(CADE)
(CADE)
Get summary or ask questions about this document.
Operator: Good day, and welcome to the Cadence Bank’s Fourth Quarter and Year End 2024 Webcast and Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [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 Corporate Finance. Please go ahead.
Will Fisackerly: Good morning, and thank you for joining the Cadence Bank fourth quarter 2024 earnings conference call. We have members from our executive management team here with us this morning, Dan Rollins, Chris Bagley, Valerie Toalson and Billy Braddock. 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 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 apply to our presentation today. And now, I’ll turn it to Dan for his opening comments.
Dan Rollins: Good morning, and Happy New Year. Thank you for joining us to discuss our fourth quarter and full year 2024 financial results. After I cover a few highlights, and Valerie provides additional detail on our financials, our executive management team will be available for questions. Before we discuss the quarter, I’d like to make a few brief remarks regarding last night’s announcement of our merger with FCB Financial Corporation, the parent company of First Chatham Bank based in Savannah, Georgia. I would like to welcome Ken Farrell and the experienced team of bankers from First Chatham to Cadence. First Chatham was founded in 2002 and is currently operating eight locations across the Greater Savannah market with total assets of almost $600 million.
Upon closing, Ken will serve as Cadence Bank’s Southeast Georgia Division President. We have expressed our desire to be an acquirer of choice and grow within our footprint for some time now. Savannah, the second largest MSA in the state of Georgia, and we currently have only one location there. It is a very diverse market with strong ties to manufacturing, port operations and logistics, tourism, health care, military and real estate development. First Chatham is a great core funded franchise with approximately 30% of their deposits in non-interest bearing products and an impressive overall cost of funding. The financial metrics of the transaction are attractive for both shareholder bases. The estimated pro forma impact to our tangible book value per share and regulatory capital metrics is minimal.
We expect to achieve cost savings of approximately 25% of their non-interest expense base, which will allow the transaction to be accretive to earnings in the first full year as well as provide a reasonable earn back on the tangible book dilution of two years or less. We are most excited about being able to offer our expanded set of products and services into this market in a more meaningful way to support our organic growth plans. We anticipate the transaction could close during the third quarter of 2025, subject to regulatory approval and other customary closing conditions. Again, this is a big win for our company and our team is excited to be back in the game. As we move into the financial results, 2024 was a great year for our company. I’m extremely proud of the 5,000 plus teammates across our company and the contribution they’ve each made to the results that our management team will discuss this morning.
The 2024 results speak for themselves. We reported meaningful improvement in virtually every aspect of our financial performance while maintaining strong credit quality and capital. As we dive further into the numbers, GAAP net income was $130.3 million or $0.70 per diluted common share for the fourth quarter and $514.1 million or $2.77 per share for the full year. Adjusted net income from continuing operations for the fourth quarter was $130 million or $0.70 per diluted common share and $507.9 million or $2.74 per share for the full year. On a per share basis, this represents adjusted earnings growth of $0.54, up 25% compared to 2023. We had another very solid quarter from a balance sheet growth perspective. Our loan growth for the quarter was $438 million or just over 5% annualized, resulting in total net loan growth of $1.2 billion for the year, which is approximately 4%.
Additionally, we have continued to retain and grow core customer deposits. Excluding the elevated temporary overnight sweep activity at September 30 that we discussed in our third quarter call, core customer deposits grew $260 million or 3% annualized for the quarter and $2.2 billion or approximately 7% for the full year. Our ability to grow core deposits while also prudently managing deposit cost has been instrumental in our net interest margin improvement. Net interest margin improved by 7 basis points linked quarter to 3.38% and by 22 basis points for the full year to 3.30%. Valerie will discuss the margin in a few minutes, including our expectations as we move into 2025. Our credit quality continues to be very stable. We reported net charge-offs of 17 basis points annualized for the quarter and 24 basis for the full year.
Our non-performing criticized and classified totals are all very stable linked quarter and year-over-year, while our allowance for credit losses coverage remained strong at 1.37% of net loans and leases. We continue to improve operating leverage and efficiency. While we had a couple of items that drove a slight uptick in our quarterly efficiency ratio for the full year, we improved by 5 percentage points from 63.3% in 2023 to 58.4% in 2024. Finally, we reported meaningful growth in tangible book value metrics during 2024. Tangible book value per share improved to $2.22 per share, which is over 11% to $21.54 at December 31, while tangible common shareholders’ equity to tangible assets increased from 7.44% to 8.67% over the same time period. We achieved this growth while repurchasing just over 1.2 million shares during the year at an average price of $26.74.
I’ll now turn the call over to Valerie for her comments. Valerie?
Valerie Toalson: Thank you, Dan. Dan referenced the key highlights for the year. Steady loan growth, meaningful core customer deposit growth, significant margin expansion, stable credit quality, improved operating efficiency and a strong capital position. Focusing specifically on the fourth quarter results, we reported the adjusted EPS from continuing operations of $0.70, up 75% from the same quarter last year, driven by an 11% increase in adjusted revenue, combined with lower expenses and loan provisions. The linked quarter $0.02 EPS decline was driven by some isolated expenses related to a system upgrade and a small increase in our provision for loan losses. Total loans ended the year at $33.7 billion, with growth in the fourth quarter of $438 million or just over 5% annualized with the quarter’s growth primarily in residential mortgages, owner occupied C&I and income producing CRE.
For the year, the net loan growth was $1.2 billion or approximately 4%. Loan pipelines remain solid and diversified and the macro environment in our footprint is favorable to continued low growth. Total deposits $40.5 billion grew $1.7 billion in the fourth quarter, including the addition of $1.5 billion in brokered deposits that we used along with excess cash to pay off the $3.5 billion in big term funding program borrowings and to call $215 million in sub debt during the quarter. We also saw a $360 million seasonal increase in public funds balances during the quarter. And while core customer deposits declined slightly in quarter end balances, adjusting for the elevated temporary funds at September 30 that we discussed last quarter, core deposit growth for the fourth quarter was $260 million or 3% annualized.
Further, core customer deposit growth for the full year was $2.2 billion or almost 7%. As you know, our strong core customer deposit base is the foundation of our franchise, and our team has done a tremendous job in 2024 from both the retention and a growth perspective. The ability to continue to grow core funding has also driven the favorable trends in our net interest income and net interest margin be held on Slide 11. Our fourth quarter net interest margin of 3.38% represents 7 basis points of improvement compared to the third quarter of ’24. And since the fourth quarter of 2023, it has increased by a significant 34 basis points. The fourth quarter net interest margin improvement was driven by lower average earning assets as we reduced our borrowings and excess cash.
Given the recent interest rate cuts, our loan portfolio yield dipped by 21 basis points to 6.4% in the fourth quarter, while total cost of deposits declined 11 basis points to 2.44%. Our non-interest bearing deposits as a percent of total deposits did decline to 21.2% during the quarter, partially impacted by the addition of the broker deposits in the denominator. Net interest revenue was up $3.1 million in the fourth quarter to $364.5 million, supported by the growth in new loans. For the full year of ’24, net interest revenue was $1.4 billion, up $85 million or 6% compared to 2023. Non-interest revenue highlighted on Slide 14 was $86.2 million on an adjusted basis, declining $2.6 million or 2.9% in the fourth quarter as an increase in mortgage banking revenue was offset by a decline in other non-interest revenue.
Wealth management revenue, deposit service charges and card fees were all very stable linked quarter. Our mortgage banking revenue was up $2.5 million in the quarter due to improvements in the net mortgage servicing rights fair valuation adjustment, partially offset by a $1.8 million decline in mortgage origination and servicing revenue as gain on sale margins compressed slightly. Notably, quarterly production volume increased to over $800 million, the highest quarterly production in three years. Other miscellaneous income declined $2.6 million, largely due to a gain on debt extinguishment that was reported in the third quarter results as well as lower fair valuations of some of our equity investments in limited partnerships. For the full year, full year 2024 adjusted non-interest revenue was $345 million, improving $19 million or also 6% from the prior year, reflecting growth in wealth management fees, deposit service charges and other revenues.
Moving to Slide 15. Total adjusted non-interest expense was $266.7 million for the quarter, up $6.3 million or approximately 2% compared to the third quarter of ’24. This increase was driven largely by a $4 million increase in data processing and software expenses, which impacted by a fourth quarter upgrade of our treasury management platform. A majority of the expenses associated with this upgrade are not expected to be ongoing as we move forward. Additionally, other non-interest expense increased $2.1 million due to smaller increases in several items, including professional services, advertising and public relations and operational losses. For the full year 2024, adjusted non-interest expense of $1 billion was down $23 million or 2% compared to the 2023 year, driven by declines in compensation costs.
Given the 6% growth in annual adjusted revenues, combined with this 2% decline in annual adjusted non-interest expense, our adjusted efficiency ratio improved by a meaningful 5 percentage points during the year, moving from 63.3% for 2023 to 58.4% for 2024. Focusing on credit detailed on Slides 9 and 10. Net charge-offs for the fourth quarter were $14 million or 17 basis points annualized, down from the 26 basis points in the third quarter. Our provision for credit losses increased very slightly to $15 million for the fourth quarter, and our allowance coverage was relatively flat at 1.37% at the end of the fourth quarter. Non-performing loans declined by $8 million in the fourth quarter. And as a reminder, $90 million or 34% of those represent guaranteed portions of SBA and FHA credits.
Additionally, our classified and criticized loans as a percent of total loans, both improved linked quarter with classified loans as a percentage of total loans declining to 2.02% and criticized loans as a percentage of total loans declining to 2.35%. Our capital detailed on Slide 16, continues to grow and remains strong. While the $215 million in subordinated debt that we called in November had a small impact on total capital, the other regulatory capital metrics increased nominally linked quarter and more meaningfully year-over-year. Additionally, our Board’s approval of a 10% increase in our quarterly common dividend to $0.275 per share is a clear indicator of the confidence in our capital strength and earnings power. Looking forward, as we laid out in our materials related to the First Chatham transaction, we expect the immediate impact of the merger to be immaterial to regulatory capital.
Slide 17 sets forth our 2025 guidance, reflecting the anticipation of continued earning asset growth, incremental improvement to operating leverage and stable credit quality. Specifically, we are estimating low to mid-single digit organic growth rates in each of loans and core customer deposits and growth in total adjusted revenue in a range of 5% to 8% over 2024 levels, with the opportunity to continue to see growth in net interest margin as we move through the year. Additionally, as we continue to focus on investments in our people and technology, we expect expenses for the year to increase between 4% to 6% over 2024 levels, and annual net charge-offs to fall between 20 and 30 basis points. 2024 was an instrumental year for Cadence performance, one where we deleverage the balance sheet, enhanced earning asset mix, achieved nice core customer growth and significantly improved operating leverage and performance metrics.
We believe this 2024 momentum will continue as we move into the new year in support of our 2025 guidance and ongoing shareholder value. We are also excited about expanding our presence in Savannah, and continue to be bullish on our footprint for both organic growth and M&A fill-in opportunities. Operator, we would like to open the call for questions now please.
Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Manan Gosalia with Morgan Stanley. Please go ahead.
Manan Gosalia: Hi. Good morning.
Dan Rollins: Good morning, Manan. Good to hear from you.
Manan Gosalia: Can you pack — unpack that loan growth guide a little bit for us. What are you assuming for the different loan segments and for the utilization rates, especially because I know those came down at Dutch again this quarter?
Dan Rollins: Yeah. I don’t know that we’ve made a big change in utilization rate. I think we’re just looking at what’s happening in the markets we’re in. I think we feel like we’ve got wind in our sales. We saw production up fourth quarter over third quarter. I think we feel like the markets that we’re in are going to give us growth. I think the wildcard is what’s the economy going to do. I think if the economy picks up, if the economy acts the way some people think we’re going to see in the back half of 2025, we could be on the high end or above the high end of the range. On the other hand, if things don’t move in the right direction, we think our guide is very conservative. Billy?
Billy Braddock: Yeah. I mean in the short run, what we’ve noticed is over the last four quarters, just our approval — our large approval levels that we have in the loan committee that continue to increase every quarter over the last four peaking in the fourth quarter of the year. Keep in mind that to get those to close, it can take two, three, four, five, six months sometimes. So we’re seeing good momentum closings that occurred in the fourth quarter and already in the first quarter. So we — in the near term, we expect that to continue. And then like Dan said, macro markets are bode well for us, that’s all we know right now.
Dan Rollins: But the line utilization includes unfunded construction loans, and we booked some big construction loans that are sitting on 0. So that can move up the line utilization 1% or 2%.
Valerie Toalson: But yeah, it’s maintained at that percentage.
Dan Rollins: Very close.
Valerie Toalson: 5 and 50 for a long-time.
Dan Rollins: It’s kind of as it went down a little bit. I just don’t think that’s a message. I don’t think that means anything.
Valerie Toalson: Yeah.
Manan Gosalia: Perfect. Thank you. And then maybe on the loan yield side, as I look at the three buckets of floating variable and fixed rate launch on Slide 12, the floating rate loan yields are down as expected. The variable rate loan yields are down at Dutch versus last quarter and then the fixed rate loan yields are up. So can you talk about how those loan yields should trend from here in each of those markets given the forward curve?
Valerie Toalson: Yeah. So well, I’ll probably talk about it a little more generally. Our overall portfolio yield is at 6.40%. And so that’s taking the combination of all of that. It still on that Slide 12, you take a look at the three month to 12 month bucket, if you will. That $2.2 billion that’s priced right now at 6.8. In the fourth quarter, our new loan production was north of 7%. And so if we’re able to continue that in an environment where there’s no cuts in rates then that speaks very favorably for that overall portfolio yield. That, combined with the new growth that Billy is talking about that we’re hopeful we’ll be able to pull through as well. So we’re optimistic on our loan yields and believe that if the growth can come in and if we can sustain that north of 7% new production, then there’s a possibility to actually see that overall portfolio yield increase.
Dan Rollins: Does that help you?
Manan Gosalia: Yeah. Thank you.
Dan Rollins: Thank you. Appreciate it.
Operator: The next question comes from Michael Rose with Raymond James. Please go ahead.
Michael Rose: Hey. Good morning, guys. Thanks for taking my questions. I’ll take a shot at this, but you have a breakdown for what the expectation would be for fees versus NII as it relates to the guide. And then as we think about the expense aspect, how much flexibility is there if the revenue comes in towards the lower end to scale back? I know there’s obviously incentive compensation components, but would you actually look to potentially reduce the tax spend? Is there any flex there so that you could generate positive operating leverage? Thanks.
Dan Rollins: I’ll take a stab at the first one. The second part of your question on the expenses and let Valerie color in. But first, I want to really appreciate you sending that Chicago weather down to the Gulf Coast here. We appreciate the 11 inches of snow we had on the Alabama Coast, and I know you sent that down to us. So thank you very much.
Michael Rose: You’re welcome.
Dan Rollins: From Houston to the Mississippi, Alabama, Florida Coast over to the East Coast of Georgia, this weather is not unusual — not usual for us, a record rather for us. And I know you’re glad to get cold weather out of your town. Let’s see. Expense question, I think we continue to invest in our people, and we continue to invest in our technology. So I think when you’re talking about what levers do we have in there, we absolutely are looking to continue to grow and invest in our people. If we don’t find the right people to grow, then that’s not going to get spent. I think when you talk about the technology spend, we’ve got projects that are underway today that are in the hopper and are going to happen. So I don’t know that there’s a whole lot of room there. But we’re continuing to find ways to be more efficient at what we’re doing. We’re continuing to find ways to not cost out, and we’ll continue to stay focused on that. Valerie, she was also talking about fees.
Valerie Toalson: Yeah. And I’ll talk — on the net interest income versus the non-interest income side, I think that we’re a little more bullish on the net interest income side. On non-interest income, expecting steady growth in our business lines, but there are a few things we’ve got the wealth management, obviously, business lines that are impacted by whatever the market does. The markets had some pretty strong performance over the past couple of years and so, particularly this past year. And so we are modeling a less robust market impact for that. So if things turn out a little better than expected, then there’s some additional upside there. Same thing with mortgage, so much dependent upon, obviously, the rates that drive that business and level of business.
We’re still not predicting much on the refi businesses. So again, depending on where rates go, there’s potential for more upside there as well. But right now, I’d say that we’re looking to have the biggest portion of that overall revenue growth into next year really coming through net interest income.
Michael Rose: Helpful. Yeah. And then just on credit, it was nice to see the step down in both criticized and classified loans just kind of the charge-off guidance for the year is still around what you generated in 2024. Can you just give us some expectation of what that range could be if the economy continues to improve, is there actually the ability that you could see charge-offs kind of below the range and it’s just the initial start to the year, so you’ve been conservative. So it seems to me that just given that step down and the strong underwriting credit culture you guys have, that range could be a little wide or high? Thanks.
Dan Rollins: Well, I like the way you think. We certainly want to see that number come down. I think that we are early in the year. I think that the — it’s also lumpy. So we could have some big-ticket hits that impact that. And so I think we want to make sure that we’ve got a range that works for us, Chris?
Chris Bagley: That’s right. You’re right on, Mark, Dan. I mean, the guidance is the guidance, we could do better or to the low end of the guidance. It’s a lumpy part of that, what I would want to emphasize. We could see — like we saw this, we saw a good quarter this quarter, downward trend, but that can bounce around a little bit given the size of the credits we’re dealing with.
Dan Rollins: We go back to the first quarter of last year. We had the one big item that came through that was out of left field, and we’re still dealing with some of that. We took it, but it is what it is.
Michael Rose: All right. Got it. I’ll step back. Thanks.
Dan Rollins: Thank you. Appreciate it.
Operator: The next question comes from Jared Shah with Barclays. Please go ahead.
Jared Shaw: Hey, good morning.
Dan Rollins: Hi, Jared.
Jared Shaw: Hey. Just remember, lift with your legs, not your back, when you’re shoveling up there.
Dan Rollins: We don’t have any shovels for snow, what are you talking about. Thanks for reminding me.
Jared Shaw: It will be gone soon. Hey. Just maybe just going back on the loan growth side, low to mid-single digit to me seems very conservative, I guess, in light of the deal and the tailwinds more broadly in the market. Are there any assumptions there for any type of loan runoff that we should expect? And then also, does that include the benefits of the deal?
Dan Rollins: It does not. So let’s start with the deal. The deal is not in any of our forward numbers. So it’s not in any of the guide at all. So start there. We’re talking about organic growth and organic numbers in all of the guidance that we’re talking about there. And I think we all agree that there’s opportunity for us in 2025 to shine. I think as we sit here today, I don’t know that we see where that actually comes from. There’s just a lot of talk. We’ve been talking about that for a while. The new administration has been in place for three days today. We still don’t have the banking leaders into their chairs yet. There’s still some unknowns out there. But there’s opportunity for us to do very well on loan growth this year.
The team has capacity to grow. We’ve seen continued loan growth, Billy said it better just a minute ago. I think when you look back at fourth quarter over third quarter, we had higher production by almost $300 million in 4Q over 3Q. I think there’s excitement amongst the team. The team is mixing it up out there. I saw a couple of e-mails yesterday flowing on some potential new credits that folks are excited to bring in to us. We’ve got opportunity in front of us. I just don’t know how to gauge that sitting here on January 23 for what we do for full year 2025.
Jared Shaw: Okay. All right. That’s good.
Unidentified Company Representative: Jared, one thing I was going to add. I mean part of the assumption and a wildcard out there is some of our merchant build construction lending activity,
Dan Rollins: Plus the paydowns, exactly.
Unidentified Company Representative: Yeah. And we’re — we’ve been active in that space. We were particularly active in ’21 and ’22. A lot of that is funded up, and when capital markets open in those transactions trade, we’ll see some level of paydown. We have assumed a tepid outstanding growth in that space for the year. So if that paydown activity is delayed, then we could outperform. If it’s accelerated, we could underperform, but we’ve assumed that there’s going to be a higher level of payoff and less growth in that space during the year.
Dan Rollins: Excellent. Good call.
Jared Shaw: Okay. All right. Thanks. And I guess just for my follow-up, this deal, it looks attractive, but it’s much smaller than sort of the MOE. Is this more of a one-off than it was just too good to pass up? Or do you feel that going forward, there could be an opportunity to do sort of multiple overlapping smaller deals as a preference?
Dan Rollins: Yeah. I don’t know that there’s a preference. I think we could do what you just said. I think we would certainly like to see larger opportunities. You’ve heard me talk for the last year. We want to be the acquirer of choice. We want to be a good player. We want to be in market. We want the opportunity to expand in good markets that we need to expand in. This clicks all those boxes. When we talk about Savannah. That’s the second largest MSA in the state of Georgia. There’s a lot of business activity in the Savannah market that are one branch, while we’re doing well over there. We just — we’re not there. We’re not visible. This puts us, I think, in five or six deposit market share in that market. And while the First Chatham team is fantastic, they’re a good community bank team.
We get to overlay many products and services that are currently not on the menu of products and services that they’re offering. And so I think we’re excited about expanding further into that market. So opportunities like this have been what I’ve been talking about for a while, it would certainly be nice to find bigger opportunities. And I think we will see those opportunities as we look forward because I think we’ll continue to be in a consolidating industry. We just want to be in the game.
Jared Shaw: Does this keep you out of the market until this closes or do you think that you could sort of stack deals?
Dan Rollins: Yeah. I don’t believe a transaction that’s 1.5% of our size slows us down.
Jared Shaw: Okay. Thank you.
Operator: The next question comes from Matt Olney with Stephens. Please go ahead.
Matt Olney: Hi. Thanks. Good morning, everybody. I guess, Valerie, you addressed a question around loan pricing, loan yields. What about the other side on deposits. Any commentary on deposit pricing competition? And then kind of second part, just taking a step back, it feels like this margin has got some nice tailwinds for the year. Anything you would point us towards with respect to the margin in the first quarter or just the near term?
Valerie Toalson: Yeah. I’ll take the second half of that, and then I’ll let Chris talk a little bit about the competition out there. There are some things that we do have a sizable CD book, term deposit book in the fourth quarter. Those were being put on at an average of 3.9% and that was replacing some that were close to 4.5%. And so there’s obviously opportunity there. As we look out at the first half of next year, there’s ballpark about another $6 billion of those CDs that are going to be coming off north of 4%. And so we’re opportunistic there that we can bring that pricing down. And so that will certainly help. We also put on in the fourth quarter $1.5 billion of broker deposits. That was the payoff along with some excess cash, the main term funding program debt of $3.5 billion.
And so those are actually on the books at 4.36% on average. Over the next six months, about half of that will pay off, will mature. And so that is about a 4.50% level. And so there’s ability there as we go through the year as those kind of tail off kind of in a laddered over — quarter-over-quarter to also see improvement as we offset that with organic growth in those deposits. So we do feel pretty good. And as you’ve known — as we’ve talked about, we have grown the core deposit base quarter-over-quarter. And so the teams are very focused on that and look to be able to do more of that as we go forward. Do you want to talk about competition, Chris?
Chris Bagley: Yes. From the competition side, it’s interesting. I think it’s still very competitive out there. The specials, if you will, primarily the CD specials slowed down for a while. They picked back up is what I would tell you anecdotally, we’re seeing more CD specials, although at a lower rate right now than we saw nine days ago because of the curve shifted and all, but it does seem to — things have gotten a bit more competitive over the last 30 days or so. We’re seeing it in pockets among community banks and there’s different — different sources around the geography.
Dan Rollins: The payoff of that bank term funding program, some of that came out of cash, we shrunk the balance sheet, which was all intentional.
Matt Olney: Yeah. Okay. That’s helpful. And then as far as the incremental pricing on the incremental deposit growth at the bank, I think I heard you mention newer time deposits in that mid- to high 3% range. Is that a reasonable. Is that what I heard?
Valerie Toalson: Yeah. That’s right.
Matt Olney: Okay. Perfect.
Valerie Toalson: That’s what we thought.
Matt Olney: Thank you.
Dan Rollins: Thanks, Matt.
Operator: The next question comes from Catherine Mealer with KBW. Please go ahead.
Dan Rollins: Hey, Catherine.
Catherine Mealor: Thanks. Good morning. Hey, I’m going back to the revenue growth outlook. Can you just give us a little bit of color around kind of what’s driving the bottom end of the range versus the high end of the range? Is it all on rates? Or is there any other kind of pieces to think about with what the risk to the low end of the range versus the upside to the high end?
Dan Rollins: Risk to not hitting the low end? Is that what the question?
Valerie Toalson: Yeah.
Catherine Mealor: Yeah. I guess really the question is the low end feels very low to me and unlikely. I feel like or generally biased towards the high end of the range. I’m just kind of curious what would bring you to the low end of the revenue growth range?
Valerie Toalson: Yeah. I mean I think it’s anything that would cause risk to the net interest income line is going to have the biggest impact. That’s the ones that can be more volatile. If, for some reason, there are some sudden reductions in rates or some things that in our footprint that caused the loan origination to not come about as we anticipate it to be. Those types of things. But I’d say that we feel pretty confident in that range as we look forward just given what we see today.
Catherine Mealor: Okay. Great. That’s helpful. I mean, so basically, you believe the growth outlook and you believe we’re somewhere between two cuts and zero cuts the high end of the range? Is it reasonable assumptions. Is that fair?
Dan Rollins: Yeah. I think yes. I mean, it’s fair depending upon how many cuts come through.
Catherine Mealor: Yeah. And then on buybacks, now that we’re back into acquisition mode and the growth outlook looks really good. Do you think that there’s less buyback activity this year?
Dan Rollins: Yes. We’ve got — we have not announced a buyback plan for 2025. We’ve got to work through it with our new regulator to get all of that in place. And so we’re in the process of doing some of that today. I don’t know that I would say it’s off the table, but with where we’re sitting and the activity that we’re seeing, we’d like to use our capital for other purposes.
Catherine Mealor: It really is more opportunistic. Right. So just you kind of view that as more opportunistic if the stock pulls back then generally, capital will be used for acquisitions and growth from here?
Dan Rollins: That’s exactly what we’ve done for the last multiple years, and I think we would be in the same boat.
Catherine Mealor: Great. Okay. Thank you.
Dan Rollins: Thank you, Catherine.
Operator: The next question comes from Gary Tenner with D.A. Davidson. Please go ahead.
Gary Tenner: Thanks. Good morning.
Dan Rollins: Good morning.
Gary Tenner: Good morning. Just ask Catherine’s question on the NII range, maybe a little bit differently. Is it fair to say that the upside or downside upper end or lower end of the range is more about volume than it is rate. The way things sit today based on your rate assumptions?
Valerie Toalson: Well, based on our rate assumptions, I would say, yes. But if there are volatility in the rate assumptions, then that could prove otherwise. Or if we have a big bump in market performance, that could positively impact our fee income side as well. longer-term rates that could impact our refi rate and mortgage that could buffer (ph). I mean there’s always — there’s just so many moving parts. But again, just based on the rate forecast, we used the forward curve at the end of the year. And what we see today in our marketplace that was the basis for the ranges that we provided.
Gary Tenner: Sure. No, I appreciate that. I was more focused on the NII side, just given your comment about being more bullish on that side, and conservative on the EP side, but I appreciate the comment. And then I appreciate the commentary around competitiveness in the deposit side of the business. Can you talk about kind of pricing competition on the lending side? Have you seen other banks start kind of doors open for lending more and a little more competition on the pricing side?
Chris Bagley: I’ll kick it off and let Billy jump in. We’ve got a lot of levers, a great footprint, a community bank model, corporate bank model, probably a little different depending on which view your lens you’re looking from. It’s — we compete on the community bank side, a lot of community bank competition there, as are typically more fixed rate, [indiscernible] type loans, owner occupied business and we’re seeing competition in there. But the rates that we talked about earlier about the time we get some 7 plus range. And then on the corporate side, Billy, I’ll let you jump in on that.
Billy Braddock: Yeah. The corporate side are almost exclusively floating rate loans — we are — for the best credit quality loans, we are seeing a lot more spread compression on that end on the ones that are more creative or M&A financings or that we’re not seeing as much. But on the highest quality, we’ve seen competition come in with new budgets saying we want to grow, and so the spreads are compressed there.
Dan Rollins: And we’ve got non-bank competitors play into.
Billy Braddock: We have non-bank competitors. From a pricing standpoint, that doesn’t affect us as much as it does from a volume and structure. But yeah, that’s the fair point.
Gary Tenner: Thank you.
Dan Rollins: Thanks, Gary.
Operator: [Operator Instructions] The next question comes from Jon Arfstrom with RBC. Please go ahead.
Jon Arfstrom: Good morning.
Dan Rollins: Hey, good morning, John.
Jon Arfstrom: Hey, good morning. Just Valerie, just a few cleanups here. But the noninterest-bearing balances. Can you walk through that? Again, I think you kind of touched on it in your prepared comments, but can you kind of walk through what drove that decline? And do you feel like that category is bottoming out at this point?
Valerie Toalson: Yeah. So there were a couple of things related to that. One was the fact that we did add the $1.5 billion of broker deposits in the quarter, and that adds to the denominator. So when you’re looking at the percent of the non-interest bearing to the total, that impacts that as well. And then at the end of the third quarter, we had kind of an overnight influx of non-interest-bearing deposits that we knew were coming out basically the next day. That was $350 million-ish or so. And so that served to kind of augment that percentage at September 30. And so that also served to impact as well. But just to be clear, we are continuing to expect that to come down as a percent of total modestly as we look through the year, just because we are continuing to see most of the new growth in our deposits coming in, in interest-bearing products.
That being said, we do have a lot of aggressive work going on the treasury management front. We have a new updated system. The teams are all hands on there. and that business can tend to bring more noninterest-bearing. So we are definitely working on both sides of it, but we do anticipate it to probably just inch down maybe a couple of percentage points more over the next year.
Jon Arfstrom: Yeah. Okay. That’s helpful. And then on credit, I think, looks fine. And then it looks like the reserve has floated down a little bit over the last 12 months, but curious how you want us to think about provision expectations and the reserve outlook in general?
Valerie Toalson: Yeah. We feel — I mean, we feel pretty good about where we’re reserved. As you know, now with CECL, so much of that is based on the economic outlook. And so as long as there’s stability there, I wouldn’t anticipate dramatic movements given what we see as the outlook for credit right now. So it can potentially drive the smidge lower just as we continue to grow the overall loan portfolio. But — but I think we’re in a pretty good range.
Jon Arfstrom: I think I’m last and so I’m going to ask one more. Do you have a regulatory changes wish list for Cadence? If there’s anything you’d like to see things that could help you?
Dan Rollins: No, I think what we’ve seen just in the last few days, the commentary that’s come out of the acting Chair of the FDIC has been very positive for the banking industry. I think we like where we sit today as a Fed member bank and the relationship that we’re building with the Federal Reserve has been very positive so far. I think, again, we feel really good about where we are. The wind in our sales for the last year, coming into 2025, our footprint continues to shine. We’ve got great opportunities in front of us, and the team is very focused on that.
Jon Arfstrom: Okay. Thank you.
Dan Rollins: Thank you. Appreciate the time.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to the management team for any closing remarks.
Dan Rollins: Thank you all again for your time today and joining us. It’s certainly an exciting time and a busy time for Cadence. We are confident that the tremendous progress we made in 2024 will continue to bear fruit in 2025. And we’re very excited to be back in the M&A process. This is our first transaction since the Cadence BXS (ph) merger in 2021. And while it’s small relative to our current size, it does provide an opportunity for us to add scale in a very attractive market in Savannah, Georgia and it gives our team to exercise their muscle memory and be prepared for other opportunities that may come along the line, and it adds value to our shareholders and our customers that we serve in this markets. Thanks again, everybody, for joining us today. We look forward to seeing you as we’re out on the road in 2025, and we look forward to having a great 2025 for our company. Thank you all very much.
Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.