CADE Cadence Bank

HOUSTON and TUPELO, Miss., Oct. 23, 2023 /PRNewswire/ -- Cadence Bank (NYSE: CADE) (the Company), today announced financial results for the quarter ended September 30, 2023.

Highlights for the third quarter of 2023 included:

• Achieved quarterly net income available to common shareholders of $90.2 million, or $0.49 per diluted common share, and adjusted net income available to common shareholders,⁽¹⁾ which excludes non-routine income and expenses,⁽²⁾ of $103.9 million, or $0.56 per diluted common share.
• Net interest margin was relatively stable at 2.98%, reflecting a slower pace of deposit mix shift from noninterest to interest bearing products and a decrease in brokered funds.
• Total loans were flat at $32.5 billion compared to the second quarter of 2023. On a year-to-date basis, loans have grown 9.6% annualized.
• Deposit balances remained relatively stable, declining $356.8 million compared to the second quarter of 2023. Excluding reduction in brokered deposits, total deposits increased $255.5 million, or 2.6% annualized. On a year-to-date basis, total deposits have declined 2.1% annualized.
• Continued to maintain strong balance sheet liquidity, with a loan-to-deposit ratio of 84.8% at September 30, 2023.

"Our third quarter results are highlighted by stability in our balance sheet and net interest margin," remarked Dan Rollins, Chairman and Chief Executive Officer of the Company. "While loan balances were flat for the quarter, we saw customer deposit growth of over $255 million excluding an intentional reduction in brokered deposits, and a reduction in pace of deposit mix shift from noninterest bearing to interest bearing products. We also continue our focus on improving expenses. Our total employee FTE count has declined by over 400 thus far in 2023 and is expected to decline by an additional 80 FTEs through year end. Similarly, our branch count has declined from 407 at merger to approximately 360 today, including the closure or consolidation of 35 locations in the third quarter."

Earnings Summary

For the third quarter of 2023, the Company reported net income available to common shareholders of $90.2 million, or $0.49 per diluted common share, compared with $121.0 million, or $0.66 per diluted common share, for the third quarter of 2022 and $111.7 million, or $0.61 per diluted common share, for the second quarter of 2023. Adjusted net income available to common shareholders⁽¹⁾ was $103.9 million, or $0.56 per diluted common share, for the third quarter of 2023, compared with $143.7 million, or $0.78 per diluted common share, for the third quarter of 2022 and $116.9 million, or $0.64 per diluted common share, for the second quarter of 2023. Additionally, the Company reported adjusted pre-tax pre-provision net revenue (PPNR)⁽¹⁾ of $153.6 million, or 1.25% of average assets on an annualized basis, for the third quarter of 2023 compared to $189.8 million, or 1.58% of average assets on an annualized basis, for the third quarter of 2022 and $168.8 million, or 1.38% of average assets on an annualized basis, for the second quarter of 2023.

Net Interest Revenue

Net interest revenue was $329.0 million for the third quarter of 2023, compared to $355.4 million for the third quarter of 2022 and $333.6 million for the second quarter of 2023. The net interest margin (fully taxable equivalent) was 2.98% for the third quarter of 2023, compared with 3.28% for the third quarter of 2022 and 3.03% for the second quarter of 2023.

Net interest revenue declined $4.5 million, or 1.4%, compared to the linked quarter as funding costs slightly outpaced improving yields on earning assets.  Loan yield improvement was tempered by the slower loan originations in the third quarter of 2023.  Accretion revenue was $6.6 million and $5.2 million for the third quarter of 2023 and the second quarter of 2023, respectively, adding approximately 7 basis points to the net interest margin for the third quarter of 2023 and 4 basis points for the second quarter of 2023.

Yield on net loans, loans held for sale, and leases excluding accretion, was 6.31% for the third quarter of 2023, up 13 basis points from 6.18% for the second quarter of 2023, while yield on total interest earning assets was 5.38% for the third quarter of 2023, up 17 basis points from 5.21% for the second quarter of 2023. Earning asset yields benefited from the immediate impact of the July Fed action on floating rate loans as well as other fixed and variable rate credits continuing to reprice at higher yields.  Approximately 29% of our total loans are floating (reprice within 30 days), and another 19% reprice within 12 months.  Our total loan beta, excluding accretion, is 44% cycle-to-date.

The average cost of total deposits increased to 2.14% for the third quarter of 2023, up 27 basis points during the quarter. The third quarter increase in total deposit costs slowed considerably, as the increase was nearly half the pace of the first and second quarters of 2023 cost increases of 52 and 59 basis point increases, respectively.  Total interest-bearing liabilities cost increased to 3.17% from 2.92% during the third quarter of 2023.  Our total deposit beta is 38% cycle-to-date.

Balance Sheet Activity

Loans and leases, net of unearned income, were $32.5 billion at September 30, 2023, essentially flat compared to $32.6 billion at the end of the second quarter of 2023.  Total investment securities of $9.6 billion at September 30, 2023 decreased $611.3 million during the third quarter as routine portfolio cash flows each quarter continue to be used to fund loan growth and reduce higher cost funding, including brokered deposits. 

Total deposits declined $356.8 million to $38.3 billion as of September 30, 2023. Total brokered deposits declined $612.3 million from $1.8 billion at the end of the second quarter of 2023 to $1.2 billion at September 30, 2023, or 3.2% of total deposits.  Excluding this proactive decline in brokered deposits, total deposits actually increased $255.5 million, or 2.6% annualized, during the third quarter of 2023.  The results reflect growth in both the Corporate and Community core deposit base, partially offset by seasonal declines in public fund deposits of approximately $250 million.  The September 30, 2023 loan to deposit ratio was 84.8% and securities to total assets was 19.9%, reflecting continued strong liquidity. Noninterest bearing deposits represented 25.2% of total deposits at the end of the third quarter of 2023, declining slightly from 26.4% at June 30, 2023, reflective of the moderated deposit mix shift in the third quarter of 2023. The Company's deposit base continues to be very granular, with average transaction account balances of approximately $22,000 for consumer accounts and $131,000 for commercial accounts at September 30, 2023. Additionally, approximately 98% of the Company's deposit accounts have balances less than $250,000, and approximately 75% of our deposit balances were FDIC insured or collateralized at quarter-end.

Short-term borrowings were stable at $3.5 billion at September 30, 2023 while cash, due from balances and deposits at the Federal Reserve increased $267.1 million to $2.0 billion at September 30, 2023.

Credit Results, Provision for Credit Losses and Allowance for Credit Losses

Total non-performing assets as a percent of total assets were stable at 0.33% at September 30, 2023 compared to 0.27% at September 30, 2022 and 0.34% at June 30, 2023. Total non-performing loans and leases as a percent of loans and leases, net were 0.49% at September 30, 2023, compared to 0.40% at September 30, 2022 and 0.50% at June 30, 2023. Other real estate owned and other repossessed assets was $2.9 million at September 30, 2023 compared to the September 30, 2022 balance of $8.4 million and the June 30, 2023 balance of $2.9 million.  For the third quarter of 2023, criticized loans declined by $10 million to $882 million or 2.71% of loans, down from 2.74% at June 30, 2023 while classified loans increased $65 million to $682 million or 2.10% compared to 1.90% at June 30, 2023 reflective of certain grade migration primarily in non-real estate C&I.

Net charge-offs for the third quarter of 2023 were $34.2 million, or 0.42% of average net loans and leases on an annualized basis, compared with net charge-offs of $6.7 million for the third quarter of 2022 and net charge-offs of $12.7 million for the second quarter of 2023. The increase in net charge-offs during the third quarter of 2023 was driven primarily by two C&I credits that were previously identified as impaired and reserved for in prior quarters. The provision for credit losses for the third quarter of 2023 was $17.0 million, compared with no recorded provision for third quarter of 2022 and $15.0 million for the second quarter of 2023. The allowance for credit losses of $446.9 million at September 30, 2023 represented 1.37% as a percent of total loans and leases, down slightly compared to the June 30, 2023 coverage of 1.43%.

Noninterest Revenue

Noninterest revenue was $119.0 million for the third quarter of 2023, compared with $124.5 million for the third quarter of 2022 and $132.3 million for the second quarter of 2023.  Adjusted noninterest revenue⁽¹⁾ for the third quarter of 2023 was $125.6 million, compared with $124.6 million for the third quarter of 2022 and $132.2 million for the second quarter of 2023. Adjusted noninterest revenue⁽¹⁾ for the third quarter of 2023 excludes $6.7 million of facility and signage write-downs associated with the 35 branch closures effected in the third quarter of 2023. The linked quarter decline in adjusted noninterest revenue⁽¹⁾  was driven by lower mortgage production and servicing revenue, a negative mortgage servicing rights adjustment, as well as lower other noninterest income. 

Insurance commission revenue continued to remain strong at $45.0 million for the third quarter of 2023, compared with $39.9 million for the third quarter of 2022 and $45.6 million for the second quarter of 2023. The year-over-year quarterly insurance revenue was up $5.1 million or 12.8% reflecting a continued firm pricing market and strong customer growth and retention.

Credit card, debit card and merchant fee revenue was $12.4 million for the third quarter of 2023, compared with $14.5 million for the third quarter of 2022 and $12.6 million for the second quarter of 2023.  Deposit service charge revenue was $16.9 million for the third quarter of 2023 compared with $19.1 million for the third quarter of 2022 and $17.2 million for the second quarter of 2023. The declines include increases in earnings credit rate on corporate accounts.  Other noninterest revenue was $17.9 million for the third quarter of 2023, compared with $22.7 million for the third quarter of 2022 and $26.7 million for the second quarter of 2023. The decline compared to the second quarter of 2023 is driven primarily by $6.7 million of facility and signage write-downs associated with the 35 branch closures effected in the third quarter of 2023.  The remainder of this decline was driven by lower credit related fees, SBA income, and other investment income. 

Mortgage production and servicing revenue totaled $5.8 million for the third quarter of 2023, compared with $4.7 million for the third quarter of 2022 and $6.8 million for the second quarter of 2023. The net mortgage servicing rights valuation adjustment was a negative $0.2 million for the third quarter of 2023, compared with a positive $4.3 million for the third quarter of 2022 and a positive $1.6 million for the second quarter of 2023 with the variances due to continued changes in the interest rate environment. Mortgage origination volume for the third quarter of 2023 was $615.2 million, compared with $769.9 million for the third quarter of 2022 and $848.9 million for the second quarter of 2023.  The decline compared to the second quarter of 2023 reflects routine selling seasonality while the year-over-year decline was impacted by a decline in refinance activity due to the rate environment.

Noninterest Expense

Noninterest expense for the third quarter of 2023 was $312.3 million, compared with $319.7 million for the third quarter of 2022 and $303.9 million for the second quarter of 2023. Adjusted noninterest expense⁽¹⁾ for the third quarter of 2023 was $301.0 million, compared with $290.2 million for the third quarter of 2022 and $297.0 million for the second quarter of 2023. Adjusted noninterest expense⁽¹⁾ for the third quarter of 2023 excludes $10.6 million in restructuring charges related to efficiency initiatives including compensation matters as well as legal and advisory costs.  The adjusted efficiency ratio⁽¹⁾ was 66.1% for the third quarter of 2023 compared to 63.6% for the second quarter of 2023.

The $4.0 million, or 1.4%, increase in adjusted noninterest expense⁽¹⁾ compared to the linked quarter was driven primarily by a $2.7 million increase in deposit insurance assessment expense resulting from an increase in insured deposits, higher second quarter loan balances and certain changes in credit quality metrics that impact the assessment. Salaries and employee benefits increased $4.0 million in the third quarter of 2023, reflecting an increase of $2.6 million in restructuring costs and the impact of our annual merit cycle effective July 1, partially offset by branch closures and reduced headcount during the third quarter of 2023. Employee headcount declined by 319 FTE during the third quarter of 2023, and over the last 12 months has declined by 469 FTE or 7%.

Capital Management

Total shareholders' equity was $4.4 billion at September 30, 2023 compared with $4.2 billion at September 30, 2022 and $4.5 billion at June 30, 2023. Estimated regulatory capital ratios at September 30, 2023 included Common Equity Tier 1 capital of 10.3%, Tier 1 capital of 10.8%, Total risk-based capital of 12.9%, and Tier 1 leverage capital of 8.6%. During the third quarter of 2023, the Company did not repurchase any shares of its common stock pursuant to its 10 million share repurchase authorization for 2023. Outstanding common shares were 182.6 million as of September 30, 2023.

Summary

Rollins concluded, "We are excited about the opportunities ahead of us.  Our funding and margin dynamics have stabilized, credit quality remains well-managed and within risk tolerances, and our efficiency initiatives continue and should be more evident in our financial results as we move forward, particularly into 2024.  Our bankers remain focused on both sides of the balance sheet - producing quality loan growth as well as protecting and growing core deposit relationships."

Conference Call and Webcast

The Company will conduct a conference call to discuss its third quarter 2023 financial results on October 24, 2023, at 10:00 a.m. (Central Time). This conference call will be an interactive session between management and analysts. Interested parties may listen to this live conference call via Internet webcast by accessing http://ir.cadencebank.com/events. The webcast will also be available in archived format at the same address.

About Cadence Bank

Cadence Bank (NYSE: CADE) is a leading regional banking franchise with approximately $50 billion in assets and more than 350 branch locations across the South and Texas. Cadence provides consumers, businesses and corporations with a full range of innovative banking and financial solutions. Services and products include consumer banking, consumer loans, mortgages, home equity lines and loans, credit cards, commercial and business banking, treasury management, specialized lending, asset-based lending, commercial real estate, equipment financing, correspondent banking, SBA lending, foreign exchange, wealth management, investment and trust services, financial planning, retirement plan management, and personal and business insurance. Cadence is committed to a culture of respect, diversity and inclusion in both its workplace and communities. Cadence Bank, Member FDIC. Equal Housing Lender.

Forward-Looking Statements

Certain statements made in this news release constitute "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and are subject to the safe harbor under the Private Securities Litigation Reform Act of 1995 as well as the "bespeaks caution" doctrine. These statements are often, but not exclusively, made through the use of words or phrases like "assume," "believe," "budget," "contemplate," "continue," "could," "foresee," "indicate," "may," "might," "outlook," "prospect," "potential," "roadmap," "should," "target," "will," "would," the negative versions of such words, or comparable words of a future or forward-looking nature. These forward-looking statements may include, without limitation, discussions regarding general economic, interest rate, real estate market, competitive, employment, and credit market conditions, or any of the Company's comments related to topics in its risk disclosures or results of operations. Forward-looking statements are based upon management's expectations as well as certain assumptions and estimates made by, and information available to, the Company's management at the time such statements were made. Forward-looking statements are not guarantees of future results or performance and are subject to certain known and unknown risks, uncertainties and other factors that are beyond the Company's control and that may cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements.

Risks, uncertainties and other factors the Company may face include, without limitation: general economic, unemployment, credit market and real estate market conditions, including inflation, and the effect of such conditions on customers, potential customers, assets, investments and liquidity; risks arising from market and consumer reactions to the general banking environment, or to conditions or situations at specific banks; risks arising from media coverage of the banking industry; risks arising from perceived instability in the banking sector; the risks of changes in interest rates and their effects on the level, cost, and composition of, and competition for, deposits, loan demand and timing of payments, the values of loan collateral, securities, and interest sensitive assets and liabilities; the ability to attract new or retain existing deposits, to retain or grow loans or additional interest and fee income, or to control noninterest expense; the effect of pricing pressures on the Company's net interest margin; the failure of assumptions underlying the establishment of reserves for possible credit losses, fair value for loans and other real estate owned; changes in real estate values; a deterioration of the credit rating for U.S. long-term sovereign debt, actions that the U.S. government may take to avoid exceeding the debt ceiling, or uncertainties surrounding the debt ceiling and the federal budget; uncertainties surrounding the functionality of the federal government; potential delays or other problems in implementing and executing the Company's growth, expansion, acquisition, or divestment strategies, including delays in obtaining regulatory or other necessary approvals, or the failure to realize any anticipated benefits or synergies from any acquisitions, growth, or divestment strategies; the ability to pay dividends or coupons on the Company's 5.5% Series A Non-Cumulative Perpetual Preferred Stock, par value $0.01 per share, or the 4.125% Fixed-to-Floating Rate Subordinated Notes due November 20, 2029; possible downgrades in the Company's credit ratings or outlook which could increase the costs or availability of funding from capital markets; the potential impact of the phase-out of the London Interbank Offered Rate ("LIBOR") or other changes involving LIBOR; changes in legal, financial, accounting, and/or regulatory requirements; the costs and expenses to comply with such changes; the enforcement efforts of federal and state bank regulators; the ability to keep pace with technological changes, including changes regarding maintaining cybersecurity and the impact of generative artificial intelligence; increased competition in the financial services industry, particularly from regional and national institutions; the impact of a failure in, or breach of, the Company's operational or security systems or infrastructure, or those of third parties with whom the Company does business, including as a result of cyber-attacks or an increase in the incidence or severity of fraud, illegal payments, security breaches or other illegal acts impacting the Company or the Company's customers. The Company also faces risks from natural disasters or acts of war or terrorism; international or political instability, including the impacts related to or resulting from Russia's military action in Ukraine and additional sanctions and export controls, as well as the broader impacts to financial markets and the global macroeconomic and geopolitical environments.

The Company also faces risks from: possible adverse rulings, judgments, settlements or other outcomes of pending, ongoing and future litigation, as well as governmental, administrative and investigatory matters; the impairment of the Company's goodwill or other intangible assets; losses of key employees and personnel; the diversion of management's attention from ongoing business operations and opportunities; and the company's success in executing its business plans and strategies, and managing the risks involved in all of the foregoing.

The foregoing factors should not be construed as exhaustive and should be read in conjunction with those factors that are set forth from time to time in the Company's periodic and current reports filed with the FDIC, including those factors included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, particularly those under the heading "Item 1A. Risk Factors," in the Company's Quarterly Reports on Form 10-Q under the heading "Part II-Item 1A. Risk Factors," and in the Company's Current Reports on Form 8-K.

Although the Company believes that the expectations reflected in these forward-looking statements are reasonable as of the date of this news release, if one or more events related to these or other risks or uncertainties materialize, or if the Company's underlying assumptions prove to be incorrect, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. Accordingly, undue reliance should not be placed on any forward-looking statements. The forward-looking statements speak only as of the date of this news release, and the Company does not undertake any obligation to publicly update or review any forward-looking statement, except as required by applicable law. All written or oral forward-looking statements attributable to the Company are expressly qualified in their entirety by this section.