire with Jefferies. Please go ahead.
Dan Rollins: Casey, good morning.
Casey Haire: Yes, thanks. Good morning everyone. I wanted to touch on the loan growth outlook, very, very nice result given what's going on in the industry. Just wondering how are pipelines shaping up after a decent quarter? And the line utilization -- C&I line utilization was up, just wondering if that's sustainable or we should expect a reversal? Thanks.
Dan Rollins: Yes, I think line utilization is just normal business moving around. I'm really proud of what the team is doing out there. When we look at what's happening in the company, we saw a pipeline that was filling in February, March, started the year lower and was getting bigger throughout the quarter. So, we're excited about what the pipeline is showing. Billy?
Billy Braddock: Yes, sure. So, that's true, and it's across most segments with the exception of SBA, that one flat-ish. All of our general corporate segment specifically is what I'll talk to have really picked up in the last five months, call it. We saw some of the pull-through occur, like Valerie said at the end of the last quarter and our pipelines are solid across various segments. A basic comparison is our volumes peaked probably back in mid-2022 from an approval standpoint and then they troughed later last year. Well, we're 25% off of our trough in our approval volumes. So, we're at a good upward trend there and we're seeing pipelines fill from there. So, good trajectory.
Dan Rollins: And as you would suspect, Casey, the growth is coming in the higher growth markets. We're seeing lots of activity in Texas, Florida, Georgia, is what you would expect. Valerie, do you want to add?
Valerie Toalson: Yes, I was just going to share that of that line utilization, it did tick up a little bit this quarter, but if you drill it down to the detail, it's really all coming from our construction portfolio, which is typical for that. That's the nature of that as it will fund up. So, that's really what's driving that. The rest of the portfolio is fairly stable.
Casey Haire: Got it. Thanks for the color. And then just lastly, switching to capital. The buyback, you guys bottom-ticked it, which is the good news. But you didn't use a ton of the authorization. I guess my takeaway, it feels like the share buyback is going to be pretty price-sensitive and you're not necessarily going to utilize authorization despite a very strong CET1 ratio. Is that fair?
Dan Rollins: I think that's fair. I think we want to be price-sensitive. We want to be opportunistic in what we're doing. That's what we've done in the past with our buyback. And so we're prepared to take action and we do.
Casey Haire: Okay. Thank you.
Dan Rollins: Thank you, Casey.
Operator: The next question is from Catherine Mealor with KBW. Please go ahead.
Catherine Mealor: Thanks. Good morning.
Dan Rollins: Hey, good morning Catherine.
Catherine Mealor: A couple of follow-ups on the margin. First, Valerie, on loan yields, they were only up about 3 basis points this quarter. Is it fair to say that with just your outlook for fixed rate repricing, that should that should move higher on a kind of per quarter basis over the rest of the year? Or was there anything kind of this quarter that limited that expansion?
Valerie Toalson: Yes, there were some higher loan fees in the fourth quarter that impacted that quarter-over-quarter variance by probably 3 basis points. So, that -- otherwise, it would have been closer to a 6 basis point improvement. The other factor driving it was some of the timing of the loans that came on the books were a little bit later in the quarter. So, those were the two factors. We do anticipate that some of the re-pricings combined with the continued loan growth will have a more positive impact on those loan yields as we look into the next quarter.
Catherine Mealor: Okay, that's great. And then, how about on cost of deposits, do you feel like you're nearing a peak for that -- and maybe if you could talk about some of the kind of trends in both the non-interest-bearing balances and maybe cost of deposits towards the end of the quarter that may help us? Thanks.
Valerie Toalson: Yes. So, we -- this quarter was absolutely the slowest quarter that we have seen on that cost-to-deposit increase and it was really driven by mix shift versus inherent cost increases, if you will. In fact, we're able tweak some of those on the softer side that helps balance that out. As we look forward, assuming where the rate -- and again, for all our assumptions we're using the forward curve as of March 31st, that would assume really kind of an end of the second quarter, beginning of the third quarter peak in deposit costs, but again, expecting the stability of those to be much more manageable than obviously what any of us saw last year. We are continuing to see solid growth in our CD portfolio. One interesting fact is that we have not only the new CDs that come into that, but the rollover impact and the rollover CDs are actually coming on at a slightly -- or the combined new and rollover CDs are coming on to the books about 10, 15 basis points lower than they were in the fourth quarter. So, that's a positive for us on the margin as well.
Dan Rollins: Is that what you're looking for?
Catherine Mealor: Yes, that's perfect. Thank you.
Dan Rollins: Thank you, Catherine.
Operator: The next question is from Michael Rose with Raymond James. Please go ahead.
Michael Rose: Hey, good morning everyone. Thanks for taking my questions. I just want to ask one on credit, I know you guys have had some continued upward migration in criticized and classified, not surprised everybody has seen it, but I think you guys have been pretty conservative in kind of classifying those credits. So, can we just get some color there? And then maybe what drove the sequential increase? Thanks.
Dan Rollins: Yes, I'd start with jumping here, Chris. I would start with the criticized. Criticized is actually down year-over-year. So, the criticized loans have been basically flat for now a year when you're looking within those criticized categories, we've got migration moving within there. Chris?
Chris Bagley: I agree. So, we had what, a 4 bp increase for the quarter, but it has been flat. So, those loans that we've identified over the cycle over the last year, nine months, those are what have migrated into the non-performing group that we continue to work. Team has doing a great job, early identification, early actions. So, we're -- we've got traction there. If you look at the quarter, the increase in non-performing interesting when you look through there -- of the $20 million, $24 million and increase, $10 million of that was guaranteed SBA loans. So, it's pretty granular. It was one large credit, but it was really a granular move and what I would call feels a little slowing from a non-performing migration and so that collection cycle to get through those, we're working really hard to work on going forward.
Michael Rose: Very, very helpful. And maybe just as a follow-up question, just on expenses. You guys have -- after a choppy last year and timing with the MOE and everything, it seems like expenses are kind of well controlled. Is there any opportunity to kind of ramp up the investment spend as we kind of move through the year, just maybe given some of pullback from some of your competitors maybe be opportunistic things like that? And then to the extent that you guys can talk about next year, would we expect a more normalized rate of expense growth, just given the impacts of inflation, higher for longer kind of et cetera? Thanks.
Dan Rollins: Yes, I think we're constantly looking for ways to cut cost. But we're also looking for ways to invest in ourselves. We need to continue to invest in our business, whether that's investing in our people, whether that's investing in the technology that we're using. We've got a pretty robust process that we're working through today. I think we're seeing the benefits of the work that we've been doing, as you said, over the last multiple years, this was just a clean quarter and so you get to see it all. Valerie?
Valerie Toalson: Yes, I would just add that inherent within our guidance for expenses in 2024 is a reinvestment or a continued investment, I would say, in our technology and our people. From an opportunistic hiring, that really is market-by-market and business-by-business. And if there are key opportunities where we believe that we've got a niche that we can further strengthen or fill in that perhaps were not in before, absolutely, we're going to take a look at those opportunities.
Dan Rollins: Yes, we've also--
Michael Rose: Okay. Thank you.
Dan Rollins: Sounds good.
Michael Rose: Thanks guys.
Operator: The next question is from Brandon King with Truist. Please go ahead.
Brandon King: Hey, good morning.
Dan Rollins: Good morning Brandon.
Brandon King: So, with updated forward curve, could you give us the thoughts on where you see non-interest-bearing deposits trending from here and kind of where do you see that mix shift standing that by the end of the year?
Dan Rollins: Our modeling hasn't changed much. We may be a little more aggressive than others. Go ahead, Valerie.
Valerie Toalson: Sure, we actually have that mix going to about 20% non-interest-bearing deposits to total deposits by the end of the year with just a gradual decline between here and there.
Brandon King: Okay. And just are you seeing some more stabilization in some of your commercial depositors accounts?
Valerie Toalson: Yes, I think the biggest volatility that we've seen has really just been in public funds. And so the corporate accounts, that volatility was really this time last year. For the most part, there's some seasonality with bonus payments and some of the things like that, that you'll see in corporate customers from time-to-time. But overall, a good solid performance there.
Dan Rollins: Yes, I think the deposits as a whole. I don't know that we're seeing a whole lot of disruption, it's just normal customer business. The fact that rates are up 500 basis points in the last year, there are still customers that are waking up and realizing I don't want to miss some of that. And so you're seeing customers continue to make decisions. I've said for a while that I think the first time we get close to a rate drop, I think that wakes people up. And so I think you can see people react to that first rate drop by taking advantage of the rates that are there, they don't want to get left behind. So, I think we've still got the same normal behavior that we've been expecting in deposits. And the ability to have our 300-plus branches across our footprint, along with the digital capacity and capabilities that we're building out, I think we've still got great opportunities to continue to grow core deposits.
Brandon King: Okay. And then lastly, what's the outlook for mortgage year -- are you looking to maybe sell some more loans in the secondary market or portfolio some and then kind of what you're seeing within your customer base?
Dan Rollins: Yes, the inverted yield curve continues to create havoc on the secondary market in the mortgage book. Go ahead, Valerie.
Valerie Toalson: Yes, so the -- I think the biggest challenge in the mortgage area is on the rates, although I think consumers are starting to digest that, that's what it's going to take to get a mortgage. But the lack of inventory is people are holding on to their lower interest rates and there's just not a lot of inventory that's causing a lot of movement there. We are starting to see the spring pickup that we typically see and anticipate that to continue. And other than that, our volumes are fairly consistent with where they were last year, but we do see some opportunities as we go forward. We're not doing much at all on the refi side and we are selling more than we're portfolioing, but there is a nice mix there for both.
Dan Rollins: And what's coming on in the portfolio is the ARM product.
Valerie Toalson: Yes.
Chris Bagley: And I'd just add to that, the lack of inventory is given -- we've got a construction to perm product that I think plays well into that. So, we're getting some nice pickups there.
Brandon King: Okay. Thanks for taking my questions.
Dan Rollins: Hey, thank you, Brandon.
Operator: The next question is from Stephen Scouten with Piper Sandler. Please go ahead.
Dan Rollins: Stephen, good morning.
Stephen Scouten: Thanks. Good morning. I just want to confirm you were saying 20% on non-interest-bearing, which does seem extremely conservative. So, presumably, if that's in your guide, if that, say, shook out at 20%, 21%, 22%? Or if there was upside there, there would also be upside to your overall NII guide and revenue guide?
Valerie Toalson: Yes, that's exactly right. That is factored into our modeling and our guide.
Stephen Scouten: Okay, perfect. Appreciate the clarification. And just from a competitive perspective, what are you seeing in terms of loan demand like -- and how playing new loan yields. Do you feel like that competitive environment is changing in any material way, especially as you know, 20% and 21% vintages of loans presumably are repricing from what I would assume as the lowest rate on your loan -- on your book moving forward? Just kind of wondering how that's playing out?
Dan Rollins: I think there's always competition in the loan book. And again, depending upon the market, depending upon who the competition is coming from we play across the rural South, we play in major metropolitan markets, and we see different competitors in those markets and they all behave a little bit differently. We're certainly seeing some competition on the community bank side on smaller business credits where banks are willing to take some of those credits at rates that we've not played in. On the other hand, I think on the corporate side, it's been much more stable. Billy?
Billy Braddock: Yes, that's fair statement. Corporate banking pricing environment has been stable. For the highest quality and the highest I'd say, house account, full wallet, larger corporate deals, those have started to get more competitive, primarily in price, but structures have held in solid. Our non-bank competitors are continuing to take the higher-risk deals. The banks have stayed disciplined in that market and for the most part, stayed away from those high leveraged sponsor-backed buyout deals.
Stephen Scouten: Got it, very helpful. Thanks for the time this morning.
Dan Rollins: I appreciate it. Thank you.
Operator: The next question is from Matt Olney with Stephens. Please go ahead.
Dan Rollins: Good morning Matt.
Matt Olney: Thanks. Good morning everybody. Going back to the non-interest-bearing deposit discussion and the guidance of 20% by year-end, is there anything that's structural that would make Cadence more vulnerable to continue NIB headwinds?
Dan Rollins: No.
Valerie Toalson: No, not at all. Maybe a conservative treasury.
Dan Rollins: I just think we want to be realistic about what's happening. We're continuing to see customers migrate and I think we want to be realistic.
Valerie Toalson: Exactly right. There's absolutely nothing structurally different about our deposit base. In fact, we were so community-driven that you might even say that it's a better structure.
Dan Rollins: Yes, I like where we sit today with our deposit base and our branch network, the community bank that we're driving, the digital capabilities that we have today, I think we're in really good shape.
Matt Olney: Okay, appreciate that. And Dan I guess, on the O&I earning assets, remind me what you consider your excess liquidity position. I think the average position for O&I was a little over $3 billion, but end of the period, it was a little bit below that. How do you guys kind of view that longer term?
Valerie Toalson: Yes, longer term, it's -- we'd like to have it half of that at least. The reason we're holding that in excess is we've got the bank term funding at 5% -- or 4.67% and we're investing that at 5.40%. So, we're just getting a little bit of incremental spread on that for the time being.
Dan Rollins: That runs through next January-ish.
Valerie Toalson: Exactly.
Matt Olney: Okay. So, Val, you expect these current levels to remain elevated through the end of the year into early next year?
Valerie Toalson: As long as rates hold where they are, if the benefit of holding that decline to a certain point, then we'll pay it down.
Dan Rollins: We could use that in the loan book.
Valerie Toalson: Yes, absolutely.
Matt Olney: Perfect. Okay. Thanks everybody.
Dan Rollins: Thank you, Matt.
Operator: [Operator Instructions] The next question is from Gary Tenner with D.A. Davidson. Please go ahead.
Dan Rollins: Hey Gary, good to hear from you.
Ahmad Hasan: Hey, this is Ahmad Hasan on for Gary Tenner.
Dan Rollins: Okay. Good morning.
Ahmad Hasan: So, I know you touched a little bit on credit side. NPA sticked little bit, but you said it was mostly because of that one SBA loan. But are there any sectors that you're seeing weakness in?
Dan Rollins: No, not really. We're not seeing any trends, any themes, any geographies, any types. It's really just normalization of credit issues. Billy, Chris jump in here.
Chris Bagley: Yes, I'll let Billy jump in. You see it on Slide 9. It's not a CRE story. So, the CRE has held up really well. It's been more of a C&I story and the SBA loan we referenced wasn't one SBA Loan. It's a lot of SBA loans. So, we have seen some migration in the SBA book. If you look through, I think $60 million of that non-performing, Valerie mentioned, our government-guaranteed loan, the collection cycle and the application process to get paid on those. The -- it's just lengthy, that's what it is. And through this cycle, you saw some increased non-performing there and part of our numbers are working through those small granular moves in the SBA book.
Billy Braddock: Yes, like we've said in recent handful of quarters. The only sector we've seen any consistency in where there's a little bit to point to would be rest are on, and I would say that continues. And then across the sector, we're hearing this, it's the kind of senior assisted-living, seeing some signs of stress continuing, but we're starting to come out of that, it feels like. But it's -- those would be the only two sectors I would call out, but all manageable and all having been identified now for several quarters.
Ahmad Hasan: All right. Great, that's good to hear. And maybe just one more on -- I know you touched on loan growth even geographically, but within those high-growth markets, you talked about Georgia, Texas, what sectors are you guys more excited about?
Dan Rollins: Yes, we're seeing growth in the C&I book. So it's the corporate bankers. It's Florida our Tampa team is doing a great job. Our Atlanta team is doing a good job. Our Nashville team is doing a great job. Houston, Dallas, Austin, Fort Worth, we've got great bankers in those high-growth markets, and we're winning business. It's not any individual segment, we're just seeing good opportunities there.
Ahmad Hasan: Great. Thank you for taking my questions.
Dan Rollins: I appreciate very much. Thank you.
Operator: The next question is a follow-up from Matt Olney with Stephens. Please go ahead.
Matt Olney: Hey guys. I don't think anybody asked about fees this quarter. Any color on the fees, I know it was not easy last quarter. It looks like a clean run rate to me, but any color on the fees in the first quarter and the outlook here?
Valerie Toalson: Yes. No, we're really pleased with our fee performance and your structure of the -- or your characterization of that as being kind of routine is absolutely spot on. There was nothing that was abnormal that showed up in those numbers. The resurgence of service charges from -- compared to the prior quarter was because of the accrual that we made in the fourth quarter. Mortgage had a nice quarter, seeing some impact, both in the production and the servicing as well as the MSR valuation.
Dan Rollins: Wealth management is doing well.
Valerie Toalson: As I said, wealth management trust, really all just very consistent. We saw an increase in our assets under management. Part of that new business, part of that's market driven. So, overall, we feel very good about our fee businesses. We're just under 20% of total revenue and expect that to continue to be strong for us.
Matt Olney: Thank you.
Dan Rollins: Thanks Matt.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Dan Rollins for any closing remarks.
Dan Rollins: Thanks again for joining us this morning. Seeing the fruits of our team's work and our financial results is very rewarding. While much more work is still needed, our efforts are visible in virtually all of our performance metrics. We reported significant improvements across the board on EPS, ROA, ROE, efficiency, net interest margin, just naming a few, while maintaining stable credit quality and growing loans and core customer deposits. You have our commitment that we will continue our efforts to further enhance our results as we move forward. Thanks again for joining us today. We look forward to visiting with you all again as we are on the road. Thanks.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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