Cadence Bank (NYSE:CADE) Q3 2022 Earnings Conference Call October 25, 2022 11:00 AM ET
Company Participants
Will Fisackerly – Director of Corporate Finance
James Rollins – Chairman & CEO
Valerie Toalson – Senior EVP & CFO
Chris Bagley – President
Hank Holmes – Senior EVP & Chief Banking Officer
Paul Murphy – Executive Vice Chairman
Conference Call Participants
Michael Rose – Raymond James
Brad Milsaps – Piper Sandler
Jennifer Demba – Truist Securities
Kevin Fitzsimmons – D.A. Davidson
Catherine Mealor – KBW
Matt Olney – Stephens
Operator
Good day, and welcome to the Cadence Bank Third Quarter 2022 Webcast and Conference Call. All participants will be in 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, Director of Corporate Finance. Please go ahead.
Will Fisackerly
Good morning, and thank you for joining the Cadence Bank third quarter 2022 earnings conference call. We have our executive management team with us here 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 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 I’ll now turn to Dan Rollins for his opening comments.
James Rollins
Good morning, everyone. Thank you for joining us today to discuss Cadence Bank’s third quarter 2022 financial results. I’d like to start with a few comments on our recent systems conversion and rebranding effort, and then Valerie and I will cover the financial results for the quarter. Following our prepared remarks, our full executive management team will be available for questions.
Earlier this month, we successfully completed our core operating system conversion as well as the rebranding of over 400 locations across our footprint and the launch of our new website. This project initiated almost 18 months ago is the largest conversion most of us will ever be involved with during our careers.
Just a few steps over the past few weeks. We converted approximately 0.25 million accounts. Our facilities team rebranded over 400 locations with over 5,000 new signs, and our completely new website has received over 1 million page views in the past few weeks.
Additionally, over the past few months, we brought a new data center online while shutting down three others and doubled the technological capacity for our call center. And we have or are in the process of decommissioning hundreds of legacy applications and migrating all of our employees to a common operating model.
This is a tremendous success story for our entire team. I’m extremely proud of each and every one of our teammates. Their dedication to excellence has paid off. This is truly a historical accomplishment for our company. Our teammates are now serving customers and communities across our nine-state footprint as one unified brand and the excitement around the new brand, the new logo, the new colors, the new sonic branding has been — has exceeded even our highest expectations.
As to our financial results for the quarter, we reported adjusted net income available to common shareholders of $143.7 million or $0.78 per diluted common share. Even with the intense focus on our conversion, this performance represents another record quarterly earnings for Cadence and another increase in adjusted PPNR to $189.8 million. Our adjusted earnings and PPNR both increased approximately 7% compared to our second quarter results.
Moving to the balance sheet. We had another solid loan growth quarter, reporting net loan growth of $936 million or 13% annualized. This brings our year-to-date total to $2.4 billion or 12% annualized. Our loan growth for the quarter was again very diverse, both from a geographic and product standpoint, which positively reflects the economic environment and our footprint as well as our team’s ability to remain forward focused throughout this integration.
For the quarter, we reported growth across several regions of our community bank, led by the Texas region. And our corporate banking group had a great quarter across the board, including C&I, energy and real estate, along with certain other specialized industry verticals. We reported a decline in deposits for the quarter of $1.2 billion, nearly half of which was public funds and correspondent bank balances and the remainder is reflective of slightly lower average account balances across our footprint.
The core funding provided by our community bank positions us very well for both the deposit retention and cost standpoint in this environment. While our liquidity position has allowed us to be disciplined on pricing more rate sensitive deposits, our bankers are doing a phenomenal job protecting our core customer relationships.
Our credit quality continues to be stable, reflected in the 3% decline in total non-performing assets compared to the second quarter and no provision for credit losses for the quarter. We did see a slight increase in net charge-offs to 9 basis points for the quarter after five consecutive quarters of reporting net recoveries.
However, this increase was entirely related to one acquired energy credit that was reflected as a PCD credit at the merger date. Without the charge-off of this acquired credit, we would have posted another quarter of net recoveries. Of course, credit remains a key focus for us, particularly with the significant increase in interest rates and the recessionary winds blowing.
As a reminder, when we completed our merger with Cadence this time last year, we were able to assess nearly half of our loan portfolio and provide for any credit marks deemed necessary at that time. We believe that process on top of our 1.4% ACL coverage with our consistent approach to credit is positioning us very well in this credit environment.
Wrapping up, I’d like to briefly mention our operating efficiency. Revenue growth for the quarter contributed to improvement in our adjusted efficiency ratio to 60.3% for the quarter despite some moving parts in our expenses that Valerie will go over with you in more detail.
With our core conversion now behind us, we expect to further benefit from merger efficiencies as we finish the year and move into 2023. This, combined with the interest rate environment, should provide a catalyst for continued improvement in our operating performance as we look forward to next year.
With that, I’d like to turn it to Valerie for her comments. Valerie?
Valerie Toalson
Thanks, Dan. Dan spoke to the meaningful growth in our earnings, highlighted by another great quarter of loan growth, which improves our earning asset mix as well as continued margin improvement and stable credit quality. The adjusted net income of $143.7 million increased $9.5 million during the quarter and was adjusted for merger related expenses of $26.6 million as well as a pension settlement charge of $2.9 million.
Referencing Slides 4 and 5, we reported net interest income of $355 million for the third quarter, an increase of over 9% compared to the second quarter of this year. Our net interest margin was 3.28% for the third quarter, up 22 basis points from the linked quarter and up 26 basis points, excluding the impact of accretion.
The pace of interest rate changes has had a significant impact on our loan yields as our yield on net loans, excluding accretion, was 4.7% for the third quarter, up 58 basis points from the prior quarter. The quarter’s impact to our securities yields was lower at 7 basis points as we continue to deploy the cash flow from those securities to fund our loan growth.
Regarding deposit costs, with nearly 80% of our deposits driven by our core community banking platform, we have been able to maintain a low deposit beta during this increasing rate environment. For the third quarter, our total deposit beta was 13%, and our total cost of deposits increased to 35 basis points, up 17 basis points in the quarter. Our cycle-to-date deposit beta is only 9%. This compares to the third quarter’s loan beta, excluding accretion of 41% and 32% cycle-to-date.
Our balance sheet remains asset sensitive with approximately 50% of our loan portfolio or $14.6 billion repricing in the next 12 months and with $12.4 billion of that actually repricing within the next three months.
Non-interest revenue highlighted on Slide 7, was stable at $124.5 million this quarter, with the decline of mortgage banking revenue, offset by improved revenue in our limited partnership investments and other fee revenues. Our insurance team continues to perform very well with a year-over-year revenue increase of over 11%.
Moving on to expenses referenced on Slides 8, 9 and 10, total adjusted non-interest expense was $290.2 million for the third quarter, up from $271.8 million for the second quarter driven by compensation and the result of several nonrecurring benefits that we highlighted in our second quarter results.
We added Slide 9 to help clarify some of these moving parts. Adjusted salaries and benefit expense increased $8.8 million linked quarter, with approximately $4 million of that due to the annual merit increases effective July 1, with the remainder driven by increased performance linked incentive compensation as well as a decrease in salary deferrals, which is a contra expense due primarily to lower mortgage originations.
Additionally, foreclosed property expense for the third quarter included a $1.1 million loss on sale, while the second quarter results included a $1.1 million gain, resulting in a $2.2 million variance between the quarters. Similarly, our second quarter results included a $2.5 million credit in intangible amortization expense as we finalized the merger intangible asset valuations, resulting in an increase to a normalized third quarter expense.
The increase in other miscellaneous expense linked quarter also included several of these non-routine reductions to expense impacting the second quarter. It’s a lot of moving parts, but in summary, the $290 million in adjusted expense we incurred this quarter is a reasonable run rate to consider as we go forward, knowing we have yet to realize the majority of our merger-related saves coming in the next few quarters.
Regarding the non-operating items, we incurred a $2.9 million pension settlement expense this quarter due to an elevated number of retirements in the second half of the year. We anticipate this activity to continue through year end with another settlement expense charge in the fourth quarter. Merger and merger related costs increased to $26.6 million this quarter as we accelerated the finalization of our conversion. We anticipate merger related cost to continue in the fourth quarter as we finalize the conversion in October, and we’ll be consolidating 17 branches in the fourth quarter as well.
We added Slide 10 to the deck to highlight a comparison of our third quarter 2022 expenses to combined pro forma third quarter 2021 expenses, the quarterly period just prior to our merger last year. Over the last year, our total adjusted quarterly expense has increased 4.7%. We estimate that inclusive in that, we have already realized approximately $8 million in quarterly merger related savings, with those savings in various categories, including overhead, people, facilities and systems.
Excluding these merger related savings, our year-over-year adjusted expense increase would have otherwise been 7.5%. When you compare us to peer banks reporting thus far, their year-over-year average organic expense increase has been 9.6% or over 25% higher than Cadence’s 7.5% pre-merger saves increase and more than twice our actual adjusted expense increase of 4.7%. When we layer on the remaining merger related saves we expect to realize in the coming quarters, we anticipate continued improvement to our efficiency ratio and our pretax pre-provision net revenue.
Dan spoke to the loan and deposit activity during the quarter as well as our stable credit performance. Regulatory capital remains solid with little change and a common equity Tier 1 ratio of 10.3% and total capital ratio of 12.8%. As we step back and assess this quarter, it’s easy to be pleased with where we are positioned. This quarter, we once again continued to demonstrate our ability to generate quality loan growth, meaningfully improve our net interest margin, enhance our operating efficiency and PPNR quarter-over-quarter and maintain stable credit performance.
Additionally, we are well positioned as we look forward with our asset sensitivity, additional merger saves to be realized and now a strong singular brand and platform under which to serve our customers across our Texas and Southeast footprint. There is an excitement at Cadence, and hopefully, you can see why.
Operator, we would like to open the call now to questions.
Question-and-Answer Session
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Michael Rose with Raymond James. Please go ahead.
Michael Rose
Hey. Good morning, everyone.
James Rollins
Good morning, Micheal.
Michael Rose
Good morning. Just a few questions here. So just back to the expenses, which I think has been a headwind for some people and for the stock. Valerie, I think you said $290 million was kind of a good run rate going into the fourth quarter. I’m sorry if I missed this, but can you just remind us how much cost savings you have remaining? I know the systems conversion was just completed.
And I think at the beginning of the year, what we didn’t anticipate was the increase in the minimum wage and then you had the bump up this quarter in annual salary increases. But just trying to get a sense beyond that $290 million, like would you actually expect expenses on a quarterly basis to actually fall as we get into next year, just from the cost savings? Just trying to put all the pieces together. Thanks.
Valerie Toalson
Yes. Thanks, Michael. So just to be clear, we’ve already estimated that we’ve incurred about $8 million or $32 million annualized in cost saves included in our run rate. And that’s really for a variety of things that have happened over the year, but particularly more recently in this latter half of the year as we’ve neared the conversion.
So based on our original estimate, that leaves another $46 million to be realized, and we anticipate that we’ll be able to capture that over the next couple of quarters. Fourth quarter is going to continue to be a little noisy because obviously, we have the conversion, we have the branch closures, et cetera. But as we look into the beginning of 2023, that’s when we’ll see the remainder of those saves really flow in to the bottom line.
You’re right, there have been some of the headwinds, and that’s also why we added that additional slide. If you haven’t seen it, I would encourage you to take a look at it, Slide 10 in our slide deck that shows really kind of the combined premerger numbers to where we are today and shows that even with those headwinds that we believe that we’re performing better than peers, and then when we layer in these additional cost saves that it will position us well as we go into next year.
James Rollins
Yeah. That slide details out the $8 million we think we’ve already harvested in the process too.
Valerie Toalson
Exactly.
Michael Rose
Got it. Okay. Very helpful. One other question. It looks like the criticized or substandard loans ticked up, and I think that’s obviously caught some people’s attention last night, this morning. But as I look at your criticized, substandard loan ratio, it looks like it’s only 1.8% of loans, ex-PPP, which seems pretty low relative to history. So if you can just kind of talk about what drove that increase. It looks like it might have been in the C&I bucket and just if you guys have any concerns or is it just proactive classification, et cetera, that would be helpful. Thanks.
James Rollins
I appreciate that. I don’t think that we have any concerns. I think we’re starting at a base that is not sustainable, would be the starting point. When you’re talking about credit quality, it’s been so good for so long. I think a more normalized credit environment is what we would be expecting. I don’t think we’re concerned about this at all. Chris and Hank, you guys want to jump in here?
Chris Bagley
No, I’ll add color to that. It was a couple — three C&I credits. We’ve got good visibility on them. I think one of them may have already actually been remediated or paid off since that quarter end. So we’re not seeing any trends or themes or industry-specific issues in those numbers, I think, given the new book compared to legacy BXS book. You’re going to see a little bit more, maybe, movement in some of that because some of the average credits are bigger. And as we migrate and actively manage those credits, you’ll probably see more movement than maybe you would have seen in our numbers two years ago.
Michael Rose
All right. Very helpful. I’ll jump back in the queue. Thanks.
Chris Bagley
Sorry, I was well said. Nothing to add.
James Rollins
Thanks, Michael.
Operator
The next question comes from Brad Milsaps with Piper Sandler. Please go ahead.
James Rollins
Good morning, Brad.
Brad Milsaps
Hey. Good morning. Thanks for taking my questions. I think previously, you guys have talked about maybe a mid-20s type deposit beta. I’m just kind of curious, as things have evolved, do you still feel comfortable with that number? And then Valerie, could you maybe just talk about the borrowings that you did out in the quarter and how — what would the average cost there and how those also might play into, as you think about NII and NIM guidance going forward?
Valerie Toalson
Yeah. Sure, absolutely. So obviously, our deposit beta, the cycle-to-date 9% has continued to be very, very low. It actually lagged more than what we had originally anticipated. So that’s been a benefit for us. We are still anticipating the 28% cycle deposit beta. And so obviously, that’s going to take a few quarters of a fairly significant bump in deposit beta. And we anticipate that, that will be going forward as we see some of the additional increases in our rate hikes, but believe that will continue to lag potentially many of our peers simply because of the 80% of our deposit base that is in the community banking platform.
And the beta on those deposits is about 60% of what we see on the corporate side. So that continues to benefit us, and it will continue to benefit us in our net interest margin as we look forward. We did add a little bit of borrowings. So one of the things that we’ve been doing is actually funding our loan growth by our securities portfolio runoff. We continue to have good maturities and cash flow from that portfolio. And it serves two things: one, being able to fund the loan growth, but then two, also kind of getting us closer to a more normalized securities to total assets mix that became really exaggerated over the COVID time period.
So in the meantime, with the deposit mix that we’ve had, about $500 million or so in public funds and financial institution correspondent banks that ran off and then a little bit of average deposit, our average balance decline in some of our customer accounts, we’ve funded that with Federal Home Loan Bank borrowings. They’re all very short term. So very close to your Fed fund rates plus just a few basis points. And that will continue to be the strategy to fund kind of what we believe are temporary needs on those funding sides.
James Rollins
Hope you’re happy with that, Brad?
Brad Milsaps
Yeah. That’s very helpful. Maybe just as my follow-up Valerie, is it still about $600 million — $500 million to $600 million a quarter in cash flows from the bond portfolio that you expect? I know that numbers can move around a bit. It’s not perfectly linear, but just — is that pretty close?
Valerie Toalson
So that is pretty close to what we’re expecting in the fourth quarter. Now when we look into 2023, there’s another $3.5 billion of maturities and cash flow that we have scheduled out for 2023 as we have some maturities that actually come into play there. So between now and the end of 2023, we’re looking at $4.2 billion of maturities and cash flow coming off that securities book.
Brad Milsaps
Okay. That would be to fund your growth with that and then pay down borrowings with any excess?
Valerie Toalson
That’s exactly right.
James Rollins
And then back them in deposits. Brad, I mean, I think when you’re looking at us today in a 400 branch community bank network, we feel really good about our deposit gathering capabilities. I think what we continue to see today is as we saw the average commercial balance decline significantly more or almost double what the average consumer balance declined. And I think we’ve been very careful, and when we’re competing out there in deposits, we feel good about our deposit gathering capabilities.
Brad Milsaps
That’s great. Thank you very much. I’ll hop back in queue.
Operator
Our next question comes from Jennifer Demba with Truist Securities. Please go ahead.
Jennifer Demba
Thank you. Good morning.
James Rollins
Hey. Good morning, Jennifer.
Jennifer Demba
Two questions. First one is on net interest margin. Valerie, can you just talk about the net interest margin outlook over the near term. We’ve seen some companies say they think they have more expansion to that and some say they believe they have peaked or very close to peaking.
Valerie Toalson
Yeah, absolutely. No, we don’t believe that we’ve peaked, and we certainly believe that we’ve got some improvement in our future. Multiple reasons there. One is obviously the amount of repricing loans that we have with 50% of our loans repricing over the next year. And then that also leaves, even when you just look out past this first year, another 50% that actually reprices in the following years. And so that provides really kind of a nice catalyst for us in a period that is looking to be higher rates for longer.
You combine that with the fact that we’re using really the lower yielding securities right now to fund some of the loan growth, that mix shift certainly adds to an earning asset yield increase. And then once we actually start reinvesting in the securities book, we’ll be doing so at a much higher yield than obviously where the legacy — or the existing portfolio is yielding. So really a whole number of catalysts that are very favorable for our net interest margin right now.
Jennifer Demba
Great. Thank you. And my other question is on your charge-offs, the purchased energy credit. Would you have any other energy credits that you feel might be charged-off over the near term or was that the only one of real concerns?
James Rollins
That’s the one that was identified coming into the merger, and that was originated back in the, what, ’15, ’16, ’17 time frame. I don’t know that we have anything else. Hank’s got his button — hand on the button. Come on, Hank, there you go.
Hank Holmes
Thank you. Finally, I got that worked out. So the portfolio — the energy portfolio, we feel very good about. We did see an identified issue early on, and there were some characteristics of it being in a basin that is hard to make profitable and also they’re having labor issues. And so this was an appropriate thing for us to do at this time.
James Rollins
This particular credit had been non-performing for more than a year prior to our merger. So this has had a long history of dealing with it.
Hank Holmes
But it’s not consistent with the remaining portfolio.
Jennifer Demba
Okay. Great. Okay. I’ll jump back in the queue, if I have no. Thank you.
James Rollins
Thanks, Jennifer.
Operator
Our next question comes from Kevin Fitzsimmons with D.A. Davidson. Please go ahead.
Kevin Fitzsimmons
Hey. Good morning.
James Rollins
Good morning, Kevin.
Kevin Fitzsimmons
I just wanted to ask about the philosophy on provisioning and the allowance. On the one hand, your reserve ratio is well higher than peer levels and given the credit metrics, it seems perfectly legitimate that if the model spits out, you don’t need a provision, and that’s fine. I’m just curious how we should think about that going forward with what the forecast you’re seeing and how you’re feeling about this point in the credit cycle in terms of whether you will provision and how much? And how you view that allowance ratio from here? Thanks.
James Rollins
Yeah. That’s a good question. I think we’ve got our model that we’re working within. I think when we look forward, there are certainly question marks in the economy in front of us. What happens from here forward and what does that do to credit? I think everybody is concerned and watching the headwinds that we’re flying into. But I also think that just normal growth is going to — we can’t be at zero forever.
So just if we continue to show the growth that we’re showing, we’re going to be provisioning for loan losses through the normal course of business. But unknown is the economy and what the economy does to us. But we feel really good about where we are today when you lay on not only the provision that’s there, but remember about half the portfolio was marked one year ago this month. So we feel really good about where we are.
Kevin Fitzsimmons
Yeah. That’s a good point, Dan, you just made on the percentage of the portfolio that’s been marked. And talking about loan growth, which was pretty healthy this quarter, like how are you feeling about it going forward, both from the standpoint of what you’re seeing in pipelines but also maybe any deliberate tapping of the brakes in certain loan segments, just given the uncertainty out there? Thanks.
James Rollins
Yeah. I like our underwriting process. I like our team that’s out front of us. I think that we’ve got good loans in the pipeline coming our way. I think we are being prudent when we talk about what’s coming through the pipeline this morning. There were a lot of loans to talk about this morning. The team does a great job at looking at that. I suspect we will — our footprint is going to continue to give us growth, at least in the near term. And I think that we need to be very prudent in how we’re doing that. Chris, do you want to jump in or Hank?
Chris Bagley
Yeah. I’ll take a stab at the tap the breaks question. I think there’s been some self-correction out there just in the market itself. Rates, obviously, it slowed down some segment. I think we see it probably mostly in the community bank side and maybe some of the consumer rates specifically around the mortgage book because rates are just high. So that’s put maybe some slowness there. But we’re still seeing opportunities on the corporate side.
We’re still seeing great opportunities in really all across all segments. So I think our ability to — we haven’t — the way our balance sheet is structured right now with loans, I think we can play in almost every segment or in every segment. So there’s been no deliberate tapping of the brakes on our side, and we’re seeing some good opportunities. But there are some interest rate headwinds, I think, for everybody that they’re thinking.
Hank Holmes
Let me just build on it, Chris. As we look at the pipelines for the fourth quarter in 2023, we have seen some moderation, but they’re still active. So I’m encouraged. Obviously, the demand will be a function and we’ve talked about the economy and how that plays out in 2023. I spend a lot of time with the client throughout the footprint and there is one real message that we’re hearing from them, from our clients and our teammates, is that there’s some caution for next year, which I think is appropriate.
As I mentioned, we haven’t seen any real deterioration in the credit. So that seems positive. The one headwind that we’re seeing throughout is labor and the ability to get good labor and teammates, and that’s going to be expensive going forward, and that will certainly impact clients in the years to come.
James Rollins
And when you look at the loan growth that we published out in this quarter, it was across the board. It’s exciting to see us be able to grow geographically diverse, industry diverse, product line diverse. I couldn’t be more proud of the team that we’ve got. Paul, you want to jump in? I know you talk to clients all the time.
Paul Murphy
Well, I think that’s a good summary. And what I like is that now that we have the conversion done and we’re all 1 brand and we’re all pulling together, I think we will see some — more cross-sell opportunities and some revenue synergies that, of course, we never put in the model, but they are real. And the team is out calling and looking for business, and that pays off over time.
James Rollins
Does that cover for you, Kevin?
Kevin Fitzsimmons
Yes. No, that’s perfect. Thank you very much guys.
James Rollins
Thank you.
Operator
Next question comes from Catherine Mealor with KBW. Please go ahead.
Catherine Mealor
Thanks. Good morning.
James Rollins
Hey, Catherine. Good to hear from you.
Catherine Mealor
Thanks. Just one follow-up on the expense conversation. So if we — Valerie, your comments are really helpful just thinking that we’ve got another $46 million of savings to come in next year. So as we think about where your run rate could be next year, is it fair to take that $11 million-ish of a quarterly savings number off of the $290 million run rate that we are at the back half of this year or is it fair to assume that this $290 million run rate is also a little bit elevated just because you’re in the middle of the conversion, and so really, the decline in expenses could be greater than just that cost savings number as we get into next year?
James Rollins
Yeah. I think that the starting base that you’re talking about is the $290 million, you can pull off what you’re talking about, then you’ve got to lay back on the normal inflation, the normal increases that would be out there. And then you’ve asked us before, the $78 million that we published out, we’re confident we’re going to get that. I think your real question is, can we exceed that in cost savings? And I think when we continue to look for ways to trim our operations, I think we continue to look for those opportunities. Valerie?
Valerie Toalson
Yeah. No, I think you said it well. Yes, I’ll start with the $290 million, and that’s why we tried to clarify that because we know it was a little bit of a noisy move this quarter. Layer on those expenses, don’t forget in the first quarter, there’s the payroll taxes and all those other things that pop up. But to Dan’s point, once we get these savings integrated in, really looking for efficiencies on an ongoing basis is part of the DNA. And so we won’t be stopping. You’ll continue to see us focusing on that as a combined company. So more to come on that in the future, obviously.
Catherine Mealor
And if I look at consensus estimates, then it looks like the story is higher than that on expenses for this year. So is it a fair statement to say that expenses are probably a little bit on the low side today? But obviously, the revenue picture is a lot better just with where the margin is going and where the growth is going.
James Rollins
I didn’t follow that. So you’re going to have to go through that one more time for me, sorry.
Catherine Mealor
As I look at expenses across the Street, it looks like where — the Street’s kind of got an expense number next year, I feel like, kind of in the that 270 as a quarter range, which clearly feels like that’s too low. And so then as we think about — it feels like if we look about forward estimates, you probably have an expense headwind, but also the revenue picture seems to be significantly better than what the Street is modeling. I’m just kind of curious if you agree with that statement.
Valerie Toalson
Yeah. We haven’t necessarily done specific comparisons to the Street estimates in each of those categories. But I think you’re right that our revenue opportunities are pretty meaningful between both the growth mix and the margin improvement. We feel very positive about that.
James Rollins
Yes. As we look, we continue to see operating leverage. We continue to see improving efficiency ratio. We continue to see improving bottom line number. So the components of it and comparing it to the Street, I don’t think we’ve done it that way, but I think we feel very positive about our future.
Catherine Mealor
Great. Okay. And then my last question, just back to the margin. Just on the loan yield, the loan beta was a lot better than I was expecting this quarter. Is this 40% beta similar to what you think we’ll see in the next couple of quarters? And then just maybe if you could talk, Valerie, just bigger picture about kind of the timing of your loan repricing.
I kind of have the view that because you’ve got a greater piece that’s kind of adjustable, maybe not floating, you’ll get kind of a longer tail on the repricing of your loan book over the course of this year, which kind of to Jenny’s point, you’re not going to be the kind of margin that pops and then it’s stable or maybe even down the back half of the year, you might see more of a gradual margin expansion as we move through 2023. Just curious how you think about that.
Valerie Toalson
Yeah. No, that’s a great point. And part of, I think, why you saw a higher loan beta this quarter was really just because of the timing of when the rate increases started. And while some of those loans reprice, the 25%-ish of those loans that are repriced within the 30 day period, there are a number that reprice within three months, nine months, et cetera. And so that’s what you’re starting to see flow into that margin.
If we break it down, we talked about we’ve got the floating debt, reprices within the 30 day period. That’s about — varies between 20%, 23% or so of the portfolio. Then we’ve got the portion that is between three months and 12 months. And that’s another close to 30%. So between the two of those, you’re close to 50% repricing within the first year.
Then if you look out in the next one to three years, that’s another 10% of the book. Another between the three to five years, another 15% of the book, and then beyond five years is kind of the remaining 25%.So you’re right, because of some of the products, some of the variable rate product, some of them do have longer tails on them, and that will serve to benefit us kind of on a lag basis, if you will, into our net interest margin as long as we’re in kind of this higher rate environment.
Catherine Mealor
And where are new loan yields coming on today in some of your new production? Are you seeing that still be competitive or are you seeing that move up with rates?
Valerie Toalson
Yeah. So in the quarter, our new production came on at about 5.25%. And that…
James Rollins
The rates went up at the end of the quarter. So where are we today, Hank and Chris?
Valerie Toalson
Yes, it’s higher than that today.
Chris Bagley
Yes, I would say break it down into buckets, the ARM book, like the 5/1 ARM space, community bank space, that’s coming on in the 6 range. You’re seeing some six handles there. Some competition lower than that, some higher. So it’s kind of 6. New book on the corporate side, I think it’s SOFR plus 200 to 250 is a sweet spot. You might see some lower than that, and some higher than that, just depending on the risk and value of the credit.
Hank Holmes
Yes. The only thing that I would add to that is we are seeing kind of a bank favorable pricing on CRE. And so we’re seeing about a 50 basis point to 75 basis point increase on spreads in that particular portfolio.
James Rollins
The large CRE.
Hank Holmes
Large CRE. Yes, sir.
Catherine Mealor
Great. Okay. All very helpful. Thank you.
James Rollins
Thank you, Catherine. Appreciate the time.
Operator
Our next question comes from Matt Olney with Stephens Inc. Please go ahead.
Matt Olney
Hey. Thanks. Good morning, everybody.
James Rollins
Good morning, Matt.
Matt Olney
Just a few more here on the margin outlook. As for as the mix of deposits at the bank, I think it was said that 80% of the bank’s deposits are now at the community bank, which is obviously a lower beta and 20% is corporate. Did I get that mix right?
Valerie Toalson
Yes, you did. Well — and actually, there’s public funds in there, too, but yes. And then that’s actually within the community and the corporate bank. 80-20 is a good mix.
Matt Olney
Okay. And then, Valerie, any color on the accretion income you expect from here?
Valerie Toalson
Yes. So for the quarter, we had about $8 million in accretion that was lower, down from $11.7 million last quarter. Looking forward to the fourth quarter, our scheduled accretion is closer to $6 million. And then if we look into ’23, it’s between $22 million and $23 million. Now that’s just the schedule. Of course, if things pay off early, that’s when you get a little bit more increase than that, but that’s the schedule.
Matt Olney
Okay. Thanks for that. And then I guess, on — thinking about capital and the buyback, I didn’t see any activity in the third quarter. Is it fair to assume that capital levels could start to build from here, especially with all the uncertainty out there? And if so, is there any level you’re targeting?
James Rollins
Yeah. There’s no level that we’re targeting, Matt, obviously, on a TCE ratio today, we’re low. The AOCI is not helping us on that front. So we’ve not been using our stock buyback program. I would believe that if rates stabilize here that maybe we can see some change there, but we’d also see the risk in the future on how far rates are going to rise. So I think there’s still an unknown around that. And I think we want to continue to be conservative with capital, especially looking at the economic and geopolitical headwinds that we see.
Matt Olney
Okay. Makes sense. Thanks, guys.
James Rollins
Thank you, Matt. Appreciate your 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.
James Rollins
Thank you very much. We certainly appreciate the great questions. In closing, I’d like to commend our team on their commitment and their dedication through the integration process. We began over a year ago. The teamwork and consistent focus on ensuring a positive experience for our customers was exemplary. Operating as one company under one brand will help us further leverage the inherent strengths of our company.
The results we reported today for the third quarter and for the first three quarters of 2022 certainly demonstrate the value of our combined company and the talent of our bankers in retaining and growing long-term customer relationships across our business lines and geographies. We look forward to all that we will accomplish together for our customers and our communities as one Cadence Bank. Thank you very much.
Operator
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
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