Cadence Bank
NYSE:CADE
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
24.4
39.18
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Cadence Bank
You don't have any saved screeners yet
Good morning, and thank you for joining the Cadence Bank's Second Quarter 2022 Earnings Conference Call. We have our executive management team here with us this morning, Dan, Paul, Chris, Valerie and Hank. Our speakers will be referring to prepared slides during the discussion. You can find the slides by going to our Investor Relations page at 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 Web site. I would remind you that the presentation, along with our earnings release, contain our customary disclosures around forward-looking statements and any non-GAAP metrics that may be discussed. The disclosures regarding forward-looking statements contained in those documents apply to our presentation today.
And now I'll turn to Dan Rollins for his opening remarks.
Good morning, everyone. Thank you for joining us today to discuss Cadence Bank's Second Quarter 2022 Financial Results. Our team continues to be very pleased with the progress we are making toward finalizing our combination. Our results for the quarter certainly shine a light on some of our accomplishments. Today, I will provide a brief integration update, and I'll also cover a few highlights this morning, and Valerie will dive deeper into the financial results. After we conclude these prepared remarks, our executive management team is available for questions.
We continue to successfully work through our operational integration plan. As we've mentioned in the past, we have several ancillary system conversions that either have been or will be completed prior to the core conversion. For example, earlier this month, we successfully completed the conversion of all of our mortgage loans onto one platform. We also continue to reach key milestones related to our core system conversion scheduled for later this year. For example, we have completed the renumbering of all duplicate accounts. We are currently in the process of converting over our ATM or ITM fleet to one platform, and we have now successfully completed two mock conversions. Our operations and technology teams have put forth a tremendous effort, working long hours over many months to get us to this point. Our executive management team is extremely proud of this progress and confident we are on schedule to complete the system conversion in the fourth quarter.
We also recently revealed certain additional aspects of our branding, which complement our new logo and perfectly reflect the mission, vision and values and culture of the new Cadence Bank. The customer experience has remained at the center of each step we've made as we plan for this integration, and I'm inspired by our team's commitments, whether it be the operational and administrative teammates, who I alluded to earlier, or the best-in-class bankers who are out there building relationships and taking care of our customers every day. As we move to our financial results for the quarter, we reported net income available to common shareholders for the quarter of $124.6 million or $0.68 per diluted share and adjusted net income available to common shareholders of $134.2 million or $0.73 per diluted common share. We also reported adjusted PPNR of $176.7 million or 1.51% of average assets on an annualized basis. Each of these metrics, EPS, adjusted EPS and adjusted PPNR increased in excess of 10% on a linked-quarter basis. From a balance sheet perspective, we had a great loan growth quarter, reporting net loan growth of $1.2 billion or over 17% annualized. This brings our year-to-date total to $1.5 billion or 11% annualized. These results are directly correlated to our frontline bankers enthusiasm about our merger.
The markets across our footprint continue to perform very well. Our loan growth efforts for the quarter were very diverse, both from a product and geographic standpoint. We reported meaningful growth in our commercial and industrial, commercial real estate and residential mortgage portfolios. From a geographic perspective, within our community bank, we reported considerable growth in our Texas, Florida and Missouri markets as well as parts of our Mississippi market. On the corporate side, we saw a nice growth across several of our industry verticals and geographies, led by our Texas and Georgia teams. Excluding the growth in residential mortgage, the remainder of our growth in the quarter was almost evenly split between our community bank and our commercial bank. We reported a minor decline in total deposits of $379 million, which is consistent with historical seasonal trends. On a year-to-date basis, deposits are still up, just over $370 million or almost 2% annualized. As expected, our net interest margin and net interest revenue continued to benefit nicely from rising rates. Our reported margin improved 14 basis points on a linked quarter basis to $306 million. Excluding the impact of accretion, the margin actually increased 20 basis points.
Credit quality continues to be very strong. We reported net recoveries for the fifth consecutive quarter while we had additional declines in both classified assets and nonperforming assets. Credit is certainly becoming a more prevalent topic in the industry and it appears there may be some dark clouds on the horizon. For our company, our credit quality metrics continue to show improvement. Rest assured, our team is watching very careful for any signs of stress. Our operating efficiency ratio continues to improve. Adjusted noninterest expense declined by just over $9 million or 3% compared to the second quarter, contributing to a decline of over 300 basis points in the adjusted efficiency ratio to 60.5%. While the reduction of expenses was benefited by a few nonrecurring items, we remain confident on our ability to continue to harvest the cost saves from our merger. Finally, I would like to provide a brief update on our efficiency efforts related to our branch structure. During due diligence, we identified several potential branch consolidation opportunities, seven of which were divested just after the merger closing. Given the continued development of digital technology and online banking and related changes in customer behavior, our team is now working to consolidate 17 additional branches into other nearby locations during the fourth quarter. These branch consolidations will result in an estimated annual cost savings of approximately $8 million per year.
With that, let me turn it to Valerie for her comments. Valerie?
Thanks, Dan. Turning to the quarter's results. Slide 3 provides a view of our summary income statement. Just as a reminder, with the mid-fourth quarter '21 closing of the merger, both the first and second quarters of 2022 represent full quarters for the new Cadence. Dan spoke to the meaningful growth in our earnings this quarter, highlighted by our strong and diverse loan growth, coupled with a 5% quarterly increase in our net interest margin and improved operating leverage. Our adjusted net income of $134.2 million increased $12.6 million during the quarter and was adjusted for merger-related expenses of $13 million.
As shown on Slide 4, we reported net interest income of $325 million for the second quarter, an increase of over 4% compared to the first quarter of 2022. Our net interest margin was 3.06%, up from 2.92% in the first quarter. Excluding the impact of accretion, as Dan noted, the late quarter net interest margin increased by 20 basis points. Both net interest income and the net interest margin continued to benefit from both the loan growth we've generated as well as rising rates. The yield on net loans, excluding accretion, was up 16 basis points from the linked quarter. We also saw a similar increase in our securities yields, which increased 12 basis points in the linked quarter. Our total cost of deposits at the same time remained stable at 17 basis points for the quarter, up only 2 basis points. While Fed funds have increased 150 basis points year-to-date, our total deposit costs have actually been flat during this time period. We do anticipate deposit costs to increase as we look to the rest of the year, but expect it to be gradual and still support an improved net interest margin. Our balance sheet remains asset sensitive with approximately 68% of our loan portfolio floating within 30 days or variable rate.
Slides 5 and 6 provide some additional color on our noninterest revenue and noninterest expense. Noninterest revenue of $125.2 million declined $3.2 million due to lower MSR valuation adjustments in the quarter. Before these adjustments, noninterest revenue increased just over $6 million. Insurance continues to show impressive results with commission revenue growth of over 10% on both a sequential and comparable quarter basis. Our customer retention rates remain very high, and the pricing market is still very firm for the industry. We also reported a nice increase of over $5 million in our card and merchant fee income, which is primarily the result of our annual incentive payment from our card vendor as well as increased revenue from improved contractual revenue share in 2022. Our mortgage team has performed impressively this quarter with originated volume of $913 million, the highest level in five quarters. While we are continuing to experience margin pressure in this area given the rate environment, home purchase money volume remains very strong, totaling $776 million for the quarter, up from $575 million last quarter. Finally, the linked quarter decline in other noninterest revenue included a $1.2 million purchase accounting adjustment, reducing second quarter revenue as we finalize the day one fair value of unfunded commitments acquired as part of the legacy Cadence merger.
Our noninterest expenses for the quarter are certainly a positive story, with total adjusted noninterest expense of $271.8 million, declining just over $9 million or 3%. The decline included a reduction of $5.7 million in compensation costs, which was driven by a seasonal decline in payroll taxes in 401(k) match as well as a reduction in our group medical expenses. We also reported a significant decline in the amortization of intangibles, which included an incremental $3.7 million reduction in expense as we finalized the legacy CADE acquired intangible asset valuations and trued up the related expense. These contributed to a meaningful decline in the adjusted efficiency ratio to 60.5% for the quarter. Our annual merit increases were effective July 1st, so that will begin to impact compensation costs in the third quarter However, we anticipate continued modest improvement in the overall core operating leverage as we look out through the rest of the year.
Slides 7 and 8 highlight our loan and deposit portfolios. As Dan noted, the $1.2 billion of net loan growth in the quarter was broad based and included an approximate 60-40 split between new loan fundings versus draws on existing commitments. We are running at an overall line utilization level of approximately 47%, consistent with recent past quarters. The quarter's modest decline in deposits was largely in accounts that increased in the first quarter with total deposits up actually since year end. Noninterest bearing deposits make up consistent 35% of our total deposits. Finally, Slides 9 and 10 provide details in both credit and capital both of which continue to be strong. In addition to the continued net recovery, as Dan mentioned, our nonperforming assets declined 11% in the quarter and have declined 30% since year end. Likewise, our classified assets declined 12% in the quarter and 30% since year end. We ended the quarter with our allowance for credit losses up slightly at $440 million, representing 1.55% of loans and back to $1 million provision for credit losses in the quarter. In a nutshell, our earnings, performance and balance sheet are strong. Our teams are executing well and we are very well positioned for increasing rates as well as any potential economic headwinds.
Operator, we would like to open the call now to questions.
[Operator Instructions] Our first question will come from Jennifer Demba with Truist Securities.
I have a couple of questions. One, on the insurance fees, I know you guys closed an acquisition. How much did that help the insurance income during the quarter?
Yes, less than $0.5 million in gross fees -- gross income. So not much. It's a very small deal.
And on your asset sensitivity, any plans to alter that at all in the coming quarters, or do you want to stay as asset sensitive as you are right now?
Right now, we're comfortable where we are. That is something that we've been evaluating and continue to evaluate from time to time.
Our next question will come from Michael Rose with Raymond James.
Just wanted to start on the loan growth. Obviously, a really good quarter for you and others, but we've heard others talk about moderating growth in the back half of the year. Just wanted to see if that is in line with kind of your expectations. And I know previously, you talked about kind of a mid single digit rate for this year, but clearly, you're above that. So just wanted to see how we should think about the next couple of quarters, just where pipelines are optimism around your customer base, pull-through rates, et cetera?
Pipelines are big and everybody in the room will get a chance of answering on this question, I'm sure. But I think that we're really pleased with where we are. I think we've said from October -- October, let's go back to April, a year ago, the question has been on, could we merge our two companies together, could we grow, could we retain folks? And we're really proud of what's happening. I think the retention that we've had on our people, the engagement that our folks have in the community is what you're seeing. And so one of the things you've heard me say many times is that if the economy within the footprint that we're serving is providing loan growth opportunity, we're going to be in the game. And I think that is still the case today. If the economies and the markets that we're serving begin to pull back, then I think we're going to see the same thing happen to us. We're clearly watching and looking at every credit with a new magnifying glass, but there's a lot of good opportunity out there. You can see credit quality from our perspective, nonperformers -- or I don't know that they're all-time lows, but nonperformers are really low that we were down 11% in nonperforming assets again this quarter. So we're really pleased on what's happening there. From a pipeline perspective, Hank, Chris, you guys want to jump in on that.
Chris, why don't you start.
I think yes, pipelines still look good. I think everybody's, maybe with interest rates going up, obviously, you might predict a little bit of slowing in the last half of the year just as folks evaluate project rate return rates coming up, but the first half of the year has been strong. It's been diverse. It's come from owner-occupied real estate, from residential mortgage from C&I. And so it's been a really nice mix from a geographic perspective and also product perspective. Hank, can you talk a bit more about…
And I'd echo the comments with the active pipelines and certainly the first half of the year was very positive. And we'll continue to build on those and certainly feel like we're in a good position, as Dan mentioned, within our footprint and with the teams we have in place to be able to build on what the first half of the year really meant to us. I would add that on the CRE front, we have seen some pretty low utilization on those lines I mentioned in last quarter. And so our CRE team active in the construction area, we should see some advances in the second half of the year…
Utilization is down quarter-on-quarter…
Utilization is low, yes, for sure. So hopefully, we have seen a slowdown in the activity in the sales from primarily the multifamily. So we should see some increase in those advances through the second half of the year.
I think just a couple of things to add on to that, Michael. When we look at where it came from, I think back to the progress we're making from merging our two companies together. If you strip out the residential mortgage growth, the rest of the growth came basically 50-50, 50 from legacy Cadence, 50 from legacy BXS. So both sides of the house are really performing well. Paul, do you want to add anything to that?
If you guys go, we got to give pipeline…
I think your direct question was where are we going. And so I think as we sit here at the middle of the middle of July heading into the back half of the year, we were talking about high single digits, and now we're sitting on 11%. It would not surprise me to see us in the low double digit growth as we get to the end of the year.
I appreciate all the color, that was very thorough. And maybe just as a follow-up question. I wanted to dig into expenses a little bit. I think last quarter, the minimum wage increase caught some people off guard, but this quarter's core expense control, obviously good. Valerie, maybe if you can just kind of walk us through how much in cost saves you've realized? It sounds like merit increases hit on July 1st, but the offset of that in part will be the branch closures in the back half of the year. And then it looks like you have lower amortization expense going forward. So if you can just kind of walk us through from a run rate perspective, what we should expect over the next quarter, so it would be helpful?
Yes, absolutely. And you pointed out a number of things and so you're exactly right. This quarter, the beginning of the quarter, we did have the impact of our minimum wage increase, that was about $2.5 million per quarter. Beginning July 1st, which will be third quarter, we also have an incremental for our merit increase, which is annual that will be about another $4 million or so per quarter associated with that. And then I'd say kind of offsetting that, a couple of things that hit this quarter that obviously wouldn't be going forward. We did there was $3.7 million reduction of amortization expense, $3.7 million this quarter as we kind of trued up merger to date, if you will, the finalization of that amortization as we finalize those intangible assets associated with the Cadence merger. Going forward, we expect amortization expense of about $5 million associated with those, that compares to a $6.8 million number in the first quarter.
So it is improved, but I wanted to make sure that it was clear that $3.7 million was in incremental reduction this quarter that wouldn't occur going forward. We continue to expect that we're having good progress toward our merger integration and consolidations occurring in the fourth quarter. And then subsequent to that, that's when the bridge closures would occur. And so there will be a little bit of noise in the third and fourth quarter, they'd be merger expenses and so forth as they continue to complete all that. And then expect most of that to be cleared up as we enter into '23 and begin to be able to see really some normalized expense trends as we go into '23.
I think when we're talking about harvesting the cost saves out of the transaction, we're still on target to do that. We're still tracking that. You heard me say that we had completed the mortgage piece of the puzzle here just in the last few weeks, that will allow us to harvest some cost saves there. And this quarter, I don't have a number for that but we're making progress on all fronts there. I think the key phrase I think, Valerie, at the end of your comments you were talking about continuing to see positive operating leverage.
Our next question will come from Brad Milsaps with Piper Sandler.
Maybe just switching gears a little bit to the margin. Valerie, Dan, this quarter, obviously, you talked a little bit about the deposits, maybe some seasonality there. You also relied on the FHLB a little bit to supplement. Just kind of curious kind of what you put on in terms of Federal Home Loan Bank advances? Do you think that's kind of temporary based on kind of might be what you see in the deposit pipeline? Just kind of wanted to get a sense of kind of how you plan to fund the growth going forward and how that might impact your NIM outlook?
Effectively, those were very short term and they were really put on to fund the variability that occurs kind of between the quarters, which is typical with some of the typical seasonal inflows and outflows. In fact, those advances actually expire at the beginning of August, and we don't anticipate putting any more on and expect to continue to fund it with not only obviously deposits but securities run off as well. We continue to get $600 million or so per quarter in cash flow off of the securities portfolio. So that serves to be a source of liquidity as well.
So you're specifically, I think, asking, Brad, on deposit pricing also. And so we did really well on of holding deposit costs. We're expecting to see more increase, again, I guess, tomorrow. But I think everybody is watching everybody else. We're all watching rates and we want to be competitive for our customer set, but we also want to make sure that we're staying in front of that.
I think it's important to note on that front that we've got 80% of our deposits are actually held within the community bank. And that portion of our deposit base is actually, I'd say, the stickiest with the lowest deposit beta. And so that obviously has been a benefit this quarter and we anticipate that will be a benefit for us going forward.
You answered part of my next question. It sounds like you expect just to use those cash flows from the securities book to fund growth. Where would you kind of expect kind of a landing point for securities, or is it just directionally lower as you just make the earning asset mix more efficient?
I think about the near term, we would certainly just expect directionally lower. If you look back historically at old companies, they ran 15% securities assets. So it may be a while before we get to that level.
Purely dependent upon deposit growth or like they're up also…
Yes, lesser.
And then just kind of final housekeeping. Valerie, I know you finalized the intangible valuation. But just curious, any impact on kind of what you would see on accretion going forward? I assume all those marks are finalized as well, but just kind of curious what your outlook would be? And I know it's hard to predict with the timing of payoffs and such, but just curious if any change there.
There is a possibility always within one more quarter, but there could be some adjustments. I would not expect anything material from the accretion side. If you take a look at the decline in accretion that occurred this quarter, it was primarily associated with what we call excess accretion, which is associated with timing of payoffs. There was probably $3 million to $3.5 million incremental excess accretion in the first quarter versus the second quarter. And so that was kind of the biggest variable there.
Our next question will come from Brett Rabatin with Hovde Group.
Wanted to, I guess, first just talk about the loan growth and obviously a lot from Texas, but just want to talk about the other kind of main business lines from classic Cadence, QSR, energy, healthcare. Can you maybe talk about those segments and just their strength this quarter or how that was relative to maybe last year?
Everybody got to play this quarter…
I was about to say, Brad, it's one of those things where I wish I had a very broad answer for you, but it's been so diverse and we've seen you listed out a number of the different specialty lending groups. But we've had nice activity in loan committee in all areas and all food groups. And so we're seeing nice demand in healthcare and technology and the restaurant business. Certainly, CRE has been very active as well but it's been balanced, both geographically, as Dan mentioned in his opening comments, along with the specialty groups. So it's nice to see us all kind of moving in one direction.
We got to get all the players in the game this quarter. Everybody's got the game time…
And then earlier, you mentioned positive operating leverage, and I know we're not into '23 and you're not giving guidance for '23. But when you look at the expense savings from here and the margin trend, it would seem like the efficiency ratio could trend into the mid-50s. Is there anything that you see on the horizon that would prevent that from happening, or does that feel like a progression that might be a possibility?
Continue to look at the presentation that we put out April a year ago where we were looking at kind of what we thought the merger could do for us. And I don't think we feel like there's anything in the road that's going to keep us from getting there. Valerie?
No, I think that's exactly right. Obviously, interest rates are a moving dynamic right now that wins behind our back on that. But obviously, as we hope those could change rapidly in that environment and so sometimes that can slow things down or speed them up, just pending…
And then maybe just last one for me on mortgage. A little bit of unusual quarter with the volumes being stronger than I expected, and the hedge, it looks like maybe there was some unusualness with the MSR versus the hedges. Can you maybe walk you that a little bit more and just explain kind of the income and the production in 2Q a little bit?
So Valerie is going to flip some pages. But when we look at what we're hedging, we hedge our pipeline, which means that the margin is going to show better when the pipeline is growing and the pipeline contracted pretty heavily late in the quarter. And so that negatively impacts your margin on gain on sale. We also hedge the MSR asset. And so we had increased the hedge on the MSR asset coming into the quarter. So in the first quarter, we had a $14 million mark-to-market gain, market adjustment. And in the second quarter, we had a much smaller, almost $10 million less and mark-to-market adjustment. So if you pull the mark-to-market adjustment out on the MSR asset that was hedged in the second quarter, then you're back to just the production numbers. Valerie, you've got those up.
No, that's exactly right. I mean the increase edge is actually the biggest impact and the reason that we did that is obviously given where the rate cycle is and where that asset has become, I felt it was time to sit on a larger hedge to protect some of that value. When you pull that out, the mortgage banking revenue declined about $1 million during the quarter and a lot of that is associated with really the pipeline and the OEM and the gain working on that.
Yes, Chris is going to add to that…
I was going to add on the production volume, I think one of the unique strengths of our mortgage team is we're now putting on balance sheet production. So there's been a shift to a 5/1 ARM-type mentality in the market and our team is able -- and we've also got a onetime close construction loan product that works well in this time. So it's been nice to see -- and you see that a bit in the production mix. So you see a little bit less secondary market production and more portfolio production. That's part of our loan growth, I think it was about $300 million of the loan growth.
Yes, he made a great point. So just coming back around to that, anything that we're producing that's a 5/1 ARM, most of that's coming on to the balance sheet. And so the actual loans that were sold in the quarter was lower, which obviously lowers the revenue.
Our next question will come from Matt Olney with Stephens.
I want to go back to the funding discussion, and I'm curious what the -- if you have a ballpark estimate of the dollar amount of the public funds the float out in 2Q? And remind us the seasonality, when we should expect that to flow back into the deposit balance? Just trying to appreciate if deposit growth at the back half of the year can keep up with the loan growth?
So public funds, municipal money is big inflows late in 4Q and throughout 1Q and outflows -- most of the outflows is in 2Q. And so that's what we talked about last quarter on the call, as we talked a quarter before that on the call is that the seasonality of the municipal deposits. Now there's big deposits that flow in, in the last part of December, which induce your year end numbers, they continue to flow in, in 1Q and then 2Q has historically been an out quarter. I don't know that we have a specific number, Valerie, but the large majority of the deposit flows for us is in the municipal side. The community bank is doing very well.
And the second part of that was, can the deposit growth keep up with the loan growth in the back half of the year?
Well, how much is loan is going to grow in the back half of the year would be question one. I don't know. I mean, obviously, we want to continue to grow. So I think we're in the footprint that we're in is going to give us that growth. Deposits is a wildcard, and I don't have an answer for you as to whether they can or can't. But we're excited about what the team is doing out there. Valerie, do you want to close that out?
I think, I mean, if the whole market contracts in deposits it's probably unrealistic to think that we wouldn't see some of that in certain areas where the markets see some of that contraction. That being said, we just feel so good about the diversity of our deposit sources. And we've got the 400 branches that some will be coming back, but those will be consolidating, and those deposits will stick around. We've got that network, which is all the very community foundational base. We've got the commercial network. We've got great public fund relationships. You just name it, there's a broad variety of diversity that has come together that we believe gives us a lot of leverage to pool associated with deposit growth.
And the loan to deposits are at 70%. So if it creeps up, we're okay…
Absolutely.
And on that last point, Valerie, within the Community Bank network, how would you characterize the bank's deposit pricing relative to its peers?
Relative to -- say that again, Matt?
How would you characterize the community bank's deposit pricing at this point relative to other banks within the footprint?
Competitive…
It depends on your definition of peers. So from that perspective, you wouldn't think proxy peers, you’re thinking about community banks in multiple markets across nine states, you could be competing against ABC Bank across the street or a large regional or large national bank as well. So we monitor that closely. What we're seeing in the competitive set on posted rates is not a lot of movement, but you're seeing a lot of one-off specials and competition trying to attract the quality customers within the market and we're protecting those relationships with our relationship managers in those markets.
And we want to remain competitive.
And just lastly, on the loan side. Valerie, do you have what the dollar amount of loans are that are floating and will reprice immediately? I think you give that to us last quarter, and I couldn't find it this time…
I can give you 27%, I think is the number…
24% is the book or floating…
Floating within 30 days…
Floating for 30 days…
While she is pulling that up, I think it's 40-something percent variable on top of that…
But the floating within 30 days, it's about 4$6.9 million.
So that didn't -- I don't think that changed very much materially from what it was last quarter. I just thought we might get above some floors from what you disclosed in April.
Actually, so that same number -- yes, that number represents the population that's floating. There could have been some floors within that prior number. We're about all those...
Yes, there's no floors…
Yes, there's nothing there…
Our next question will come from Kevin Fitzsimmons with D.A. Davidson.
Dan, I'm just curious, you guys repurchased 1 million shares in the quarter. And on the one hand, regulatory capital still looks very healthy, and you guys seem very confident in your ability to accrete capital going forward. On the other hand, there is this macro concern about a potential recession. And now I understand that TCE ratio gets affected by the optics of the accounting, but does it reach -- does it hit a sensitive point with it being sub-6% here? And I'm throwing all that out, just to really ask your outlook for continuing to repurchase the stock going forward.
We purchased that stock early in the second quarter. We have not purchased any stock in a little bit. And I think right now, we'd like to say we would like to see how things settle over the next few months, but we want to make sure that we've got all the tools in the toolkit available to us. If you're asking me today, I think that we're sitting tight watching because just of what you just said. And I think when you're looking out, like I said, there's some dark clouds brewing out there. And if some of that comes to pass then we want to be prepared for that.
And just one last one for me. So with the ACL ratio down linked quarter, but at 1.55%, still very healthy level relative to peers. Do you expect -- not baking in any sharp change from what you see today. Do you see that being more of a gradual decline from here, balancing the fact that you probably have ability to take that down? But on the other hand, what you just mentioned about seeing how things play out and being cautious.
I think there's a lot of moving parts in that model and the forward economy is a piece of it, as is experience on what we're doing. And so our credit quality -- five straight quarters of credit recoveries is unusual, especially when you're staring at a potential recession in front of us. So I think, again, there's a lot of moving parts there. Could it walk down? Sure. Could it come up a little bit? I think the answer is yes on both sides of that, depending upon what the inputs are.
One last one for me, Dan. Just I wanted to clarify the 17 additional branch closures. Are those over and on top of what was originally communicated or is this part of what was baked in with the merger?
The answer is all, -- this includes what was in there. So remember, when we made the merger announcement, we had talked about, although we ever had a hard number that was out there at the time on consolidations we knew we had that opportunity and then the DOJ required us to divest some locations. So we divested seven. So those 7 obviously were already gone. And then the 17 would include any others that were identified back then plus additionals that have been identified since then. 17 is more than we had originally modeled but it includes what we had modeled, how about that?
Well, 24 total.
Yes, that 17 in sense, 24 total, which is higher than we had anticipated April a year ago.
Our next question will come from Catherine Mealor with KBW.
So following up on Kevin's question on the expenses within the $8 million a year in savings from these branches, you're saying is not incremental to your original cost savings. Maybe there's a piece of that that's incremental, but some of that is already included in your merger cost savings. Is that right?
Some of that -- that's correct. Some of that is in the $78 million, and a piece of it is on top of the $78 million or adds to that. You're spot on, Catherine.
And then how about on just the margin any sense, Valerie, salary as to where deposit costs and loan yields were at the end of the quarter, maybe for the month of June or going into July, just to give us a sense as to where we're starting this quarter.
So what I will say is if you look at the average loan growth versus the period end loan growth, you'll see that the average was closer to $750 million in the loan growth versus the period end $1.2 billion and obviously, those loans coming on at higher yields. And so that's going to serve very positively. We have made some incremental changes within the quarter to deposit costs, anticipate making some more after this week's announcements. And so those will be baked in really pretty much a full quarter. But again, I do anticipate that the net change between the loans and the deposits is still going to be incrementally favorable to the NIM.
And then on buybacks, you were still active, which was great to see a little bit less than last quarter, but that's what you had guided to. How do you think about just buybacks in light of where your TCE sit today?
Yes, I think I talked about that just a second ago. I think we would like to be prepared to use the buyback should the market move against us. Where we're sitting today, I think we're comfortable that we can hold and watch what's happening coming into the continued rate hikes and what the economy may be doing and preserve our capital.
I'd also like to just comment a couple of people have mentioned TCE. The biggest impact to our fair value adjustment from the security portfolio are really the movement in five and 10 years rates. And if you look at where those are yesterday versus the end of the quarter, they're actually down, which actually serves to improve that valuation. So I just wanted to clarify where that impact the security portfolio.
I apologize if you hadn't mentioned the buyback comment. I must have missed it. Can I ask one more question?
Go right ahead.
On securities yield was -- I didn't, I guess, grow as much as I would have expected. I know you've got a lot of securities kind of running off versus growing, but how do I think about if you were new securities are coming on and where that could shake out in the near term?
I don't think we've put any new securities.
I mean what we put out is a very small primarily CRA related. And so really, what you're seeing there is simply the incremental bump related to a lower denominator.
Yes.
So no, you're not really -- and really unless deposit growth really takes off the plan is not to add more securities today. Is that fair?
Correct, correct.
On material basis. I mean like I said, we add a little bit for CRA and other purposes…
[Operator Instructions] Our next question will come from Jon Arfstrom with RBC Capital Markets.
A couple of follow-ups. So on the dark clouds comment, the question is, is Dan Rollins seeing dark clouds or is Dan Rollins reading about dark clouds? I guess that's the question, are you seeing anything that bothers you?
No, I'm looking outside today, there's no dark clouds here today. And I can't tell you that we see anything when we're talking about what's happening within our footprint. There are certainly pockets of consumer related spending that you can see that we're causing people to think. But no, our footprint is really doing well, Jon, but you can read about it. You can certainly use it, you read about it, you hear about it all day long on the TV.
Question on another follow-up on loan growth and it's more related to the merger. It's a really strong growth quarter for you. You've seen a couple higher, but not many. Is there any way for you to give us an idea of how much of this growth has been driven by benefits of the merger, meaning bigger balance sheet having early tracked in? Or is this just -- is it too early to tell or too difficult to get the tangible results of the merger?
I don't know that we have a specific answer to that. I think there's just a lot of excitement, that's one of the things I said was the fact that our team is all still here, both sides, both legacy teams are out in the market winning every day. I don't know that we can point to anything that is directly merger related. Hank, Paul, Chris?
The only thing I would say to that is I think the credit appetite as we've come together has been pretty uniform and we're comfortable with what each brought to the table, and we're able to build on that as a combined organization.
I mean I would add, I think, Jon, your sense of your question is, are there some benefits resulting from it and the answer is yes. I mean cross referrals, there are some things that we're doing that we didn't have before. I mean SBA, I mean so all these complementary products…
So did that result in dollars in this quarter in that $1.2 billion?
Yes. I mean how much exactly? I don't know, but it's definitely there. I mean, not just loan synergies but other revenue synergies. We had a minor I get it, but an insurance client yesterday and we move their deposit boxes, it's going to be a new private banking opportunity. So I mean, just really, on a regular basis, we're seeing all sorts of revenue synergy and cross-sell opportunities throughout the footprint.
The teams are talking more to each other as we've opened those doors and that continues to show benefit. It's hard to put a number on it. Chris?
I mean, I think your initial question about the balance sheet has factored too because coming together the balance sheet, we derisked some of the concentrations that created a bit of capacity in a lot of different buckets, but without even getting back to where each bank was before. So I think there's some ability to grow there just based on the size and geographic footprint together.
And then I want to ask one more on the margin. Valerie, you might not like this one, but maybe I can get Dan to answer it. Just the margin momentum seems pretty strong and we've all kind of danced around it. But with another 75 basis points coming, and I'm just kind of doing math on the recent 75 basis point hike. Would you back us off from having the margin jump as much as it did in the past quarter, or some of your comments on pricing deposits would that make you a little more conservative and dial us back a bit?
I'll jump out first and say, one of the things I think we've talked about from the beginning was, we expected to see deposit pricing increase more with future rate hikes than with the first rate hikes. And so I think that's going to play out for us. I think we've raised deposit cost 2 bps so far. I suspect that we're going to see more deposit cost increase out of this. How much? I don't know.
I mean from a modeling perspective, we're modeling the first 12 months, a 14% deposit beta, the second 12 months to 28% beta and showing a gradual increase, if you will. And that's, again, kind of to my comments earlier, that's what we expect on those deposit costs. And so that will impact the pace of margin growth. That being said, you've got also factor in the timing of when we actually had some of the new loan growth in the second quarter and more of that was towards the back end of that will benefit us more than the third quarter.
It seems like you're in -- yes, you're in a bit of a sweet spot here is the way I see it, but that's helpful…
If I couldn't have [Multiple Speakers] but Dan had an answer for that question.
This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.
Right. In closing, I'd like to once again reiterate how proud I am of our team. The results that we reported in the second quarter and the first half of 2022 have further demonstrated the strength of our merger and being better together. The ability of our bankers to grow the balance sheet throughout the early part of the transaction and transition to this magnitude is a tremendous accomplishment. Also, our insurance team continues to grow at record levels. Our mortgage team is maintaining a strong production level despite rising rates. Our wealth management team is performing very well despite declines in the market. And the value of our granular core deposit franchise is evident in our ability to maintain tightly managed cost in this raising rate environment. Finally, we couldn't produce these results without the efforts of all of our operational and administrative support staff. With that said, I believe we've got the best is yet to come for us. Thank you all very much for joining us today. We look forward to speaking to you again soon.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.