Cadence Bank

NYSE:CADE

Earnings Call Analysis

Cadence Bank's Q2 2024 Financial Growth and Efficiency Boosts

In the second quarter of 2024, Cadence Bank showcased robust financial health, with GAAP net income reaching $135.1 million or $0.73 per diluted share and an 11% increase in adjusted EPS to $0.69. The bank posted strong net loan growth of $430 million or 5% annualized, alongside stable credit quality and core deposit growth of $237 million. The efficiency ratio improved significantly to 56.7%, driven by a $12 million reduction in adjusted expenses. Their full-year adjusted revenue growth is projected between 5% to 8%, while maintaining stable adjusted expenses with expected growth at the lower end of the ±1% range.

Introduction: Strong Financial Performance

Cadence Bank achieved another solid quarter for Q2 2024, reporting a GAAP net income of $135.1 million, or $0.73 per diluted common share. The adjusted net income from continuing operations stood at $127.9 million, translating to $0.69 per diluted share, marking an over 11% increase compared to the first quarter of 2024. This performance reflects the strategic vision and operational efficiency that the management team has instilled across all facets of the business.

Revenue and Net Interest Margin Growth

The net interest income for Q2 2024 was reported at $356 million, a slight increase of 0.7% from the first quarter. Noteworthy factors contributing to the growth include a favorable shift in earnings asset mix, steady loan growth, and upward repricing of earning assets. As a result, the net interest margin improved to 3.27%, up 5 basis points. The yield on net loans rose to 6.56%, reinforcing the bank’s strong revenue base and efficient earning assets.

Expense Management and Efficiency Ratio

Significant improvements were noted in operating efficiency as adjusted expenses declined by $12.4 million, resulting in an adjusted efficiency ratio of 56.7%, down from 60.1% in the previous quarter. Reduction in salaries, legal expenses, and other miscellaneous expenses contributed to this decline. However, the bank anticipates some expense increases in the latter half due to annual merit increases and other operational costs, maintaining their annual guidance of about 1% on adjusted expenses for the full year.

Loan and Deposit Growth

Cadence reported net loan growth of $430 million, an annualized increase of just over 5%, consistent with their expectations. Core customer deposits also showed a positive trend, with an annualized growth rate of 4%. Despite a decline in total deposits by approximately $260 million, core deposits saw an increase, highlighting the bank's focused effort on retaining and expanding core deposits over less favorable public and brokered funds.

Credit Quality and Capital Management

The provision for credit losses remained steady at $22 million, with net charge-offs slightly rising to 28 basis points. The allowance for credit loss coverage was stable at 1.41%. On capital management, the bank repurchased over 256,000 shares of stock and called $139 million in subordinated debt at a weighted average coupon of 5.65%, strengthening their capital metrics with a CET1 ratio of 11.9% and total capital ratio of 14.2%.

Noninterest Income and Wealth Management

Noninterest income rose to $85.7 million, a 2.3% increase from the first quarter. Wealth management performed particularly well, with a 5% increase over the previous quarter, and over 10% growth compared to the same period last year. Mortgage origination revenue was also up by 26% from the first quarter, although total mortgage revenue was slightly lower after accounting for mortgage servicing rights valuation.

Outlook and Future Guidance

Looking ahead, Cadence Bank maintains an optimistic revenue growth guidance of 5% to 8% for the full year 2024. With stabilized credit quality, strategic capital management, and continued focus on operating efficiency, the bank is well-positioned to achieve sustained growth. However, they anticipate some upward pressure on costs in the next few quarters due to merit increases and other expenses, but expect to remain within the lower end of their expense growth guidance.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and welcome to the Cadence Bank Second Quarter 2024 Webcast and Conference call. [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 Corporate Finance. Please go ahead.

[Will Fisackerly, executive]

Good morning, and thank you for joining the Cadence Bank Second 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 Presentation section of our Investor Relations website.

I would remind you that the presentation, along with our earnings release contain our customary disclosures around forward-looking statements and any non-GAAP metrics that may be discussed. The disclosures regarding forward-looking statements contained in those documents apply to our presentation today.

And now I'll turn to Dan for his opening comments.

[James Rollins, executive]

Good morning. Thank you all for joining us this morning to discuss our strong second quarter 2024 results. Now I will provide more detail on our financials after I cover a few highlights. Our executive management team will be available for questions following our prepared comments. We are proud of our progress over the past few years, and we're very pleased to report another quarter of continued improvement across virtually all facets of our business.

Our results are a reflection of our vision of helping people, companies and communities prosper as well as our core values, including putting customers at the center of our business. In the second quarter, we achieved steady loan growth, successful retention and expansion of core deposits, stable credit quality and capital and continued focus on enhancing our operating efficiency.

It's really a pretty straightforward formula, resulting in the improvements we've reported. We reported GAAP net income for the second quarter of $135.1 million or $0.73 per diluted common share with adjusted net income from continuing operations for the second quarter of $127.9 million or $0.69 per diluted common share, which represents an increase of $0.07 or over 11% compared to the first quarter of 2024.

The difference in our GAAP and adjusted earnings numbers was driven by a couple of items that Valerie will spend a few minutes on in just a second. From a balance sheet perspective, our loan pipelines continue to be active. As we have in each and every quarter since we announced the merger between BancorpSouth and legacy Cadence, we posted good loan growth.

We reported net loan growth of $430 million or just over 5% annualized, right in line with our full year expectations. The growth for the quarter was within our income-producing CRE commercial and industrial and residential mortgage portfolios spread across our footprint, further reflecting the strength of our diversified business model.

While total deposits declined just over $260 million, when you exclude public funds and brokered deposits, core customer deposits grew $237 million or just under 3% annualized and have grown approximately 4% annualized year-to-date.

We continue to reduce brokered deposits and be very selective around public fund money. These 2 funding sources collectively declined approximately $500 million during the quarter. In fact, since quarter end, we have further reduced brokered deposits by approximately $100 million, which represents the bulk of this noncore funding source.

As a result of our diversified loan growth, improved earning asset mix and slowed deposit cost increases, we reported our third consecutive quarter of improvement in our net interest margin to 3.27%, which was up 5 basis points compared with the first quarter margin of 3.22%.

Additionally, credit quality continued to reflect stability for the quarter. Our provision for credit losses and net charge-offs were both relatively flat compared to the first quarter. and we saw improvement in our nonperforming criticized and classified loan totals as well as near-term delinquencies.

We continue to see what we believe to be mostly normal inflows and outflows in our credit processes and no pervasive sign of weakness. Our results for the quarter also reflect continued improvement in operating efficiency. Our adjusted expenses declined by over $12 million compared to the first quarter, which resulted in our adjusted efficiency ratio improving to 56.7% for the quarter. While this improvement did include a few one-off tailwinds that Valerie will discuss in just a moment, the fruits of our efficiency initiatives are obvious.

You can all rest assured, while we're proud of the efficiency improvements we've made, we are not finished. We intend to continue to chip away on this as we move forward. In addition, we called $139 million in outstanding subordinated debt at a weighted average coupon of 5.65%, and again took advantage of market swings and repurchased just over 256,000 shares of our stock. Our capital metrics remain strong with CET1 of 11.9% and total capital of 14.2% at June 30, 2024.

I'll now turn the call over to Valerie for her comments. Valerie?

[Valerie Toalson, executive]

Thank you, Dan. It's great to be here this morning discussing another strong quarter of continued improvement in our performance. As Dan mentioned, we reported adjusted EPS from continuing operations of $0.69, an increase of over 10% compared to both the second quarter of 2023 and the first quarter of 2024.

To further highlight the results, when compared to the first quarter of this year, we achieved a 12 basis point increase in adjusted ROA to 1.09%, a 145 basis point increase and adjusted return on tangible common equity to 14.4% and a 339 basis point improvement in the adjusted efficiency ratio to 56.7%.

These adjusted results exclude a couple of nonroutine items in the second quarter. The first is the FDIC deposit insurance special assessment of $6.3 million. The second was a gain on sale of $15 million in other noninterest revenue that included the mid-quarter -- mid-second quarter sale of Cadence Business Solutions, a small payroll processing unit that previously rolled out into Cadence Insurance prior to that sale last fall.

Over the last 12 months, this unit had annual revenue and expense of approximately $8 million to $9 million and $6 million to $7 million, respectively. So the net impact of that sale isn't significant ongoing. Let's dive in further into the results, turning to margin and net interest revenue beginning on Slide 10.

We reported net interest income of $356 million for the second quarter, an increase of $2.4 million or 0.7% compared to the first quarter of 2024. Our net interest margin was 3.27% for the second quarter, up 5 basis points. Again, 3 main themes continue to drive our margin improvement. The earning assets mix shift resulting from steady loan growth supported by securities cash flows, the upward repricing of earning assets and slowed increases in funding costs.

Our yield on net loans, excluding accretion, was 6.56% for the second quarter, up 10 basis points from the first quarter's yield. And our total cost of deposits increased only 8 basis points to 2.53% for the second quarter, the lowest quarterly increase cycle to date. We also slowed the mix shift within deposits with noninterest-bearing deposit balances ending the second quarter at 22.7% of total deposits, down just slightly from 23.1% at the end of the first quarter.

Noninterest revenue highlighted on Slide 13, was $85.7 million on an adjusted basis, an increase of $1.9 million or 2.3% compared to the first quarter. Wealth management income increased $1.2 million or 5% compared to the first quarter of '24, impacted positively by seasonal trust tax fees.

Compared to the same quarter in 2023, Wealth management income was up over 10%. Mortgage origination revenue for the second quarter of 2024 was $4 million, up 26% from the first quarter of '24 and up 14% from the same quarter last year.

After factoring in the mortgage servicing rights valuation, total mortgage revenue for the second quarter declined by $300,000. Looking at total adjusted revenue. On a year-to-date basis, it was up nearly $20 million or 2.3% compared to the 2023 year-to-date revenue. We continue to support our guidance for adjusted revenue growth of 5% to 8% for the full 2024 year.

Turning to Slides 14 and 15. Total adjusted noninterest expense was $251.1 million for the quarter, reflecting a linked quarter decline of $12.4 million. This decline drove another quarter of significant improvement in our adjusted efficiency ratio of 56.7% for the second quarter compared to 60.1% for the first quarter '24.

As expected, salaries and employee benefits declined $8.7 million on an adjusted basis compared to the first quarter, including seasonal declines in FICA expense and 401k match as well as higher deferred loan origination costs linked to the seasonal mortgage loan volume.

Legal expense declined $2.9 million primarily due to the favorable resolution of certain legal matters. And other miscellaneous expense was down $3.4 million on an adjusted basis and included a reduction in operational losses, partially as a result of increased recoveries, and credits from franchise tax and quarterly state regulatory assessments.

Stepping back, there was probably close to $9 million or $10 million in various lower second quarter expenses, the larger ones that I just mentioned where we benefit -- that we benefited from and are evidence of the strong expense focus from our teammates, but that are likely not sustainable as we look forward.

Additionally, our annual merit increases were effective on July 1, so that will impact salaries going forward by close to $4 million per quarter. As such, we do expect expenses to be higher in the latter half of this year, but we continue to maintain our annual guidance of plus or minus 1% on adjusted expenses for the full year compared to 2023. However, given the strong second quarter results, we now expect to finish the year towards the lower end of that range.

Moving on to credit quality on Slides 8 and 9. We recorded a provision for credit losses for the second quarter of $22 million, consistent with the prior quarter's provision level, net charge-offs were $22.6 million or 28 basis points as a percent of loans annualized, up just slightly from the 24 basis points in net charge-offs in the first quarter and in range with our full year expectations.

Our allowance for credit loss coverage remains solid at 1.41%, down 3 basis points from the prior quarter. Our capital is shown on Slide 16 and continues to reflect our strong earnings and strong balance sheet. As Dan mentioned, we repurchased just over 256,000 shares during the second quarter again, taking advantage of temporary market declines and repurchasing these shares at a weighted average price of $26.97.

In addition, we called $139 million in sub debt with a 5.65% coupon, which qualified as Tier 2 regulatory capital. This sub debt would have converted to a higher variable rate in July and would have also been phased out of regulatory capital treatment over time. This action will save us about $5 million annually on a prospective basis at current rates.

In summary, the second quarter reflected continued steady loan and customer deposit growth, further increases in net interest margin and improvements in efficiency, stable credit and growing capital that supports flexibility in reducing debt, buying back stock and continuing a healthy dividend and a 12% linked quarter growth in adjusted net income.

This is what happens when everybody is working together towards a common vision, working together to help people, companies and communities prosper.

Operator, we would like to open the call to questions, please.

[Operator]

[Operator Instructions] Our first question comes from Manan Gosalia with Morgan Stanley.

[Manan Gosalia, analyst]

I wanted to start on the net interest -- sorry, the noninterest-bearing deposits. I think you -- the NIB mix was better than you originally anticipated this quarter. I think previously, you've guided to that NIB mix being around 20%. Just given that there's a high likelihood of rates going down from here, should we expect that, that NIB mix stabilizes around this 22%, 23% level?

[Valerie Toalson, executive]

Manan, thanks for the question. We still actually have the same theory that those deposits as a percent of total deposits will continue to come down until we get more meaningful rate cuts, but we are tempering our expectations there and really expecting those to come down closer to a 21% level towards the end of this year and likely not reach the 20% level that we talked about previously until perhaps middle of next year.

[Manan Gosalia, analyst]

Got it. And then maybe pivoting over to capital, CET1 ratio is at 11.9%, I think the number of shares bought back this quarter came down Q-on-Q. I know you mentioned you want to be opportunistic, but clearly, you're creating a lot of capital here as well. So how should we think about buybacks in the second half? And to the extent that you don't do buybacks, is that more a function of holding capital either for organic or inorganic growth as we get into 2025?

[James Rollins, executive]

Yes. I think our buyback program has not changed for years. We want to be opportunistic and take advantage of the market when it gives us opportunities. We're not afraid to hold capital for uses in the future, whether that's organic or inorganic growth, as you said, we want to be opportunistic. And I think you'll continue to see us be that way as we look forward.

[Manan Gosalia, analyst]

Is there any room to do any more on the securities repositioning side there?

[James Rollins, executive]

The answer is, in a material way, probably not, but you can always tweak around on things, and we continue to tweak on everything that we're doing.

[Operator]

Next question comes from Brett Rabatin with the Hovde Group.

[Brett Rabatin, analyst]

I wanted to start on credit. And just if you could provide any color, it was nice to see the criticized improvement this quarter. Any color on the ins and outs of the decrease there? And then any comments specifically on the restaurant or the QSR portfolio and how that's behaving?

[James Rollins, executive]

Yes. Chris and Billy are both in the room here, and they'll be happy to take some of that. I think we went after credit a long time ago, more than a year ago, we've seen our criticized number escalate over a year ago, and we've seen it be basically flat, and now we think we're working that down. We've seen normal migration within those criticized numbers into NPA out of NPA, and we feel really good about where we sit today. Your specific question on the restaurant side and QSR, one of you guys want to jump in on that?

[Chris Bagley, executive]

Well, I mean you covered it well, Dan. I think part of it is the loans that we've been working through over the last 9 months. So you're right, the criticized has come down and that's a function that we haven't seen the backfill there, right? So this was actually the first quarter. I think we've seen less loans go into our special assets group and went out. So we're working real hard to remediate credits pretty granular.

Our average loan size is small. So there's a lot of energy going on there. But you're right. So the good news is we haven't seen a -- to this to date, we haven't seen a backflow of credits coming in. So it's been -- it hasn't been any systemic issues or ever focusing on restaurants a little bit. So we remediated 3 or 4 credits there over the last 2 quarters.

And we just really haven't seen anything migrate in from a negative perspective there either, other than those 2 or 3 credits that we've been remediating. Billy, you might have some additional color there.

[Edward Braddock, executive]

Yes. I'll just -- on the QSR specifically, we have seen some incremental improvement there. No more negative migration, I guess, is the answer to that question. And following Chris' logic, the ones we had identified earlier, we've been working through. So no more negative migration and coming to resolution specifically within that segment based off of particular credits that were identified almost a year ago at this point.

[Brett Rabatin, analyst]

Okay. That's really helpful. The other question I had -- sorry, Dan. The other question I had was just on loan growth. And Dan, you've been, it feels like fairly optimistic on your potential for growth. And this quarter, growth was mostly in the resi book and general C&I. What does the pipeline look like for the back half of the year? And would you think maybe some of the other components of the loan portfolio might contribute? Or are there pieces that you want to manage to flattish levels or maybe down?

[James Rollins, executive]

I think we're looking to see growth across the book. But I think what we see is some seasonality in the quarter. Mortgage is always going to be higher in this quarter. We do portfolio some ARM product. The secondary market for ARM is tough. We've got some portfolio of products that we have also. So we certainly see the resi piece pick up in this quarter.

I think we actually saw some pretty good growth on the C&I side, but we also saw some pretty good pay downs on the C&I side. this quarter. And so I think that's a good thing. You want things to come and go like they're supposed to. The pipelines look pretty good. Billy you talk about pipelines.

[Edward Braddock, executive]

Yes, pipelines are as strong as we've seen since '22 really, and our pull-through rate has been fantastic. Dan alluded to some payoffs that we saw over the quarter. I think I've mentioned it to several of you guys that within our Energy segment, midstream specifically, there were some M&A activity that created some payoffs. There was also some good bond market had opened up and clients took advantage of that and it paid us down. That stemmed to some degree.

So the pipelines we're seeing right now are as full as we've seen. I mean our pull-through -- I think the last 5 quarters of approvals in our -- and I'm speaking to our corporate bank, specifically approvals over the last 5 quarters are as high as they've been since they had peaked last, which was in '22. So pipelines look fantastic.

[Chris Bagley, executive]

I would add the same for Community Bank side. Their pipelines are full. It's higher than it's been in the previous 3 quarters. And -- so we're balanced across all lines, if you will. Remember, the Community Bank is hugely amortizing portfolio, so they have to run really hard to grow, but we still see some great pipelines there.

And the good news, bad news, I guess, on the corporate side is that strong pipelines are an indicator of the secondary market opening it up a bit, as Billy indicated, so we're seeing some payoffs, which is a good thing, right? So we're seeing some credits exit in the right way.

[James Rollins, executive]

And we're seeing that across the footprint. So Texas is clearly leading the way. But Georgia, Florida, Tennessee are doing well and our Community Bank across our footprint, actually saw some good growth for the quarter.

[Operator]

The next question comes from Jon Arfstrom with RBC Capital Markets.

[Jon Arfstrom, analyst]

Valerie, can you -- I appreciate all the detail on expenses. Can you give us an idea of the starting point you'd like us to use on expenses. I mean if you split the difference and you add the 1%, it looks like it's around $280 million, but I'm just curious if you would help us out a little bit on that.

[Valerie Toalson, executive]

Yes. No, Jon, what I intended to do was also guide towards the lower end of that plus or minus 1% annualized expectations just because we did have such a good second quarter. If you look back over the last several years, the second quarter for Cadence has been a low quarter for expenses. That's because of a couple of reasons.

One, just kind of the quarterly reset of some of the FICA 401k things. It also has to do with some of the cyclicality in the mortgage loan growth. Those are granular loans that you have a higher level of deferred costs associated with. So all of that serves to lower the second quarter, and then we have our July cycle of merit increases that come in.

And so when I mentioned kind of the $9 million or $10 million of things that are really reflective of a lot of hard work on expenses, grabbing recoveries and credits where you can. They're probably not sustainable. So if you add that back to our $251 million -- or excuse me, yes, $251 million that we've got this quarter and then layer in some merits, that gets you to a low $260 million -- low to mid $260 million level as we look forward.

And we'll continue to work, as Dan said, we're going to continue to work to chip away at that every quarter, but that's probably a reasonable base level to start from.

[James Rollins, executive]

Yes. Several things in there are -- we'd like for them to be sustainable. I'd like for fraud losses to go to 0, but fraud is a major problem for our industry.

[Jon Arfstrom, analyst]

Yes, that's helpful. I appreciate that. Value I had that backwards. I had the up one instead of down one, so that helps.

[Valerie Toalson, executive]

It's a good thing for us.

[Jon Arfstrom, analyst]

Yes. Yes, I agree. And then you talked in your guidance also you talked about that your revenue guide is the same, and it's inclusive of the forward curve at 630. How much of an impact does the change in the forward curve from last quarter to this quarter? How much has that impacted your outlook, if at all, on revenues?

[Valerie Toalson, executive]

Yes. It's really not much, Jon. When we take a look at it, one of the big things that was driving that nice bump that we had in the loan yields this quarter was just not only the fact that we've got good volume in our new growth and the new loan growth that are coming on in those deals. But we also have, again, that back book that continues to reprice the variable loans that come on and we continue to share that in our slides with you.

That has a significant impact on the ability to continue to reprice up. So even if we get a 25 basis point dip, we're still going to have these new loans coming on. We're still going to have the repricing of that back book, and that's going to help offset some of the more immediate impact on some of the variable rate loans.

[Operator]

And the next question comes from Brandon King with Truist.

[Brandon King, analyst]

So what is the outlook here is from a deposit cost perspective? Do you think deposit costs could potentially be relatively stable from here? And then also, what are you expecting from a CD repricing standpoint in the back half of the year?

[Valerie Toalson, executive]

Absolutely. So we really had -- this last quarter -- in fact, the past several quarters, that deposit cost increase has continued to be less and less and it does continue to stabilize, particularly with a mix shift stabilization. And so if we're able to continue to keep the mix shift out of noninterest-bearing as low as it has been, there's a possibility that we could be nearing the peak of deposit costs.

Whether that's another quarter, another 2 quarters or were there -- I think that's a little hard to say. But we don't feel that there's material upward pressure at least from what we're seeing today. Factoring into that is the fact that you pointed out on the CD book.

There is a portion of that CD book that just auto renews into a standard product when it renews, but most do go back into the promo rates. This quarter, the blended average CD new and renewed rate was about 23 basis points less than it was last quarter. So that's coming in at about 4.33%. And so even though that book is still out there at a higher rate, its repricing lower and that starts to benefit us as we look at the quarter-to-quarter shift in deposit costs.

[Brandon King, analyst]

That's helpful. Yes. That's helpful. And then as far as loan yields, there was kind of an uptick in the increase in loan yields, even ex-accretion this quarter versus last. So is that sort of pace sustainable going forward? Or were there, I guess, some maybe onetime items there that kind of elevated the increase in loan yields?

[James Rollins, executive]

I think we talked last quarter that last quarter's number was muted by some items. So...

[Valerie Toalson, executive]

Yes, it's a factor of the loan growth and then the repricing. I'd say the repricing dynamic is fairly consistent as we look forward, at least at stable rates when rates come down a little bit, and that will be muted by 25 basis points or so. But it's really a dynamic of that loan growth and the extent that we can keep that up, then that will help us keep that loan yield up as well.

[Brandon King, analyst]

Okay. So it's fair to say it's at a sustainable pace, I guess, at least near term?

[Valerie Toalson, executive]

That's what we're hoping.

[Operator]

Next question comes from Michael Rose with Raymond James.

[Michael Rose, analyst]

Just wanted to follow up on Jon's questions on expenses. I just wanted to be clear if the updated outlook includes kind of the impact, I guess, to about $3.5 million in the back half of the year in expenses from Cadence Business Solutions.

And then separately for you, Dan, just you guys have done a lot of work to get the efficiency ratio down. It seems like you're in a good spot, more momentum to come. As we think about kind of the intermediate or longer term, balancing ongoing investments in the franchise. I mean should we be thinking about kind of a mid-50s efficiency as kind of a target as we think about kind of the investment spend versus the ongoing cost saving efforts?

[James Rollins, executive]

Yes. So on the expense side -- Valerie, do you want to take the expense side?

[Valerie Toalson, executive]

Yes. Yes. That guidance does include the Cadence Business Services impact. So it reflects everything. We do expect that the expenses in the latter half of the year will be incrementally greater than the first half, and that's incorporated in that guidance.

[James Rollins, executive]

Part of that is just continuing to invest, as you said, in the franchise. I think we continue to look for people. We continue to look for opportunities to improve our technology. We continue to look for opportunities to invest in what we're doing every day. And I think that we can continue to do that and we can continue to drive efficiency down.

The word target is not in my vocabulary. So I don't have a target for you today. But I do think that we want to continue to be focused on what we're doing to drive our overall efficiency down. We can do that on the revenue side, probably easier today than we can on the expense side. But there's a lot of opportunity in front of us.

I'm more excited today than I've been in some time. When you look back over the last 3 years, the BancorpSouth merger with legacy Cadence, the thoughts and the plans that went into that 3 years ago maybe took us a little longer to get where we are today, but the benefits are real. We knew they would be, and we're seeing that today. We're really proud of what the team is doing.

[Michael Rose, analyst]

Well, Dan, I was hoping you had brought your crystal ball today, but I guess you left it at home. Maybe just as a follow-up, you guys have clearly been acquisitive in the past and kind of on the doorstep of $50 billion, I know there's obviously that big $100 billion target out there.

But -- how do you currently think about the opportunity for acquisitions at this point? I mean, is it something that you wouldn't want to do until you kind of get through the election? Or is it just internally focused? Can you just help us frame kind of what Cadence at almost $50 billion would, in theory, be looking for if you were to do a deal both from size and geography as well as metrics, if you could?

[James Rollins, executive]

Yes. That's a great question. M&A clearly has been a part of our past, and I would expect that, that would be a part of our future. We start with culture, and we want in footprint. So what is it that we're doing? Can the teams work together, can we grow within the footprint we already have. So in footprint, market expansion, that's going to be a key for us. That's maybe not in favor today with the current administration.

But I think there are opportunities out there for us. We have active conversations on a regular basis. We're not running away from anything. We're ready today if we wanted to do something, it's a matter of finding the right culture, the right team. It's something that makes a difference for us. So making a difference for us is where part of the question comes in.

Is it making a difference for us in a market that we need to be bigger in? Is it making a difference for us in a size perspective. We clearly don't want to get too close to the sun, the sun being $100 billion that there's -- you can burn up. And so we want to make sure that we've got lots of runway in front of us. And I think when you look at our organic growth prospects and the footprints we serve, we've got -- we like the position we're in today.

[Operator]

Next question comes from Gary Tenner with D.A. Davidson.

[Gary Tenner, analyst]

So you all have been pretty consistent first half of the year on loan growth and one of probably a small number of banks that haven't kind of pulled back on their loan growth outlook for the full year. Obviously, the Texas market is an advantage. Just wondering if you could talk about where you think maybe you've gained an advantage to other institutions and the ability to be consistent on the loan growth the way you have been?

[James Rollins, executive]

Yes. One of the things I said when we started the call, when you look back, loan growth was one of the questions around the merger that we did was could we continue to grow? And we've grown in every quarter since we announced the merger. I think that's footprint driven, and I think that's people driven.

I think the team that we have on the field today -- we're coming up on Olympics time, so we can use Olympics analogies, but the team we have on the field is great. And we want to keep the team out there, keep them energized, keep them focused on putting customers at the center of our business and take care of what we're doing every day. Our footprint and our team would be what I would brag on. Billy or Chris?

[Edward Braddock, executive]

It did -- I mean, it's really -- we are advantaged in where we sit. But we've had a history of having outsized win rates with this team that we've got on here, and that's where I think we're going to continue to pursue.

[Valerie Toalson, executive]

I think our diversification is also a huge win for us. We not only have multiple verticals in the corporate side. We've got the community platform, FDA group, the mortgage group. We've really got great diversification that spans not only across those industries but across the footprint as well.

[James Rollins, executive]

It works in every footprint. So again, whether you're in the rural South or whether you're in the metropolitan South. We've got bankers out there that are taking care of business. And again, we saw that growth in this quarter. The Community Bank showed good growth across the rural South. Even though the Corporate Bank was having some payoffs in rural, the Corporate Bank was doing great, growing and then you get a couple of payoffs. When you look at what's coming in the pipeline for us across our verticals, as Valerie said, exciting times for us.

[Gary Tenner, analyst]

Great. I appreciate the thoughts. And then I guess as a follow-up to that, you had the M&A question earlier, but from a just investment perspective in terms of people, as you think of kind of your comments you just made around people and some of your markets, where do you think there is a need or most opportunity to add people from other institutions to continue to push that growth forward?

[James Rollins, executive]

We're constantly investing in our people, and we're looking for opportunities. And so I don't know that there's one market or two markets that we would call out and say we need and help here or there. But we're actively looking, and we've brought some folks in, in the last couple of quarters that I think are making a difference for us.

So -- we've never gone out and hired a team of 20 or a team of 30 or whatever some big group is and moved into a new market like some of the bigger guys have done. But we certainly are looking for opportunities to invest in the team.

[Operator]

The next question comes from Matt Olney with Stephens.

[Matt Olney, analyst]

You mentioned that the 2Q loan growth was funded by the cash flows from the securities portfolio. I'd be interested to learn more about the funding plan for the back half of the year for the loan growth.

[James Rollins, executive]

Yes, that's a good question. I think -- so we've -- as you heard, we've gotten our brokered funds to a level that I think is probably sustainable, including the $100 million that has run off in this quarter. We've continued to deemphasize or maybe more disciplined in our pricing on public funds. The public funds are bid in dollars. We do expect to see some public fund run out in this quarter also.

So I think when you're looking at the core funding base, that's where it's going to come from. So we want to continue to focus on that deposit growth. We've now shown 4 consecutive quarters of really good core customer deposit growth, and we think the team has it in them to continue to do that.

[Valerie Toalson, executive]

Yes. We do think that there could be another quarter or so where you're actually funding some additional loan growth from the securities book, the securities cash flow. We have the room to certainly do that. But to Dan's point, as you kind of get past...

[James Rollins, executive]

The total balance sheet, the securities book would end up where...

[Valerie Toalson, executive]

Yes, ballpark, 15%-ish or so of total assets. But there's a little bit of flexibility, plus or minus on that. But you get kind of to a base level of that public funds. And then what you see is that those headwinds are set aside and what you see coming through is that core deposit growth that we've been talking about.

[James Rollins, executive]

Yes. I think we've used the last year post March Madness a year ago to really look at our overall funding. And I think the core funding that we have today. If we finish our project of making sure that the public funds that we're doing business with are profitable and beneficial to us, and we will let now finish the clean up on the brokered deposits, I think you're going to see just normal organic growth of deposits, take care of business for us.

[Matt Olney, analyst]

Okay. Appreciate the color there. And then I also want to ask about the bank term funding program. I think you have about $3.5 billion still out there. I assume that expires early next year. Just any updated thoughts about how you want to handle that as it expires in 2025.

[James Rollins, executive]

January next year. Is it right?

[Valerie Toalson, executive]

Yes, that's right, January of next year. And depending on where the balance sheet is, we'll be flexible there depending on where rates are. It will be flexible there. I would say, based on where the rate forecast is today, we'll likely have some type of short-term borrowing to replace that. But -- and maybe might send something a little bit longer term once the rates settle in.

[James Rollins, executive]

And continue focused on the core deposit growth.

[Chris Bagley, executive]

Yes, absolutely.

[Operator]

The next question comes from Catherine Mealor with KBW.

[Catherine Mealor, analyst]

So if you think about your guidance for this year, it feels like we're trending towards the high end of the revenue growth guide if things kind of go as it seems like it is. And we're trending towards the low end of the expense growth guide. So you're seeing pretty phenomenal operating leverage in '24. As we think about '25, do you think -- in an environment where we start to see more Fed cuts, do you think that's an environment where we can still see positive operating leverage? And do you think you can still see the NIM expand as we move through 2025 specifically?

[James Rollins, executive]

I think we're set up for -- I think we're set up in a nice way today. I think when we look forward at what we've got, the work we've done on our balance sheet, the work we've done with our team, the markets that we serve, we have a high confidence level that we're setting in a nice way, Valerie.

[Valerie Toalson, executive]

Yes. No, I would totally agree. We feel like we are well positioned for some upcoming rate cuts as we look out into the future and just with the level of expansion organically that we have on the balance sheet, I believe that's an opportunity for us. What would be detrimental is if we had a very sudden 300 basis point decline or something along that range. But as long as we get something that's gradual, we absolutely believe that we're very well positioned for that as we look forward.

[Catherine Mealor, analyst]

That's helpful. And then just one follow-up on the securities. Valerie, you just mentioned that we have one more -- probably one more quarter of funding loan growth through securities cash flows. So do you think we have one more quarter of kind of security balances coming down and then where we kind of just stabilize from there and you see security balances kind of flat to growing? Or how do we think about kind of size of the balance sheet with that?

[Valerie Toalson, executive]

Yes. I mean we have the capacity to be able to fund loan growth for longer than that. That's more a dynamic of the -- given the core deposit growth that we've seen quarter-over-quarter and the stabilization that we believe after this next quarter that we may have in some of the public funds that we're hopeful that we'll be able to do more of the funding with core deposit growth than the securities portfolio, but we've got flexibility there.

[Operator]

And the final question comes from Jared Shaw with Barclays.

[Jared David Shaw, analyst]

Most questions were asked. But I guess just looking at the office CRE portfolio, it looks like loan-to-value actually declined in the quarter. What's driving that? Is that reappraisals? Is that just payoffs of higher LTV loans? What's sort of driving that underlying trend there?

[James Rollins, executive]

It's not reappraisals. It's just normal every day's business. It's just business mix. Remember, the average ticket size in there is really small. We're just not seeing an issue in that at all. So I don't have an answer for that because I didn't sit and study on it. Chris, you have?

[Chris Bagley, executive]

I would say amortization. We're not replacing that book with anything significant in dollars...

[James Rollins, executive]

It just amortized [indiscernible].

[Valerie Toalson, executive]

And just to remind you, that's 2% of the total loan book.

[Operator]

This concludes our question and answer session. I would like to turn the conference back over to Dan Rollins for any closing remarks.

[James Rollins, executive]

All right. Thanks again for joining us this morning. Our results are a reflection of the outstanding effort of our over 5,000 Cadence bankers. It's been a rewarding experience to see the hard work of teammates across our company positively impact and significantly improve our financial performance. Our bankers have done a tremendous job of growing loans at a steady pace and effectively retaining and growing core customer deposits.

Our fee lines of business have contributed meaningful revenue growth as well as our operational and support teammates have done an outstanding job of supporting our frontline and improving processes behind the scenes.

We've been able to steadily improve our net interest margin and operating efficiency while maintaining stable credit quality and strong capital metrics. As we look forward, I'm confident our team is prepared and ready to shine. Thanks again for joining us today. We look forward to seeing you all on the road soon.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.